6 Small Business Sales Tax Management Tips
- Feb 28, 2015 | Ryan O'Donnell
For the small business owner, finding an effective solution to record, file, and remit sales tax to the proper jurisdictions can be difficult. Sales tax compliance laws vary from state to state, and attempting to comply with varying statutory laws and rules, within the required time frames can puzzle both the online seller and the brick-and-mortar proprietor.
Sales tax compliance laws may vary slightly between brick-and-mortar and online sellers, and are ever-changing. Tax regulations applicable for the previous year may not be applicable for the current year, so it's important to have a refresher by checking the IRS site. Along with useful accounting software, such as QuickBooks, Fresh Books, Wave, or Zero, to help automate your sales tax filing and sales tax remitting, you can use these tips to develop an effective tax strategy that will dissuade the tax auditor from knocking on your door.
Tips for brick-and-mortar sellers
Taxable products and services
It's important to learn which products and services that you sell from your brick-and-mortar shop are taxable to your customers in your state. If you own shops in multiple states, each may have differing tax laws. The IRS has many helpful guides on collecting taxes for small businesses.
Sales tax exemptions
Many states where businesses operate brick-and-mortar shops, such as Oregon, are not required to collect sales tax. Another applicable exemption is special sales tax holidays, which may apply to certain products and services on certain dates but not include everything. Some states also offer tax exemptions on children's clothing. No matter the reason for the exemption, careful records must be kept for these exempt dates.
How to remit sales tax
A small business owner needs to learn not only how to collect sales tax for products and services sold, but also to understand when to submit taxes to the IRS, and how to remit them. This requires learning how to fill out business tax returns. It's important to be aware of varying state tax deadlines, as well as whether you can e-File now, and if prepayment may be required. Be sure to file taxes on time to avoid late penalties.
Tips for online sellers
Nexus tax law awareness
Be aware of nexus laws, the connection between an online business and the taxing jurisdiction and how it pertains to doing business from state to state. Selling online to customers in other states means that you could be required to register in these states in order to comply with nexus tax laws.
On June 21, 2018, the Supreme Court of the United States ruled that economic and virtual activity alone could be a sufficient trigger for nexus. The court's decision in South Dakota v. Wayfair, Inc. has given states more latitude to tax remote sales, and most intend to do so. In fact, economic nexus laws are already in effect in several states. Learn more.
New European rules for the sale of digital items
For online businesses selling digital ebooks to customers located within the European Union, they may soon be required to collect VAT and submit to the required body, in order to comply with tax laws between the USA and the EU.
Updating software systems to reflect state tax laws
If you've added products and services to your online shop, you'll need to update sales tax rates to reflect customer jurisdiction. Certain states charge for a wide range of services while others may tax very few. You may search for the latest changes on the American Institute of CPAs website.