Sales tax is complex. Maybe you’re new to selling online or maybe you’ve decided to get serious about sales tax compliance. Or maybe you thought you were compliant but a scare (like a letter from a state’s department of revenue!) just convinced you otherwise. No matter what has you tackling sales tax compliance, TaxJar has your back. Here’s how to get started with sales tax compliance, if:
You’ve Never Dealt with Sales Tax Before
If you’re new to all this, here’s a quick guide to the steps you need to take to get sales tax compliant:
1.) Figure out where you have sales tax nexus – Sales tax nexus is just a fancy way of saying a “significant presence” in a state. Every state defines sales tax nexus differently but you probably have sales tax nexus in a state if you run your business there, have an office or store there, store items in a warehouse there, have a sales rep or employee there, or even if you sell products at a trade show or craft fair there. If you’ve done business in a state, check with that state’s Department of Revenue to determine whether you have nexus. You must collect sales tax from buyers in every state where you have nexus.
2.) Register for a sales tax permit (or permits) – Once you’ve figured out where you have sales tax nexus, register for a sales tax permit in that state (or states.) This keeps you legal when collecting sales tax. At this time you’ll also find out how often you need to remit sales tax to the state by filing a sales tax return. Most of the time you’ll be asked to file a sales tax return either monthly, quarterly or annually. If you have nexus in more than one state, you may end up filing monthly in one state but quarterly in another. The only sure thing about sales tax is that every state is slightly different.
3.) Set up sales tax collection on all channels – When you’re registered for your sales tax permit(s), it’s time to make sure you’re collecting sales tax from buyers in the state(s) where you have nexus. We’ve written guides to setting up sales tax collection through various eCommerce platforms, and you can check them out at our Learn Sales Tax page.
If you’re new to online selling, you can find out more about sales tax compliance by checking out our guide Sales Tax 101 for Online Sellers.
You Need a Sales Tax Compliance Update
Even if you’ve been doing this for awhile, busy Q4 and that looming January sales tax deadline means right now a great time to ensure you’re still compliant. Here are a few things to check into:
1.) Check Your Nexus and Materiality – If you do business in a state but aren’t registered for a sales tax permit, it may be time to double check your “materiality.” For example, say you sold your handmade jewelry at a craft fair across state lines over a period of just one day. Depending on the state and how much you sold, you most likely weren’t required to register for a sales tax permit in that state. (Though some states are very strict and require you to register to collect sales tax before making even one sale!) But perhaps you were so successful at that craft fair that you decided to go back a few more times. This might push you over the threshold where you need to collect sales tax from buyers in that state.
TaxJar has your back on this! Sign up for a 30-day free trial of TaxJar. Our “Expected Sales Tax Due” report will tell you how much sales tax you would have collected if you’d been collecting sales tax. Look for states where you’re not registering but where you’re collecting a significant amount of sales tax. It may be time to register in those states.
We get that determining where and when you should collect sales tax is a complicated concept. For more, check out our whitepaper on “When to Collect Sales Tax” or consult a sales tax expert about your specific situation.
2.) Check for Rate Changes – Sales tax rates in a specific state or locality are subject to change at anytime. You especially see changes around the beginning of the year. You can double check any sales tax rates you may be unsure about at TaxJar’s Sales Tax Calculator.
3.) Sell on FBA? Run this Report – Amazon FBA sellers have to deal with some of the most complex sales tax compliance issues in eCommerce. One thing you should always double check is where Amazon is storing your products. If they’ve shipped your products to a new fulfillment center in a new state, then you may have sales tax nexus and not even know about it. Here’s how to run a report and determine where Amazon is storing your products. Keep a special eye out for products in states like Wisconsin or Maryland. They only recently opened their Amazon fulfillment centers.
4.) Make Sure You’re Collecting on All Channels – When you find you have nexus in a new state, you need to make sure that you’re collecting sales tax from buyers in that state through all channels through which you sell. Example: You sell on FBA and Amazon is now storing your products in the Florida warehouse, creating a new states with sales tax nexus. Not only do you have to collect sales tax from your Amazon buyers in Florida, you’re also required to collect sales tax from buyers you sell to on other platforms, like eBay, Shopify, Magento, etc. Don’t forget to set up all of your platforms to automatically collect sales tax whenever you find you have nexus in a new state.
Why Bother With Sales Tax Compliance?
There are a number of reasons. The number one reason is to protect your business and your finances from fines and penalties. Some states even consider it unlawful to collect sales tax without a license, so if you’ve been collecting but never filed for a sales tax permit, you’d best get compliant and fast.
Another reason to get compliant is the death of the Marketplace Fairness Act. While this is generally a good thing for online sellers, it left states disappointed that they missed out on a potential source of revenue. We’ve already seen states like Michigan and Colorado, try to find creative ways to collect sales tax from sellers. Enforcing sales tax on remote sellers is just one of the tools in their arsenal.
Since it’s a new year and a new beginning, it’s also a good time to make sure your sales tax is in ship shape.
Have questions or something to say? Start the conversation in the comments.