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.

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