Square is one of the simplest ways to take payments from buyers. It’s no wonder that the little white point of sale device has become ubiquitous. The Square reader is so tiny that it’s even easy to take on the road.
But that mobility can create some complexity in your business when it comes to charging sales tax. For example, say you live and usually sell your handmade farm tables in Bristol, Virginia. The sales tax rate you would charge to buyers is 5.30%. But then perhaps you rent a booth at a trade show across the state line in Bristol, Tennessee. Not only do you now have to deal with sales tax in an entirely new state, you have to make sure you’re charging the Bristol, TN sales tax rate of 9.25%. That’s a big jump, and it also means money out of your pocket if you mess up and continue collecting your old Bristol, VA tax rate.
Do you see where sales tax for Square sellers can get complex?
This guide will assist you in understanding the ins and outs of sales tax as a Square merchant. Let us break it down for you:
Determine Sales Tax
Nexus Forty-five states and the District of Columbia require merchants to charge a sales tax to buyers. So before you should even worry about calculating sales tax, you must determine where you have sales tax nexus.
Sales tax nexus is just a fancy way of saying a “significant presence” in a state. You’ll always have a significant presence in the state where you live and do business out of. But other things that create sales tax nexus include:
- Having an office
- Having an employee
- Storing goods in a warehouse
- Selling at a physical location in a state, such as at a trade show or craft fair
- Another type of “significant presence” in a state
These are not the only things that create nexus. So if you do any sort of business in a state, it’s worth it to check with your state’s department of revenue to determine whether you have sales tax nexus. Having nexus and not charging sales tax could lead to audits and fines later.
In the example above, the seller has nexus in Virginia – where he runs his business most of the time, and potentially in Tennessee – because he crossed state lines to sell at a trade show.
Here’s a map to point you to each state’s taxing authority:
Once you’ve determined where you have sales tax nexus, your next step is to…
Register for a Sales Tax Permit
States require any sellers with sales tax nexus in their borders to register for a sales tax permit. To do this, go to your state’s department of revenue (or other taxing authority) and sign up. Some states hand out sales tax permits for free while others charge a small fee.
Once you have signed up for your sales tax permit, the state will tell you how often they want you to file and give you your sales tax filing deadlines. Most of the time you will file either monthly, quarterly or annually. Keep in mind that every state is different when it comes to sales tax. If you have nexus in more than one state, then one state may ask you to file quarterly while another only wants to hear from you once per year.
Some states consider it unlawful to collect sales tax in their name without a permit, so don’t skip this step.
Once you’ve figured out where you have sales tax nexus and registered for your sales tax permit, the next step is to…
Collect Sales Tax
The next step is to make sure you are collecting the correct amount of sales tax from buyers.
Typical Square merchants face a few different scenarios:
If you stay in one place and sell to walk in customers at your location, then you simply charge them your local sales tax rate. You can look that up by zip code here at TaxJar’s sales tax calculator or go to this sales tax rate link on your mobile device.
If you move around within your state and still sell to people on-site, then you must charge the sales tax rate of your current location.
Click here for a step-by-step guide to setting up sales tax collection in Square. Are you selling at a craft fair or other new-to-you location? You can also quickly and easily add the sales tax rate at your current location through your Square Register and TaxJar.
Now you’re rolling along collecting sales tax. Pretty soon your sales tax due date (or dates!) will come up. From there, you need to…
Report How Much Sales Tax You’ve Collected
This is where trying to manually deal with sales tax starts to get very tricky and frustrating. (And why we built TaxJar!)
You need to determine how much sales tax you collected from buyers. Remember, if you take payments using another platform – such as a channel like eBay, Amazon or Etsy, a shopping cart like Shopify, Bigcommerce, Woo Commerce or Magento, or a processor like PayPal, then you also must determine how much sales tax you collected from buyers on those platforms.
And if you have nexus in more than one state, you must be sure you’re pulling a report for each state.
That’s already a lot of work, but it isn’t even the trickiest part of sales tax reporting.
A majority of states are destination-based, and they require sellers to breakup their sales tax filings by county, city or other taxing district. So rather than just determining than you collected $401.50 through all of your channels in a state, you must determine how much of that $401.50 you collected from each taxing district. If you choose to do this manually, this means going over every sale and determining which taxing district or districts your customer fell into.
TaxJar makes this easy. We allow you to integrate the platforms you sell on and then we’ll take care of this reporting for you. No more sales tax reports, spreadsheets and state tax tables.
And if, for some reason, you’re concerned that you haven’t collected the right amount of sales tax from buyers, check out TaxJar’s “Detailed Sales Tax Analysis” report. We’ll search your channels and make sure you collected every penny of sales tax you were supposed to collect.
TaxJar takes a task that can cost you valuable hours and makes it the work of minutes.
Once you’ve determined how much sales tax you collected in each state and taxing district, it’s time to…
File Sales Tax
TaxJar will AutoFile your sales tax returns for you in about half the states! In states where we don’t AutoFile, we’ll provide you with a return-ready report so you can quickly and easily file online.
Here are a few more sales tax filing best practices:
Always file early or on time. Not only will you get a penalty for filing late, but there are also benefits to filing early. Many states will give you a sales tax discount if you pay on time. Don’t leave that free money on the table!
Also, many states want a sales tax filing from you even if you didn’t collect any sales tax over the taxable period. If your state requires one of these “zero returns,” be sure you always file. Even if you didn’t owe any sales tax, you can still receive a penalty for forgetting to file.
And after that…
Go work on something else in your business, or grab a pizza or spend some time with your kids. You’ve put a lid on sales tax!
We get that Square sales tax can raise questions. So we put together a guide: Sales Tax 101 for Square Merchants. Download it for everything you wanted to know (and probably more than you wanted to know) about Square sales tax.
While you’re at it, check out the Sales Tax for eCommerce Sellers Facebook group. And if you have further questions, start the conversation in the comments!