This post is contributed by Mark Faggiano, the founder and CEO of TaxJar, a service built to make sales tax compliance simple for eCommerce sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
You’ve got 99 problems leading up to Q4, and if you’re lucky they mainly revolve around how to scoop up buckets of profits from your online store.
The last thing you need is to be tripped up by an administrative hassle like sales tax.
This post will show you how to get your sales tax headaches automated and out of your hair so you can focus on more important (and lucrative!) business activities in Q4.
Give Yourself a Sales Tax Checkup
An ounce of prevention now can keep you out of trouble later. Here’s how to make sure your sales tax is in order before Q4 takes over your life:
Review Where You Have Sales Tax Nexus – “Nexus” means a “significant connection” to a state. If you have nexus in a state, that also means that that state requires you to collect sales tax from your customers in the state. Review your business activities since you last signed up for a sales tax permit and ensure you haven’t done anything that might create sales tax nexus in a new state.
A few factors that can create nexus are:
- A location – an office, store, warehouse, or other location
- Inventory stored in the state
- A drop shipping relationships
- Making sales at a trade show or craft fair
- A 3rd party affiliate
If you’re not sure if a new business activity has given you sales tax nexus in a state, start with this list of what causes sales tax nexus in every state. If you’re still unsure, try giving the state a call or working with a vetted CPA.
Double Check Your Sales Tax Permits – If you have sales tax nexus in a state, you are required to register for a sales tax permit with that state’s taxing authority (usually called the “department of revenue”) before you begin collecting sales tax from customers. If you’ve discovered that you have nexus in a new state, be sure to register for this permit before you start collecting sales tax or you could be in hot water.
If you no longer have sales tax nexus in a state and don’t plan to have nexus there in the future, you will likely want to cancel your sales tax permit. Though, as with anything sales tax related, instructions vary by state, you can generally cancel a sales tax permit during filing. Just file your final sales tax return in that state and indicating on the filing that it is the “final return.” Just be on the lookout for states with “trailing nexus.” Some states require that you collect sales tax a few months after you no longer have nexus there. Check with the state for details.
Check Your Sales Tax Filing Frequency – The general rule of thumb is that the more revenue you make in a state the more often that state requires you to file a sales tax return. That means that sometimes the state will change your filing frequency after you’ve filed several sales tax returns and they’ve gotten a sense of your in-state revenue. Be sure you’re on top of your filing frequency in every state to avoid interest and penalties
Sometimes this can work to your advantage. If you have very little revenue in a state and are put on a quarterly or monthly filing schedule, you may be able to ask the state to switch you to annual filing. Just give your state’s taxing authority a call to make the request.
Ensure You’re Collecting the Right Amount of Sales Tax through All Of Your Carts and Marketplaces – Most sellers these days don’t limit themselves to selling on just one channel. But with more channels come more problems.
Make sure that you are collecting sales tax on all of your channels in all of the states where you have sales tax nexus. One little mistake in your shopping cart’s settings can mean that you owe sales tax out of pocket!
Give yourself a lollipop. Your sales tax checkup is complete! Now what?
Automate Your Sales Tax Hassles
Now it’s time to put sales tax on autopilot so you never have to worry about sales tax hassles again!
With a sales tax automation service, you can connect all the channels you sell on and easily see how much sales tax you’ve collected in every state, county, city and other taxing jurisdiction. Armed with this information, it’s simple to fill you your sales tax filings. This is especially handy in January, with Q4 sales plus a “perfect storm” of monthly, quarterly and annual sales tax due dates in every state make filing sales tax returns a huge chore.
A sales tax automation service will also AutoFile your sales tax returns for you if you want to take sales tax completely off your plate. What if, instead of spending time struggling with complex administrative hassles like sales tax, you had more time to spend capitalizing on your Q4 momentum?
I hope this quick guide has helped you get your sales tax life in shape. For much, much more about sales tax, check out our Sales Tax 101 for Online Sellers Guide or start the conversation in our Sales Tax for eCommerce Sellers Facebook group!
TaxJar helps you report how much sales tax you’ve collected on all of your eCommerce channels, and file your sales tax returns with ease. Try a 30-day free trial!