Do I Need to Pay Sales Tax?

So you found a way to turn your passion into a full-time gig and started your own business - congratulations!

That is not easy to do and most people certainly do not have the confidence to take the leap.

From registering business licenses to fulfilling orders, there’s tons of work to be done. Even the work you love can sometimes feel overwhelming. Not to mention, the challenging pieces can make even the most experienced business owner question themselves.

One area many business owners struggle with is taxes - not paying them, just knowing how to navigate them!

Personal tax returns alone can be complicated, you throw a business in the mix and it can be even more overwhelming… especially when it comes to sales tax.

 

What is Sales Tax?

If your business produces taxable products, you may be subject to sales tax. Most products are taxable and, in some states, you are also subject to sales tax on services. 

The standards change from state to state which is what makes handling sales tax so challenging. There are many benchmarks to keep track of and each state has different factors that could trigger sales tax. 

This is called nexus.

 

What is Nexus?

As we described above, depending on the state’s standards and rules, you may have sufficient business activity in that state to trigger nexus - which would then subject you to sales tax.

“Nexus” is the connection between a seller and a state that requires the seller to register, collect, and remit sales tax in the state.

Essentially, nexus is legal jargon for saying your business is now subject to sales tax in that state. 

 

Do I Need to Pay Sales Tax?

At this point you have probably put together that if you need to pay sales tax, your business has had enough activity in a state to trigger nexus - but what sort of activities qualify for nexus?

This is another reason why sales tax is challenging because there are plenty of things that may trigger nexus depending on your state, like:

  • Remote employees
  • Inventory storage
  • Launching products

Sales tax can be easy to wrap your mind around if you only have a single brick-and-mortar location where you sell products.

On the other hand, if you are an online seller in eCommerce, you can see how things can get complicated very quickly. 

 

This seems like a lot of work - what should I do?

With 50 different states to monitor nexus in and requirements to follow through on, it sure can be a lot! We recommend two solutions…

 

1. A sales tax compliance app 

First, consider using an application like Taxjar to manage your sales tax payments. Apps like Taxjar can sync with your various eCommerce and inventory platforms to monitor your business activity. 

Then when you have sufficient activity in any given state, you will receive alerts you have triggered nexus.

Additionally, each state has different filing requirements. This means some states may require quarterly or annual sales tax filing. They have different sales tax rates and forms that need to be completed when submitting your sales tax returns.

With a sales tax compliance app, the platform may guide you through the process of filing those state-specific returns.

 

2. Outsource

From setting up your eCommerce store to filing your sales tax return, several steps need to be done to make sure you have a smooth process. 

Having worked with many eCommerce businesses, I have the experience needed to efficiently set up your processes and provide you with a plan that works for you. 

By understanding your inventory system, and business activities, and utilizing apps like Taxjar, sales tax is something you will rarely need to think about.

If you would like to learn what it's like to work with someone who's helped dozens of small businesses with their sales tax needs, send me a message

 

Sales tax depends on many factors so it is difficult to provide you with a definitive yes or no. However, we can provide you with some general guidelines as to the likelihood that you need to pay sales tax.

If you sell products, you very likely are required to pay sales tax in your state. If you own an eCommerce business or have virtual operations, like working with employees in different states, the chances of you needing to pay sales tax increases. 

If you'd like more personalized guidance with your current sales tax needs and to learn more about our services, schedule a discovery call with us today.

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