Tuesday, October 14, 2014

Staying in good graces for Sales tax

So you have determined that you have nexus in several states. What do you need to do to remain in compliance?

The first thing that you need to do is to register in that state for a sellers permit. Some states have a special permit for out of state companies.

Secondly, you need to have your programs set up to calculate the correct tax rate on the sale. Sales tax is a destination tax. It gets charged based on the destination that the product is shipped to, not on the billing address of the customer. A business, then, needs to set up their ecommerce website and their accounting system to correctly charge and account for the destination sales tax. Sales tax needs to be charged on product or taxable services going to any state where your company has sales tax nexus. The more advanced programs use geolocation technology which determines exactly where the business is located instead of just zip codes to determine the correct tax rate. This is especially important for states which also have local sales tax filing requirements.

Thirdly, if there are any reasons why you are not required to charge the customer sales tax, then you need to have the correct Exemption Certificates on file. Each state has different requirements for what paperwork is needed as well as for how often the paperwork needs to be updated. You need to be sure that you know what those requirements are and have a system in place to remain compliant in case of an audit. Noncompliance fines are steep!

Finally, be sure to note the timing of sales tax return filings for each state that you have nexus in. Some will be monthly, some quarterly, others annual. Timely filings will prevent late fees and interest charges.


Sales tax compliance has become an overwhelming task for small businesses with all of the recent changes in legislation. There are some fantastic resources that we can recommend to assist you with staying in compliance.

Monday, October 6, 2014

What you don't know about Sales tax can hurt you

Many small business owners launch their business or branch off into a new line of business with only a limited knowledge of how their activities affect sales tax. It has always been a challenge to understand the sales tax codes of your own state. However, the days of only worrying about your own state’s sales tax are gone. There are activities that are common business practice which may make you liable to register and collect sales tax in multiple states. What are the questions that you should be asking? Following are just a few:

Are you selling a product or a service? If a service, is it a taxable service in your state? Is it taxable when combined with selling a product?

Are you selling from only a brick and mortar location or do you also have a web presence?

Do you sell only within one state or do you sell in multiple states?

Are you a manufacturer and/or distributor? Do you sell wholesale or retail?

Are there circumstances in which you do not have to collect sales tax? Do you understand those circumstances? Do you have the correct exemption certificates on file?

What type of sales activities do you do outside of your own state?

Do you attend trade shows in other states?

Do you have employees or outside reps who market your product in other states?

Do you do any affiliate marketing?

Do you maintain inventory or warehouse space in other states?

Do you install and/or repair equipment that you sell in other states?

These are just some of the many questions that need to be answered in order to determine which states you have created nexus in. The challenge is that the laws of each state differ. Be sure you investigate this yourself or get outside help before you find yourself on the hook with Sales Tax issues.