Sales tax. Two pesky words that have been sitting in the back of your mind, popping up at the worst times to crush your business-building dreams. You know you need to collect it, somehow. But how much? And on what purchases?
Relax, we’ve got you covered. Here’s what you need to know.
1. Determine where you have sales tax nexus
“Nexus” is an ambiguous term that strikes fear into the hearts of new business owners. But it’s actually a pretty simple concept if you know your state’s requirements.
To put it simply, a sales tax nexus is any location where your business creates a tie to the state. For example, if you have a shop front, you will have a sales tax nexus at the shop’s address. Other examples might be a drop shipping location, warehouse, or even presence at a trade show. Wherever you do business in the physical world (versus online), you likely have a sales tax nexus–unless the state doesn’t have a sales tax at all. Every state has different requirements regarding what creates a sales tax nexus, so you’ll want to explore your local laws.
2. Get sales permits in every state where you have nexus
Wherever you have a sales tax nexus, you have to collect sales tax. But of course, it’s against the law to collect sales tax without a permit. Therefore, if you have nexus in a state, you’re going to have to get a permit.
Each state has slightly different registration requirements, but a quick Google search of “[your state] sales tax permit” should get you the information you need.
When you register, you’ll need to work out how often you’ll be filing your tax returns. Unlike your income tax that you submit annually, sales tax can be submitted monthly, quarterly, or annually. This is all based on how much you sell; the more sales you make, the more often you’ll file. Some states also require you to renew your permit over time, so make sure to double-check the requirements while you register.
3. Understand origin-based vs. destination-based sales tax
Okay, still with us? Now that you understand your obligations to the states where you have a nexus, let’s talk about how much you need to actually collect.
Every state has its own sales tax rate. Then, different localities within the state may add an additional percentage. For this reason, one county might have a tax rate of 7.2%, while another will tax at 9.2%. You can even wind up with different tax rates within the same zip code!
When it comes to which tax rate you need to follow, states fall into one of two categories: origin-based sales tax or destination-based sales tax (or no sales tax, of course). When shipping products, your origin is your business address, and the destination is your customer’s address.
States with origin-based sales tax keep things simple. You collect tax based on the tax rate of your origin address. This means that every in-state shipment will be taxed at your local rate.
But if you live in a destination-based sales tax state (which is, unfortunately, the majority of states), you must collect tax based on — you guessed it — the address of your customer. Virtually every order will have a completely different tax rate that you must apply to the purchase.
Finally, if you are shipping to an out-of-state address and you have nexus in the destination state, you will collect tax based on the destination, regardless of your home state’s tax laws. So even if you live in Oregon where there is no sales tax, you’ll need to collect tax if you’re shipping to a customer who lives in a sales tax state.
4. Keep immaculate records
At this point, you have enough information to begin collecting sales tax. But you’ll need to track every purchase not only for your own purposes, but also so that you can provide exact records if you’re ever audited. The goal is to document the flow of every transaction, including contracts, invoices, orders, final bills, and returns. A program like Quickbooks makes this process much easier.
5. File your sales tax return(s)
For every state where you have nexus, you’ll need to submit a separate tax return. Many states allow you to do this online, and some even require it. Be sure to pay attention to due dates–late fees are killer.
Luckily, it’s not all doom and gloom. Most states offer a small sales tax discount to online sellers who pay early or on time. That means you could hold onto a percentage or two just for doing what you’re supposed to. Check out this article for at-a-glance details on tax discounts in your state.
Plus, did you know that InkSoft is tax-deductible?
Note: We’re not tax professionals. If this stuff is getting confusing, bring your questions to a professional tax advisor.
Don’t sweat the tax stuff
Filing in every state can be a massive pain when you’re busy growing your printing business. Luckily, we make it easy for you. InkSoft provides real-time tax rates for every order, and our software integrates with Quickbooks to keep track of the details. Learn more about selling printed products across the country using InkSoft online stores.
