Is your business obligated to collect sales tax? Is the product or service you’re offering even subject to sales tax? In which states are you required to file sales tax returns? What is a sales tax permit and how do you get one? These can be pretty daunting questions, but let’s dive in and see if we can simplify it a bit.
What is Sales Tax? Sales tax is an added amount to the sale of product or service that is paid by the customer, collected by the seller and paid to the state. This is the states “cut” of all sales which take place in their state.
Every state has their own rules, regulations and procedures regarding sales tax. Some states only have the one percentage amount for the whole state. Others allow cities and counties to charge an additional smaller percentage on top of what the state is already taking. There are states that have minimum sales requirements to qualify as required to file sales tax and some states don’t charge any sales tax at all.
Some states have different tax rates on certain types of items. For example, Florida has a 7% sales tax rate, however, groceries are not subject to sales tax at all. Some states have lesser or no tax on other necessary items such as clothing.
Some services are taxable as well, but again, every state has a different list of what those services are.
Additionally, every state will assign you a filing frequency based on your volume of sales in that state. Filing frequencies will be monthly, quarterly, semi-annually (every 6 months) or annually.
It’s important to do your due diligence to determine if your products and services are taxable. Unpaid sales tax tends to add up very quickly.
In Which State(s) is it Necessary to Remit Sales Tax?
If you offer a product or service in a state that charges sales tax, chances are you’ll be required to file and remit sales tax in your home state. Additionally, any other states where you have nexus (business relations) such as states in which you keep your inventory or have legal standing, perhaps your company is incorporated in another state, these are things that could require you to file sales tax in those states.
If your business is ecommerce and your sales are done over a marketplace such as Amazon or Walmart, the marketplace is responsible for collecting and remitting the sales tax in every state now. This is quite a load off for Amazon sellers, however, there are still states that have associated charges for which you may still be responsible. For example, Washington state has a Business and Occupational (B&O) tax which is significantly less than sales tax, but sellers with nexus in that state are responsible to pay it.
What is a Sales Tax Permit?
A sales tax permit is basically an active account with the state where they issue you and account number and filing frequency so that you can remit your sales taxes. These are gotten by applying to the state. Your business will need to meet their requirements, whatever those are, as they change state to state. Once the permit is issued it’s very important to keep up with your periodic filings and payments, otherwise, like with any other tax agency, penalties and interest will be added to late payments.
Some bookkeepers can help you apply for sales tax permits, as well as keep up your periodic filings and payments for you. If this is something you don’t want to have to worry about, talk with some bookkeepers.
Is There Sales Tax Software
Yes! There are few software services out there that will calculate and even file your sales taxes for you in some or all states. The ones I have the most familiarity with are TaxJar and Avalara. TaxJar is not one that I would highly recommend, but the cost is lower than most. I find TaxJar to be robotic and oversimplified. Avalara is sort of the opposite, it’s more expensive and quite a bit more comprehensive.
A good bookkeeper can help you get set up with the sales tax software of your choice and possibly even monitor it for you ongoingly.
I hope this article has been helpful to you in making the right decisions for your business.
If you have any questions about bookkeeping or are considering hiring a bookkeeper for your business, please feel free to contact us at info@peggysbookkeeping.com.
About the Author I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.
Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL.
You can visit our website at www.peggysbookkeeping.com.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.