How To Choose A Sales Tax Solution
For Small Business Owners

They may not have the high visibility of their big business counterparts, but over 90 percent of American businesses fall into the category of small businesses, also referred to as “microbusinesses” or “Small Office / Home Office”: companies with four employees or fewer.

The owners of these businesses often do it all — from marketing to shipping, filling out forms to depositing cash. The sheer number of government regulations and requirements can be daunting to these business owners. One of the most potentially confusing areas of regulation? Sales tax.

In this guide, you’ll learn about different types of sales tax solutions. Rather than pointing you toward any one solution, you’ll learn how to evaluate your business’s needs and how to identify the best way to solve your sales tax challenges.

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Why change what we do now?

Which small business owners should consider a change to their sales tax solution? Many business owners are slow to change the way they do sales tax — people like sticking with what they know. But if any of the following applies to your business, it could be time for a change:

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  • You sell goods or services, but haven’t yet registered to collect sales tax.
  • You registered to collect sales tax, but have not collected it or collect it inconsistently.
  • You collect sales tax, but have had difficulty completing sales tax returns.
  • You complete sales tax returns, but have to ask for extensions or incur late penalties.
  • You are considering expanding out-of-state, or have already begun your expansion.
  •  Your company may start growing — or has already grown — to include attending trade shows, drop shipping, or other out-of-state activities.
  • You’re paying a CPA or other accounting professional to file your sales tax returns.
  • You’ve started spending more time or money on sales taxes than you used to.
  • You’ve changed your accounting software.

Step One: Learn about sales tax challenges

Before you take a closer look at specific solutions, it’s a good idea to have a general outline of the problem you’re trying to solve. Filing returns and remitting taxes can be a pain point for many small business owners. Whether they’re paying an accountant or make sales tax returns a DIY project, many small business owners find that filing requirements cost more time and money than they’d like.

There are over 12,000 sales tax jurisdictions in the United States alone, and many don’t follow city boundaries, county lines … or even zip codes. Each jurisdiction has its own tax rate, and taxability rules are modified frequently. Because sales tax revenue is seen as low-hanging fruit, cash-strapped local and state governments have become stricter about enforcement and auditing in recent years.

Service businesses often don’t charge sales tax at all because they believe services are exempt. While some states exempt most or all services from sales tax, an increasing number have started taxing a wide array of services. Growth and expansion are the goals of every small business owner, but new sales tax  challenges emerge with new business activities and a broadening customer base. Compliance activities can quickly expand to fill all available time, and even careful, math-oriented business owners can make costly mistakes.

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