This is a guest post by Jennifer Dunn. Jennifer Dunn is Chief of Content at TaxJar, a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!5 eCommerce Sales Tax Pro Tips for 2018 #ecommerce #salestax Click To Tweet
Sales tax is one of those backend administrative hassles that you tend to only think about when it goes wrong. It’s like the timing belt of your business. But luckily, with a little precaution, you’ll never have to worry about diagnosing a sales tax snafu. Here are five sales tax-related business tasks you can do right now to start 2018 off right.
1. Perform Nexus Evaluation
When you first start out selling online, you are often only required to collect sales tax from buyers in your home state. But as your business grows, your activities may create “sales tax nexus” in new states. “Nexus” is just a fancy way of saying a “significant connection” to a state. If you have nexus in a state, you are required to collect sales tax in that state. Here are some factors that may create nexus for your business:
- Home state – You always have nexus in your home state, even if you work from your kitchen table
- Location – An office, store, warehouse, sample room or other place of business
- Personnel – An employee, salesperson, independent contractor, installer or other personnel
- Inventory – Inventory for sale (i.e. when you use 3rd party fulfillment such as Amazon FBA)
- Drop shipping – Some drop shipping relationships will create sales tax nexus for you
- 3rd party affiliate – In states with “click-thru nexus,” an affiliate who sends sales to you in exchange for a cut of the profits creates sales tax nexus
- Making temporary sales – Depending on the state, making sales at a tradeshow, craft fair or other temporary location can create sales tax nexus
It pays to periodically examine your business to determine if you may have nexus in a new state. For example, maybe you sell on Amazon FBA and Amazon is now storing your inventory at their newly-open fulfillment center in Michigan. Or maybe you hired your cousin in another state to help you with your business.
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2. Double Check Your Sales Tax Settings
The best way to avoid sales tax trouble is to be sure to collect the right amount of sales tax at the point of sale. Every online shopping cart and marketplace’s sales tax collection service is slightly different, and a few of them (I’m looking at you, eBay) make it a bit difficult to always collect the right amount of sales tax.
- Check custom tax rates – We don’t recommend setting custom rates in your shopping carts, because sales tax rates change often. If you have set up custom sales tax rates, double check to make sure they’re still correct.
- Make sure you’re collecting sales tax on all your online shopping carts and marketplaces – The biggest mistake we see online sellers make is forgotten to set up sales tax collection on every shopping cart and marketplace in your nexus states. Once you have nexus in a state, you are liable to collect sales tax on every sale into that state, no matter on which platform you make the sale.
If you are unsure whether you set up your sales tax rates correctly, you can double check your sales tax settings against our guides to sales tax on most major shopping carts and marketplaces here.
3. Account For Shipping Taxability
Do you charge your customers for shipping? Some states require that online sellers also charge sales tax on any shipping charges. Let’s look at an example:
You sell a $100 purse and charge $5 in shipping in a state where shipping is taxable. Since shipping charges are taxable, you’d be required to charge sales tax on the $105 total of the transaction.
Let’s say you sell the same $100 purse with a $5 shipping charge to a buyer in a state where shipping is not taxable. You would only be required to charge sales tax on the $100 price of the purse. You would not be required to charge sales tax on the $5 shipping charge.
Not sure if you’re charging sales tax on shipping correctly? You can see which states require sales tax on shipping here.
4. Double Check Your Sales Tax Due Date
In the U.S., each state gets to make their own sales tax rules and laws. Because of this, different states set different sales tax filing due dates. For example, if you collect sales tax nexus in three states, you may be required to file sales tax by the 20th of the month following the taxable period in one state, but the 25th of the month in another state, and on the last day of the month in another state.
How often you are asked to file sales tax often varies, too, though you will generally be required to file sales tax either monthly, quarterly or annually. How often you file is based on your sales volume in a state.
If your sales volume in a state has increased or decreased, your state may change your sales tax filing frequency. Be sure to read any communications from the state (this will usually show up as a letter), so that you keep track of ever-changing sales tax filing due dates.
5. Save Time And Avoid Fines By Automating Your Sales Tax Filing
Does sales tax overwhelm you? I don’t blame you. Keeping up with filing due dates, breaking down every transaction by state, county, city and special taxing jurisdiction, and filling out long sales tax forms isn’t fun. And worse, it isn’t profitable for your business.
If you’re spending too much time on sales tax, try sales tax automation. A sales tax automation solution will connect with the shopping carts and marketplaces you sell on and create a return-ready sales tax report for you to file. Or, if you’d rather not deal with sales tax at all, you can AutoFile your sales tax returns and take the hassle completely off your plate.