Sales tax FAQ

POS system sales tax FAQ and guide

A point-of-sale system is an essential part of business for many restaurants and retail stores. You know that your POS system helps process your sales, but what about sales tax? Find out more about POS systems, sales tax, delivery apps, and what it could all mean for your business.

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

Understanding POS systems

POS stands for “point of sale.” It’s an acronym that many in the restaurant and retail industries are already familiar with. 

But what does point of sale mean?

Sometimes called the point of purchase (or POP), the point of sale is when and where the transaction actually happens between your business and your customer. A cash register or payment terminal are examples of a point of sale or POS.

A POS system, or point-of-sale system, is the tool that processes your transactions. Your POS system determines which payment methods you accept and helps ensure a smooth process for each sale. 

Examples of point-of-sale systems may include some modern cash registers and mobile POS systems such as Square and Clover.

In many cases, yes, your POS system can be set up to charge sales tax. However, there are instances where you may need to set up how your POS system charges sales tax. 

This includes making sure your system is charging the correct sales tax rates in real time, updating your system to reflect sales tax holidays, and other considerations.

Knowing how POS systems work

It’s a good idea to consider using a POS system to calculate sales tax for your restaurant or retail store. Using a restaurant or retail POS system can automate and streamline your sales tax collection so that you charge the correct tax automatically, every time. 

In many cases, you need to check your POS system and make sure that it’s set up to charge the correct rates. Failure to do so could result in charging too much or too little sales tax, which could result in potential audits or back taxes.

Tracking down this information can be tricky. Using a sales tax calculator and tax rate lookup tool can help you make sure your system is up to date with the latest rates.

You typically connect your POS system online through Wi-Fi or a direct connection through an Ethernet cable. 

Some POS systems don’t have online capabilities; other times Wi-Fi may not be available. An inability to connect online means that content like sales tax rates and rules must be updated manually. 

However, it’s important that your business uses the most up-to-date tax rates when charging your customers. That’s why a content generation system that can provide you with the most up-to-date rates, even when you’re offline, can be a lifeline for maintaining tax compliance for small businesses.

Charging sales tax on a POS

Charging sales tax with your mobile POS is generally a simple process. In many cases, you set up the correct sales tax rates in your POS system, then the system will charge sales tax for you. It’s important to remember that you need to keep the information in your POS system up to date.

Yes. Most POS systems can apply multiple sales tax rates. Keep in mind that you may have to input the rates manually, and the process might be different depending on your POS.

Yes. Many POS systems are prepared to help you handle tax-exempt sales. Some, like Shopify, let you specify tax rates just for exempt customers. Others, like Square, can also let you identify tax exemptions for particular items.

Remember that even though POS systems can often handle exempt sales, it’s on you to set it up correctly in your system.

There are typically two ways to integrate your existing software with your POS system. Some POS systems can integrate directly with your existing software. Others must be integrated through a third-party app, like DAVO by Avalara. Getting set up on a platform like QuickBooks is relatively simple and can often be completed in a few clicks.

When your POS collects sales tax, it takes that money and deposits it to an account you’ve specified, such as your business bank account. When it’s time to file, you take the money from that account and remit it to the appropriate government authority.

Of course, keeping things separate between your collected sales tax and your actual revenue can be complicated. It’s a best practice to have your sales tax go to a secondary account to avoid confusion. 

This is why it can be useful to integrate a solution with your existing POS system that automatically sends your sales tax to a secure holding account and pays the state automatically when your sales taxes are due.

Using POS systems and delivery apps

Yes. Delivery apps count as marketplace facilitators in many states, but not in every state. It depends on the laws of each state. This includes online marketplaces such as DoorDash, Grubhub, and Uber Eats.

Who is responsible for collecting sales tax on delivery service platforms such as DoorDash, Grubhub, and Uber Eats depends on your state

Because of marketplace facilitator laws, the platform is responsible for collecting and remitting sales tax in these states. In states where these platforms are not marketplace facilitators, the seller (that means you) is responsible for collecting and remitting sales tax. 

Be sure to check with your specific platform to see the states where it will, and won’t, collect sales tax for you.

It might, but it depends on your POS system.

Some POS systems can be set up so that your delivery service sales, like those from DoorDash, are recorded as such. This lets you know if and when sales tax was collected, and makes sure you aren’t accidentally double-charging.

