Sales Taxes: What Small Businesses Need to Know
Sales taxes are paid to the government for the sale of goods and services and are one of the most transparent ways for states to collect taxes. They can be complicated because rates vary from state to state and county to county.
Although most states require you to collect the tax, five states don’t have a general sales tax:
- New Hampshire
Keep reading to learn more about sales taxes and how they affect your small business.
Six steps for collecting sales taxes
- Find out where you’re liable for sales taxes. You’ll likely have to collect sales taxes in a state if you have physical or economic nexus there. You might have physical nexus if you maintain a permanent or temporary presence in the state – such as employees, offices, warehouses, or inventory. You’ll likely have economic nexus if you sell a certain amount to people in the state each year.
- Obtain the proper licenses. You’ll typically be able to register from the state’s Department of Revenue website.
- Learn the tax rates. Make sure you’re not over- or under-collecting sales tax by finding out what the rates are for each place you’re liable to.
- Figure out when to collect the taxes. When it comes to same-state transactions, there are two jurisdictions: where you’re selling from and to. In some places, you’ll tax your products based on where the order is sent from. But, in other states, you’ll collect taxes based on where you’re sending the order.
- Keep track of exemption certificates. If some of your customers are exempt from sales taxes, like resellers and 501(c)(3) organizations, request a copy of their exemption certification and keep it on file.
- File your sales tax return. Depending on what state(s) you need to file with and how much sales tax you’ve collected, you may need to file returns and remit payments every month, quarter, or year.
Collecting sales taxes when you only sell online
When e-commerce first became popular, it seemed like no online stores were charging sales tax. But, online purchases are generally taxed the same as if they were made offline.
Because of the 1992 Quill Corp. v. North Dakota Supreme Court case, states could only require you to collect sales taxes if you had a physical nexus in that state. After the more recent South Dakota v. Wayfair Supreme Court case, states may now require you to collect sales taxes if you have economic nexus.