When it comes to sales taxes, most of the compliance responsibilities fall upon the seller. In hopes of making it a bit easier on the small business person, here are some questions other sellers have asked in the past:
Do I HAVE to collect sales tax?
Unless you're doing business solely in one of the handful of states where there is no sales tax or where sellers can elect to pay the sales tax themselves instead of collecting it from their purchasers, you're going to have to collect sales tax on all your taxable sales.
I’m a service-based business, do I need to charge my customers sales tax?
While all product-based businesses are required to submit sales tax for sales made in any state with a physical presence, only a few states require service-based businesses to do the same. You’ll need to check with your particular state for specific guidelines.
Do all states have sales tax?
No. Alaska, Oregon, Montana, New Hampshire and Delaware do not have a state sales tax
Should I consider absorbing the sales tax?
Only a few states permit sellers to absorb the sales tax. So, unless you are in one of those states, the question is moot. In most states, you have to charge your customers the sales tax or face penalties. However, given that consumers will generally go to great lengths to avoid or reduce the sales taxes they pay, if you're in one of those states where sellers can elect to pay the sales tax themselves, you may be tempted to exercise this option in hopes of drumming up business. For example, you may decide to use your ability to absorb the tax as a negotiating point with selected purchasers. Or, you may go whole hog and hold an "I'll pay your sales tax" sale.
When do I have to submit my sales tax to my state?
Once you've collected sales tax from your purchasers, the obvious next step is reporting and paying the tax to the appropriate authorities. Most states generally require you to file a tax return and remit the sales and use taxes you have collected on a monthly basis. (More and more states are providing for, or even requiring, electronic reporting and payment.) However, each state has special rules that may require you to file and pay on a more or less frequently, depending on the amount of your tax liability, specific information on where to pay your state's sales tax can be found on this article.
What if I sell to customers in different states?
This is a common scenario for e-commerce and online business owners. Here’s what you need to know:
- If your business has a physical presence or nexus in a state then you may have to collect sales tax from customers in that state
- If you don’t have a physical presence or nexus in a state, then you are NOT required to collect sales taxes for that state
- If you collect sales tax for a state, you must return the sales tax to that state
What's sufficient to create “nexus” in a state?
Having nexus will subject your business to a state's taxing guidelines, here are some possibilities:
- You maintain an office, store, or other business facility in the state
- You or your employees enter the state to take orders, perform services, or otherwise do business on your behalf
- You own or lease real property that is located in the state
- You own or lease personal property that is stored or used in the state on a more than occasional basis
Here are a few of quick examples to better explain this point:
- I am an online seller who has a physical presence in California. I sell a watch to someone in New York. Since I only have nexus in California, I am not required to collect sales tax from that individual.
- I am a hat store in Nevada who sells hats online. I sell a hat to some one in Nevada. Since I have nexus in Nevada, I am required to collect sales tax from this individual and change the selling cost accordingly.
- I am a large retail shoe chain with a physical presence in Arizona, New Mexico and Texas. I sell a pair of shoes to some one in Arizona. Since I have nexus in Arizona, I am required to collect sales tax from this individual and change the selling cost accordingly.
How do I track my sales tax within GoDaddy Bookkeeping?
This article has more information on how to track your sales tax within GoDaddy Bookkeeping, and what the proper steps are for recording a payment to your state.