5 common sales tax mistakes every reseller can avoid
Reseller sales tax compliance and management can be complex, with different rules for different states and even different rules within states. The terminology can be daunting and the potential for missteps real. But, if you understand how to avoid the mistakes, you can prevent equally real consequences to your business.
In fact, you can as successfully manage your reseller sales tax obligations as Heather Metoyer does. Owner of Quinnco Events, LLC, her mobile vending company sells Dragon Ice Cream Treats at events in the Miami area. Metoyer, who buys ice cream for resale, manages to avoid sales tax errors, like the following five detailed by Miles Hutchinson, CGMA, of Sales Tax Advisors.
1. Not using your reseller certificate when buying wholesale
“Many resellers don’t know this is their right under US sales tax law,” explains Hutchinson. Not using your reseller certificate when you buy goods for resale means you devote cash resources to paying sales tax that you then must collect when you resell the product.
In fact, the only times when you must pay sales tax on goods you buy for resale is when you give them away or you convert them to your own use. Metoyer also sells ice cream to other vendors who use their reseller certificates to buy from her without paying taxes.
2. Not properly vetting sales tax exemption certificates
Metoyer, who does numerous events for tax-exempt organizations, says, “I make sure they prove they are tax-exempt before I sell to them.” Hutchinson warns that failing in that could lead to trouble if you’re audited.
“You must support those tax-exempt transactions with valid documentation from the buyer. You can’t just take the word of the organization that they are tax exempt,” he states. If an organization can’t prove it’s tax exempt, you must collect sales tax from them and pay sales tax on that transaction.
3. Not collecting the correct sales tax
Taxable situs can be challenging. The jurisdiction that has the right to tax a transaction depends on situs, or the legal location of the transaction.
“This can get very complicated depending on states involved, where the buyer is, where seller is and if the product is shipped,” says Hutchinson. He adds that interstate ecommerce transactions further complicate things.
For Metoyer, it depends on where she is in the Miami area when she’s selling ice cream. “I make sure I charge sales tax based on the county’s tax rate where I make the sale, not where my office is located,” she explains. Hutchinson agrees this is the right approach.
Some states participate in the Streamlined Sales and Use Tax Agreement so sales tax compliance is simplified. But, many states don’t participate. Be certain you know your state’s sales tax laws and follow them carefully.
4. Not remitting sales tax when you have nexus in a state
Nexus is the connection or link that a retailer has with a state. For ecommerce sellers who have affiliates in other states, affiliate nexus or click-through nexus may apply. Some states charge sales tax on transactions conducted via “click throughs” on affiliate links on the websites of businesses located in their state. Those businesses making sales that way are required pay sales tax to the state where the click-through originated. Not all states enforce click-through nexus tax but make sure you know which do.
Since the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018), most states have enacted economic nexus, which bases a sales tax collection obligation solely on a remote seller's sales or transaction volume in the state. Learn more about economic nexus.
5. Not keeping good records and getting support when you need it
Metoyer keeps meticulous reseller sales tax records using a spreadsheet that itemizes each transaction and any tax collected. She then can easily file quarterly tax returns and pay sales tax on time. She files yearly tax returns with the help of her accountant. For ecommerce resellers who sell across state lines, record-keeping is particularly important. So, use a good sales tax program and get help from a sales tax accountant when necessary.
By avoiding these five reseller sales tax missteps, you can successfully meet your sales tax compliance requirements and increase business success and satisfaction.
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Your guide to navigating the complicated world of tax compliance and preparing for the future
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