Today's guest post is provided by Jennifer Dunn at TaxJar.
The New Year is the perfect time to make sure your business’s sales tax is in order. We put together a few action items you can do now to give your business a sales tax checkup and ensure you don’t run into any sales tax pitfalls as the year progresses.
1. Determine if you have sales tax nexus in new states
In the U.S., online sellers are only required to collect sales tax from buyers in states where the seller has sales tax nexus. Business activities like having an office or other location, personnel, or storing inventory in a warehouse (among other things) create nexus. It’s always a good idea to periodically reevaluate your business to determine if you have nexus in new states. You can see a list of what every state considers sales tax nexus here.
If you find you have nexus in a new state, your next step is to register for a sales tax permit in that state and then begin collecting sales tax from buyers in that state on all of your sales channels.
2. Cancel sales tax permits in states where you no longer have nexus
Just like new business activities might create nexus in new states, curtailing other business activities might mean you no longer have nexus in a state. If that’s the case, you can generally cancel your sales tax permit by contacting your state’s department of revenue.
Keep in mind that if you cancel your sales tax permit in a state, you should immediately stop collecting sales tax from buyers in that state.
3. Determine if what you are selling is taxable
If you do have nexus in a new state, you should also double check that what you are selling is taxable in that state. For example, clothing is non-taxable in Pennsylvania. So if you only sell clothing, and have newly established nexus in Pennsylvania, you still may not be required to collect Pennsylvania sales tax, because you don’t sell items the state considers taxable.
4. Note your sales tax due dates and filing frequencies
If you have sales tax nexus in more than one state, your sales tax may be due at a different frequency (monthly, quarterly, or annually) or on a different day of the month in each state. It’s always a good idea to note your sales tax due dates on your calendar at the beginning of the year.
Plus, some states will change your sales tax filing frequency starting January 1. So be sure to note if your sales tax filing due date or how often you are asked to file changes. Of course, if you automate your sales tax filing you don’t have to worry about remembering disparate due dates.
5. Double check sales tax collection on all channels
One pitfall we see is multichannel sellers fall into is forgetting to collect sales tax on all of their sales channels for all of their nexus states. Remember, if you have sales tax nexus in a state, you are required to collect sales tax from all buyers in that state.
6. Determine if you are eligible for sales tax discounts
About half the states with a sales tax will allow sellers to keep a small (1-3%) portion of the sales tax you collected from buyers as a reward for filing and paying sales tax on time. If your state has a sales tax discount, click the map to find out more about it.
7. Automate sales tax compliance
If one of your New Year’s Resolutions is to make your administrative life simpler, consider automating your sales tax compliance. Sales tax automation software will connect with the shopping carts and marketplaces on which you sell and automatically file your sales tax returns for you so you can get back to the fun parts of running your business!
I hope this post has helped you give your business a sales tax checkup. For a whole lot more about sales tax, check out our Sales Tax 101 for Online Sellers guide or start the conversation in the comments!
TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Jennifer Dunn is the Chief of Content & Community at TaxJar. Her passions is making complex tax topics simple so business owners can get back to doing what they do best - running their businesses!