eCommerce Tips

4 Quick Q4 Sales Tax Tips for Online Sellers

By Zoey Partner on October, 5 2017

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Today's guest post is provided by Jennifer Dunn at TaxJar.

Sales tax is one of those backend elements of your eCommerce store that you rarely think about until something goes wrong. You especially don’t want to collect sales tax correctly over Q4, because a couple of adverse things could happen:

  • You collect too little sales tax and end up owning your state taxing authority out of your bottom line
  • You collect too much sales tax and end up with an unhappy customer

Fortunately, this bad outcome is completely preventable! Double check these 4 things before we get too deep into Q4 to prevent any sales tax surprises:

Ensure you’re collecting sales tax in the right state(s)

In the U.S., online sellers are required to collect sales tax in states where they have “sales tax nexus.” Nexus is just a fancy way of saying a “significant connection” to a state.

As your business grows, common business activities such as hiring employees or using a fulfillment center can create nexus in new states.

You can read what business activities create nexus in each state here. If you have nexus in a new state, make sure you are registered to collect sales tax and collecting via all of your online shopping carts and marketplaces.

Ensure you’re collecting (or not collecting!) sales tax on your products

Forty-five U.S. states and Washington D.C. all have a sales tax, and each state gets to make their own sales tax rules in laws. For example, some items are non-taxable in some states. Clothing is non-taxable in Pennsylvania and a handful of other states. Groceries are non-taxable in many states.

If you are selling a non-taxable item in a state, be sure you’re not accidentally collecting sales tax on that item. People in Pennsylvania expect to be able to buy an ugly Christmas sweater without paying sales tax. So if you didn’t realize that and apply a sales tax, your customer won’t be full of holiday spirit!

Most online shopping carts and marketplaces allow you to classify items so that you collect (or don’t collect) sales tax correctly.

Ensure you’re handling sales tax on shipping and gift wrapping correctly

Remember how I said every state is slightly different when it comes to sales tax? The same goes for sales tax on shipping and gift wrapping.

Most states consider shipping a necessary part of an eCommerce transaction, and require online sellers to charge sales tax on any shipping charges you charge your buyer. You can see a list of states that require sales tax on shipping charges here.

The same goes for gift wrapping. If you offer gift wrapping services, know that some states require sellers to charge sales tax on gift wrapping charges to buyers. You can see a list of states that require sales tax on gift wrapping charges here.

Out of time? Automate sales tax

For most eCommerce sellers, Q4 makes your bottom line. And let’s face it – for you the most wonderful time of the year is also the most stressful time of the year. Now is the perfect time to automate the tasks that don’t necessarily need your entrepreneur’s touch so that you can focus on the business activities that will boost your bottom line.

Sales tax is one of those time-sucking hassles that you can easily automate. Filing sales tax returns isn’t profitable, but it’s necessary. To save your valuable time, automate your sales tax filing with sales tax software. Sales tax software will take sales tax filing completely off your plate so you can focus on your customers and your Q4 profits.

Do you have questions about prepping your business’s sales tax for Q4? Start the conversation in the comments!

TaxJar is a service that makes sales tax reporting and filing simple for more than 9,000 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!

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