Square & Sales Tax: How to Add & Report for Compliance

• Does Square pay or submit sales tax for you? Though it has tools to help set up sales tax charges, users are ultimately responsible for collecting and filing sales tax.
• Does Square report sales tax collected? Square is required to provide a 1099-K form for qualifying customers.

The explosion of eCommerce has created a plethora of tools, resources and middlemen to help your company sell online. Some are household-name marketplace facilitators like Amazon. Others are potentially useful valuable back-office providers, like Square.

Square is a point-of-sale (POS) system for merchants, either brick-and-mortar or online, to accept card payments and streamline other business operations. The cloud-based system offers physical devices and software and claims to have some 4 million sellers processing $210 billion in payments annually in the U.S. and seven other countries.

It also seems to have an excellent take on sales tax in its functions, including where Square’s responsibilities end and yours begin.

How does sales tax work on Square?

“Sales tax isn’t fun or exciting to think about,” Square says up front in its guide, “9 Crucial Things to Know About Sales Tax.” “In fact, we’re willing to bet you consider it a huge pain. And one of the reasons sales tax is such a huge pain is because the rules and best practices can vary so much from state to state and business to business.”

Then comes an honest admission regarding Square's tax management that could give you concern, but sure eases a future headache:

“Although we’ve built a powerful tax calculation system for Square, Square cannot offer any tax advice or consultation services. Tax compliance is your responsibility. We do not guarantee the applicability or accuracy of our tax tools. If you have any questions about your tax obligations, consider consulting a professional tax advisor.”

How to add and charge sales tax on Square

Square offers a clear guide and toolkit for handling sales tax. For example, the automatic U.S. tax calculator charges U.S. sales tax based on all state sales tax registrations you added to your Square account and where you fulfill an order (i.e., states where you made a sale and have nexus). Square sets your tax registrations based on your “Square locations,” but you can add more if you plan to ship orders from a state in which you have a business presence but is outside of your existing registrations.

If you create a new POS location in a state, that state automatically appears under your Square Tax Registrations.

Among other details:

• You can set all taxes through your Square Dashboard. If you have a Square Online account, you can also set your Square Online taxes and international shipping sales from the dashboard.
• You can include tax in the item price, charge tax on local delivery fees, use in-person tax rates for pickup, local delivery and QRC orders, among others.
• The automatic tax calculator is used for shipping to apply the different necessary tax rates based on your tax registrations and the recipient’s address. (For pickup and QR code ordering, only in-person tax rates are available unless you previously had automatic taxes configured within Square Online.)
• Sales tax can be a separate line item or included as part of item prices. For international sales, you can select a rate from a drop-down menu of countries.

This is just an overview, but it does prove that eCommerce platforms and other providers should be ready and willing to also provide ways to get you started with sales tax when using their services. Be wary of one that doesn’t – or that promises too much.

If your business has Square sales tax questions as it expands, contact TaxConnex. We proudly act as your outsourced sales tax department. Get in touch to learn more.