For many sellers, the question “What should I do about sales tax compliance?” hangs over their heads, unresolved. Well, the New Year is the perfect time to make “get sales tax compliant” your resolution!
Here’s how to tackle sales tax compliance whether you are brand new to sales tax or a seasoned retailer who needs a sales tax compliance checkup:
If you’re new to online selling or sales tax
1) Figure out where you have sales tax nexus
In the United States, sellers are only required to collect sales tax from buyers in states where they have sales tax nexus. Sales tax nexus is just a fancy, legalese way of saying a “significant presence” in a state. Every U.S. state defines sales tax nexus differently but you always have sales tax nexus in a state if it is your home state. You also generally have nexus in a state if you have an office or store there, store items for sale 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) Determine if your products are taxable
Most tangible personal property is taxable. So, if you sell coffee mugs, lamps or toothbrushes, you will generally be required to charge sales tax on those items. But some states make an exception for some groups of items. For example, clothing is not taxable in Pennsylvania, textbooks are not taxable in Minnesota, and groceries are not taxable in many states.
Though this depends on the state, if you have nexus in a state but the items you are selling are not considered to be taxable, you may not be required to register for a sales tax permit. You should always check with your state’s department of revenue or a vetted sales tax expert if you have questions about whether or not your products are taxable.
Want a quick look at product taxability in the United States? Check out our sales tax maps.
3) Register for a sales tax permit (or permits)
If you have nexus in a state, your next step is to register for a sales tax permit. Most states consider it unlawful to collect sales tax from buyers without a permit, so don’t skip this vital step!
It’s free to register for a sales tax permit in most states, but a few states charge a nominal fee for sales tax registration.
When assigning you your sales tax permit, your state will also assign you a filing frequency and sales tax due date.
Sales tax filing frequencies are usually either monthly, quarterly or annually. In general, the more revenue your business generates in a state, the more often that state will want you to file a sales tax return.
The date your sales tax return is due also varies. In most states, sales tax is due by the 20th day of the month after the taxable period, but some states set this deadline on the last day of the month, the 15th, or some other date. Some states also require that certain types of sellers file on different days of the month.
You can find each state’s general sales tax filing due dates here. Though we keep our sales tax deadline info up to date, always keep in mind to follow the filing deadline instructions state gives you!
4) Set up sales tax collection on all sales channels
Once you have your sales tax permit, your next step is to set up sales tax collection on all your sales channels. We have guides to setting up sales tax collection on the most popular online sales channels here.
Important: If you have sales tax nexus in a state, that means that you are required to charge all your customers in that state sales tax. For example, say you sell on Amazon FBA and through Etsy. You have nexus in 10 states due to storing your items in Amazon fulfillment centers in 10 states. You’d also be required to collect sales tax from your Etsy buyers in those 10 states.
If you are new to sales tax and have more questions, read up on the subject in our Sales Tax 101 for Online Sellers guide.
5) File sales tax returns by the due date
Your next step in sales tax compliance is to file your sales tax returns and remit the sales tax you collected when your sales tax due date rolls around.
As with all things sales tax related, how difficult a sales tax filing is varies by state and by your business structure. We recommend attempting to file your first sales tax return on your own, and if it takes more than 10 or 15 minutes, automating the process. Remember – sales tax is an administrative hassle and doesn’t contribute to your business’s bottom line, so you don’t want to spend too much of your valuable time hassling with it.
Most state sales tax filings go the extra mile to make things difficult. They require that you break down how much sales tax you collected not just by state, but by city, county and other special taxing district (such as an education district) within that state. This can get complicated quick. If you don’t have the time or patience to deal with nitpicky sales tax, we invite you to use TaxJar.
TaxJar connects with your shopping carts and marketplaces, pulls in your data, then slices and dices it just the way the state wants to see it. If you’d rather not touch sales tax filing at all, we’ll AutoFile your sales tax returns for you.
Try a 30-day no-risk free trial of TaxJar now, and put your sales tax on autopilot!
If you need a sales tax compliance checkup
1) Double 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 began selling last year but your started off slow. You had nexus in three states, but were barely making sales so decided the time wasn’t right to take on the administrative burden of filing sales tax. But now your business has taken off and you are wracking up past due sales tax in one of your nexus states. What do you do?
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 in a particular state. 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 involving your business’s “materiality.” For more, check out our whitepaper on “When to Collect Sales Tax” or consult a sales tax expert about your specific situation.
2) Amazon FBA Sellers: Check where your inventory is stored
Amazon FBA sellers have to deal with more complex sales tax compliance issues than most other sellers. 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. Run an “Inventory Event Detail” report to determine if you have nexus in new states. (You can also find this info in TaxJar if you are a TaxJar subscriber.) If you, you’ll want to check your materiality in that state and determine whether it’s time to register for a sales tax permit.
3) Amazon FBA Sellers: Get a handle on Washington
Amazon recently announced that they would begin collecting sales tax on behalf of 3rd party sellers (including FBA and MF sellers) in Washington state. While this means that you no longer have to worry about collecting and remitting sales tax in Washington state, according to the Washington Department of Revenue, Amazon FBA sellers with nexus in Washington are still required to file Washington sales tax returns. You can read a lot more about how to handle Washington sales tax going forward in our “What Amazon FBA Sellers Need to Know about Washington Sales Tax after January 2018.”
4) Ensure you’re collecting sales tax 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 on all channels through which you sell.
You sell on FBA and Amazon is now storing your products in the newest Colorado warehouse, meaning you now have nexus with a new state. Not only do you have to collect sales tax from your Amazon buyers in Colorado you’re also required to collect sales tax from buyers you sell to on other platforms, like eBay, Square, Shopify, Bigcommerce, WooCommerce, 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.
If you’re concerned that you aren’t collecting sales tax correctly on all of your online shopping carts and marketplaces, check out your “Actual vs. Expected Sales Tax Due Report” in TaxJar to find where the discrepancy lies.
More Sales Tax Help
Here are some resources for sellers with more sales tax questions:
- Sales Tax 101 for Online Sellers – our eBook provides a start to finish guide for online sellers when it comes to collecting, reporting and filing sales tax
- Vetted list of state and local tax (SaLT) experts – Need sales tax advice? These sales tax pros are here to help!
- State sales tax guides – Find your state here and read more in-depth about how that state governs sales tax
- Sales tax videos – Prefer your sales tax news in video form? Subscribe to TaxJar’s YouTube channel
- Sales tax education center – Find even more sales tax info, including guides by online sales channel, in TaxJar’s education page
Have questions or something to say on how to get sales tax complaint for 2018? Start the conversation in the comments!