Easy Steps to Staying Sales Tax Compliant

California Bookkeeping

When most people go into business they are aware that they will have to pay corporate tax as well as the individual tax but are often surprised to find out they are on the hook to reliably report sales tax (and pay it!) as well.

As a consumer, the sales tax seems like it happens on its own.

The truth is that it is a little bit more complicated than you might think.

California Bookkeeping

Where does sales tax apply?

There isn’t any national standard on the application of sales tax, it is one of those laws that have been deregulated federally and relegated to the states (or even to individual counties, cities, towns, or “special taxing districts”).

The combination of a state, county, and potentially a “special taxing district” rate will create a certain zone’s “combined tax rate.”

The combined tax rate of the city Accountix’s office is in, for example, is a combination of state, county, and special sales tax rate – coming out to a whopping 7.75%!

SB California Sale Tax Rate

But, you’re thinking, some state businesses are lucky, if they’re in a state like Oregon that doesn’t impose a sales tax they don’t have to think about it as much, right?

Wrong!

If those stores sell online they are required to pay the sales tax of the tax zone wherein the purchase was made.  For a while, people were getting away with not charging sales tax online but increasingly retailers like Amazon are cracking down and applying sales tax for every state.

These rules are being even further complicated by the location of distribution centers… basically what we’re saying is that in this global and online world, knowing the sales tax rate of your own zone isn’t good enough anymore.

Bookkeeping and Accounting Firm

Is Everything I Sell Taxable?

Not everything.  This is also dependent on the state/locality.

Generally, personal goods are taxable but it’s difficult to establish a cut and dry rule on the taxation of goods.

This is also dependent on where you’re selling a good, where the good is purchased, and where the good is created or stored.  This tricky little sales tax component is called a “Sales Tax Nexus.”  Tax Jar explains what a nexus is well.

They say, “Sales tax nexus occurs when your business has some kind of connection to a state. All states have a slightly different definition of nexus, but most of the time states consider a “physical presence” creates nexus.

Physical presence can mean a number of things, including:

  • Having an office
  • Having an employee
  • Having a warehouse
  • Having an affiliate
  • Storing inventory
  • Drop shipping from a 3rd party provider
  • Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair”Reporting Sales Tax

Staying Sales Tax Compliant

With all the rules and the variation of rules, staying sales tax compliant can be a struggle for business operations of any size.

This is especially true for businesses that sell goods across state lines.

The complicated nature of the operations, however, does not absolve businesses of paying penalties if they are not compliant: the penalties for failing to pay sales tax accurately are the same as your federal taxes.

Best Bookkeeping Santa Barbara

Steps to Sales Tax Compliance

  1. Register For a Sales Tax Permit: Not all states require a sales tax permit but many do (including those you may be in the nexus of).  Check with the state board of revenue and have your personal and business ID ready.
  2. Charge the Correct Amount: You will have to pay for the total amount of sales tax regardless of if you collect it from your customers.  It’s easier said than done to collect the correct amount, though!  Double check before entering any new market that you have sales taxation set up appropriately.
  3. File Sales Tax on Time and With the Right Forms:  The frequency with which you pay sales tax can be dependent on the amount of revenue you take in/the frequency of sales.  Some states allow for electronic filing and some do not.  Ensure that you are paying on time to avoid fees and note that even in periods you have not taken in any sales tax, you must report that fact to the state board of revenue.Outsourced Bookkeeping and Accounting

Staying on Top of Sales Tax

Keeping detailed and accurate records, staying up to date on state taxation laws, and get the necessary tools lined up to help.

We understand that this process is complicated and may take a lot of time and energy.  If you need help, we are here!

Accountix can keep accurate records for you, ensure you are compliant with the different states, prepare and file your returns (and even correct ones that may have been done incorrectly in the past!).  Feel free to reach out if you are interested in a partnership to make your life as a business owner a little bit easier.