Managing your business sales tax can be complicated. It requires a lot of time and can be quite confusing or risky. A lot of businesses find it hard searching for the right place to begin or simply do not have the time to devote to research.
Also, with recent changes in business sales tax law across many states, more rules may be quite confusing especially to the online business owners.
However, ignoring or failing to collect sales tax can prove as an unhealthy business risk that you should never consider. Every single dollar you do not collect and remit will be paid ultimately in due time. You might also face some severe consequences in the form of hefty fines or even a jail term.
As an online business owner, we highly recommend it that you gain full awareness about business sales tax and take the appropriate steps towards achieving business sales tax compliance.
Previously, e-commerce stores with no physical location did not entirely have any obligations towards business sales tax. However, with recent changes in business sales tax laws, you are required to do so. But, first, you have to discern which local or state authorities you will remit the collected sales tax to periodically.
The nexus defines the exact state or states where you will file your sales tax returns. Nexus simply refers to having a physical connection with a state or local taxing jurisdiction. But with recent development, nexus no longer refers to a physical connection, especially for the online business owner.
As an online business owner, two basic rules define your sales tax nexus:
This, therefore, means that as long as you have a customer in a particular state who wishes to buy a taxable product, then you must remit the tax to that state.
Using the two basic rules, here are the factors that define your sales tax nexus in multiple states.
Personnel: If you have a contractor, employee, installer, salesperson or someone that does business on your behalf in a particular state, you may have a sales nexus in that state.
Inventory: Some states consider the location of your storage unit as meaning you have a nexus there even when you have no personnel in the location.
Affiliates: For areas where individuals advertise your product in exchange for some percentage, it might also mean you have a nexus in that state.
A location: If you have an office, store, physical presence, or warehouse in a particular state, it might mean you also have a nexus there.
A drop shipping relationship: When you have a third party to buyers, this might also create a nexus.
Selling products at a trade show or event: Some states consider having a nexus in that location, even when your sales in that location were temporal.
Some goods may be exempt from business sales tax. However, this depends on the buyer or the manner of purchase. All end users are eligible for sales tax. Therefore, a reseller or wholesaler may be tax exempt.
It is crucial that you ensure that all exemption certificates are valid before making sales transactions. You should also apply and procure a tax exemption certificate to be used in buying goods specifically for your business. If you wish to purchase goods for your personal use or giveaways, you must pay sales tax for them.
Non-profit organizations may also be exempt from business sales tax on purchases. However, not all purchases made by these organizations are considered tax exempt. Only sales or transactions relating to charity or charitable missions are tax exempt. Again, before making tax-exempt sales to such organizations, verify that their exemption certificate is authentic.
A lot of states also offer limited periods where taxpayers can make purchases with no business sales tax. These are commonly referred to as “sales tax holidays.” However, these sales tax holidays might be different for different states. As an online business owner, you might be presented with a request for tax exemption during such periods by your customers in such states.
Ensure you have detailed information about this sales tax holidays in all states where your business is in operation.
Business sales tax compliance is crucial. Failure to collect, remit, or file within states where you have a nexus might be detrimental to your business. Plan your tax system and organize your business finances. If you need help with your tax issues, contact us at (212) 320-8191 or by email at firstname.lastname@example.org.
Urgent Tax Services
6009 16th Ave,
Brooklyn, NY 11204
Ph. (212) 320-8191
Fax (646) 626-6447