Sales Tax Guide
Sales tax is one of those topics that instantly frightens people, and for good reason. The US is unlike most other countries in it’s set up of 50 independent states and that makes the sales tax tricky!! Each state is given its own power to determine sales tax laws so it’s important you understand what does and doesn’t apply to you
So first…. Who has to pay sales tax?
Well, anyone who sells a physical product needs to be looking into whether they are required to charge and remit sales tax. Some digitally downloadable products are also taxable, depending on state law.
Whether or not you have a presence in a state is determined by something called nexus.
There are two types of nexus:
Physical nexus - This implies a business has an actual location or physical presence (such as a warehouse facility) in the state.
Economic nexus - This implies the business has a presence based on economic activity level. This varies greatly from state to state so it’s important to understand it for all the states you would be delivering to.
Here’s 3 quick questions you can use to determine which states you have nexus in, these are the state laws you need to be looking at:
1. What state(s) so you have a physical presence in?
2. What states do you make sales to?
3. What is the level of income or number of transactions from that state?
It’s important to review this regularly!! If you suddenly start shipping a larger value of products to a different state, you may develop a Nexus there and need to start collecting and remitting sales tax. Make sure you have accounting software set up so you can easily track and review these numbers regularly.
How much do you need to charge/pay?
For a physical business location/store, sales tax is based on selling location usually by zip code. If this is in a metro area, it’s likely there is also a city/local tax so be sure to research that too.
Then, of course, here is where they make it a bit tricky.
If you have an online store (with physical products) and you ship to a customer in your same state, the rate for sales tax is based on the customer's delivery location.
For customer’s out of state, you only need to charge sales tax if you have nexus in that state.
Here’s a great list of all the sales tax requirements by state.
There is a wide variation on state regulations which is what makes this such a challenge and why it’s always a good idea to have a second set of eyes.
Remittance to your state is usually monthly or quarterly and again you want your accounting system set up so this is simple to get information from.
Bottom line, check your state’s requirements, find out what other states you are required to file in, and make sure you have a nice easy accounting system to stay on top of things (or a handy accountant at your fingertips!!)
