Sales Tax Filing
Most states have different rules about which products or services are subject to sales tax. Businesses that sells taxable products or services must collect, file and pay the taxes due.
You need to know the following information in order to successfully prepare your sales tax returns.
Choosing the Right Form
Most states initially send preprinted tax returns to taxpayers unless the taxpayer has registered for e-file status. These forms are determined and set up by the state based on the company’s initial registration as a taxpayer in that state. If you don’t know if you are registered correctly, contact the state to confirm what information they have in your file regarding your type of business and business or inventory locations.
Entering the Data in the Form
Sales tax returns start with reporting gross sales. Once gross sales are determined, companies are then allowed to claim deductions to calculate taxable sales. These are generally deductions from sales within the jurisdiction. Some states have multiple lines to report deductions while others don’t. Again, not putting the deductions on the correct line likely won’t result in an assessment or penalty, but could raise questions under audit. Also, some states use the amounts reported on the deduction lines to value the exemption when evaluating whether to continue to offer the exemption under statute.
Deductions can vary by jurisdiction, but some of the standard deductions are:
Sales shipped outside jurisdiction (interstate commerce).
Sales to exempt organizations.
Sales for re-sellers.
Sales of exempt products.
Filing the Return
Filing returns in paper format is still used by states for some level of taxpayers. Each state provides the forms that must be used for returns. Many states allow replicas of their forms to be used in place of state-supplied returns.
Most states now use electronic filing for sales and use tax returns. The most common approach taken by states is web-filing, in which you log onto the state’s website and input the required data into a web form. In some cases the data can be imported into the web form.
Payments are due on the same date as the return. Again, many states allow or even require electronic payment. If you are required to make payment electronically and send a check, penalties could apply. It is important to follow the proper process for the filing and payment of the returns. If you file or pay late sales tax the state or local tax revenue division will impose penalties and interest on each period being late.
Nexus for online sellers.
Nexus is the factor a state uses to determine whether an out-of-state business is liable for sales tax collection and remittance. Since 1992, as a result of the Supreme Court’s ruling in Quill Corp. v. North Dakota, “physical presence” had been the nationwide standard for sales tax nexus. In other words, if a seller had physical presence in a state, it was responsible for state sales tax collection and remittance.
In 2016, South Dakota enacted an economic nexus law, setting a new state standard for nexus. The law said that out-of-state sellers that delivered more than $100,000 of goods or service into the state or engaged in 200 or more separate transactions for the delivery of goods or services into the state triggered economic nexus. When the retailer Wayfair challenged it, the case made its way up to the Supreme Court. The Supreme Court’s decision to side with South Dakota ultimately struck down the physical presence standard and replaced it with “economic (or virtual) presence.”
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The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.
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Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law.
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State and local tax revenue divisions are looking to maximize their sales tax collections. We can help you understand and manage your sales tax obligations and prepare sales tax returns in an efficient and timely manner.