Avalara > Blog > Business > Sales taxes for your growing startup

Sales taxes for your growing startup

  • Mar 5, 2017 | Laura McCamy

You’ve founded your first startup and things are going great. Perhaps your mustache trimmers are selling like crazy to hipsters from coast to coast. Or your monkey-themed baby clothing is driving new moms bananas.

Your growing startup is a double-edged sword, however: With increased sales come bigger financial and tax obligations. Here are a few tips to help you avoid sales tax pitfalls as you navigate the growth curve.

Nexus and your growing startup

If you sell online, you need to think about nexus. Nexus is a business presence in a state that obligates you to collect and remit sales tax on your sales to customers in that state.

When you were an itty-bitty brand new startup, your sales may have been so small that it didn’t make sense to register in every state where you had sales tax nexus. The administrative costs of filing tax returns were higher than the penalties you would owe if you got audited.

After your startup growth spurt, though, this equation could change. It’s important to know exactly where your sales reps, Amazon FBA or other fulfillment warehouses, or affiliate marketing create sales tax nexus. It’s time to register to collect and remit sales taxes in each state where your ecommerce business and your drop shipper have nexus.

Sales tax on shipping

In addition to sales tax nexus in different states, sales tax on shipping is a topic you need to know about for your growing startup. Whether shipping is taxable can depend on whether you state it as a separate charge, whether you pass through the exact cost or mark it up, and, of course, the laws about sales tax on shipping in states where you have nexus.

The variations in sales tax rules about shipping from state to state may make you want to tear your hair out, or at least give your mustache a very vigorous trim. It’s worth getting it right, however. The increased sales from your growing startup could lead to big sales tax obligations. If you don’t charge your customers correctly, the bite will come out of your bottom line.

Your baby clothing is the best thing at baby showers from Peoria to Pensacola. Don’t monkey around with sales tax on shipping: Take the time to set up your ecommerce shopping cart to collect the sales tax on shipping that your customers owe.

Sales tax compliance for your growing startup

Your growing startup is starting to get all grown up -- but it hasn’t quite matured. This is a time of delicate balance for your business. You will need to devote more time to sales tax and other compliance issues. It may be hard for you to find this time, since your growing startup isn’t yet generating enough revenue to hire someone to handle your sales taxes.

Software solutions that help small businesses are an important part of what makes the current startup boom possible. New business owners can do more with fewer resources because apps allow them to automate tasks which would have been expensive and time-consuming in the past. Add sales tax automation software to your app library. It will take the worry out of sales tax compliance for your growing startup.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Laura McCamy
Avalara Author Laura McCamy