A point-of-sale system is an essential part of business for many restaurants and retail stores. You know that your POS system helps process your sales, but what about sales tax? Find out more about POS systems, sales tax, delivery apps, and what it could all mean for your business.

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

Understanding POS systems

POS stands for “point of sale.” It’s an acronym that many in the restaurant and retail industries are already familiar with. 

Sometimes called the point of purchase (or POP), the point of sale is when and where the transaction actually happens between your business and your customer. A cash register or payment terminal are examples of a point of sale or POS.

A POS system, or point-of-sale system, is the tool that processes your transactions. Examples of point-of-sale systems may include some modern cash registers and mobile POS systems such as Square and Clover.

In many cases, yes, your POS system can be set up to charge sales tax. However, there are instances where you may need to set up how your POS system charges sales tax. 

This includes making sure your system is charging the correct sales tax rates, updating your system to reflect sales tax holidays, and other considerations.

Knowing how POS systems work

It’s a good idea to consider using a POS system to calculate sales tax for your restaurant or retail store. Using a restaurant or retail POS system can automate and streamline your sales tax collection so that you charge the correct tax automatically, every time.

In many cases, you need to check your POS system and make sure that it’s set up to charge the correct rates. Failure to do so could result in charging too much or too little sales tax, which could result in potential audits or back taxes.

Tracking down this information can be tricky. Using a sales tax calculator and tax rate lookup tool can help you make sure your system is up to date with the latest rates.

You typically connect your POS system online through Wi-Fi or a direct connection through an Ethernet cable. 

Some POS systems don’t have online capabilities; other times Wi-Fi may not be available. An inability to connect online means that content like sales tax rates and rules must be updated manually. 

However, it’s important that your business uses the most up-to-date tax rates when charging your customers. That’s why a content generation system that can provide you with the most up-to-date rates, even when you’re offline, can be a lifeline for maintaining tax compliance for small businesses.

Charging sales tax on a POS

Charging sales tax with your mobile POS is generally a simple process. In many cases, you set up the correct sales tax rates in your POS system, then the system will charge sales tax for you. It’s important to remember that you need to keep the information in your POS system up to date.

Yes. Most POS systems can apply multiple sales tax rates. Keep in mind that you may have to input the rates manually, and the process might be different depending on your POS.

Yes. Many POS systems are prepared to help you handle tax-exempt sales. Some, like Shopify, let you specify tax rates just for exempt customers. Others, like Square, can also let you identify tax exemptions for particular items.

Remember that even though POS systems can often handle exempt sales, it’s on you to set it up correctly in your system.

There are typically two ways to integrate your existing software with your POS system. Some POS systems can integrate directly with your existing software. Others must be integrated through a third-party app, like DAVO by Avalara. Getting set up is relatively simple and can often be completed in a few clicks.

When your POS collects sales tax, it takes that money and deposits it to an account you’ve specified, such as your business bank account. When it’s time to file, you take the money from that account and remit it to the appropriate government authority.

Of course, keeping things separate between your collected sales tax and your actual revenue can be complicated. It’s a best practice to have your sales tax go to a secondary account to avoid confusion. 

This is why it can be useful to integrate a solution with your existing POS system that automatically sends your sales tax to a secure holding account and pays the state automatically when your sales taxes are due.

Using POS systems and delivery apps

Yes. Delivery apps count as marketplace facilitators in many states, but not in every state. It depends on the laws of each state. This includes online marketplaces such as DoorDash, Grubhub, and Uber Eats.

Who is responsible for collecting sales tax on delivery service platforms such as DoorDash, Grubhub, and Uber Eats depends on your state. 

Because of marketplace facilitator laws, the platform is responsible for collecting and remitting sales tax in these states. In states where these platforms are not marketplace facilitators, the seller (that means you) is responsible for collecting and remitting sales tax. 

Be sure to check with your specific platform to see the states where it will, and won’t, collect sales tax for you.

It might, but it depends on your POS system. 

Some POS systems can be set up so that your delivery service sales, like those from DoorDash, are recorded as such. This lets you know if and when sales tax was collected, and makes sure you aren’t accidentally double-charging.

Connect with Avalara for the answers you need to do tax compliance right.

Connect with Avalara for the answers you need to do tax compliance right.