Sales and use tax generally applies to the sale or use of tangible personal property (TPP) and certain services. For most brick-and-mortar retail stores, sales tax is relatively simple, but what happens when you open an online store? Whether you’re selling tangible personal property or other taxable materials online, your sales tax obligations have changed considerably over the last few years with the introduction of economic nexus.
With no sight of slowing down, ecommerce is likely to become even more important to your business operations. In fact, it is estimated that by 2040, 95% of all purchases will be through e-commerce. But in order to truly succeed, you’ll need to understand your sales tax obligations and how to manage selling nationwide through an ecommerce platform. Believing that you only have a sales tax obligation in your home state, or that because you don’t have a retail location you don’t have a sales tax obligation, could lead to large penalties and fees.
As a business selling online, you can easily have customers across the country, or globe, and you must know how to track where you have a sales tax obligation to understand where you need to charge sales tax. For your home state, you charge that state’s (and any local jurisdictions’) sales tax rate, but once you meet economic nexus thresholds in other states – from adding customers and revenue in new locations – you will charge and collect that state’s (and any local jurisdictions’) sales tax rate on those purchases. It can be a lot to keep up with.
Utilize this checklist to understand if you have any gaps with your current sales tax process.
Check on your current process
Do you know everywhere that your company currently has nexus?
Are you selling more than TPP? If so, do you understand the taxability of your products/services in each of the states in which you have a customer?
Are you registered in every state that you’ve established nexus and have taxable sales?
Are you monitoring your sales thresholds into new states?
How are you calculating sales tax? Can you manage this process within your invoicing system (or shopping cart) or do you need sales tax software to calculate the sales tax due?
Do you have a process in place to file and manage your returns and any communications with jurisdictions?
Do you utilize a marketplace facilitator? And do you understand how a marketplace facilitator can impact other tax reporting obligations?
If you can respond “yes” to the majority of the questions above, congratulations, you probably have a pretty good handle on your current sales tax situation. Be sure you continually monitor taxability laws and your economic nexus thresholds as your business evolves. If sales tax ever becomes too much, consider outsourcing your sales tax compliance to an expert like TaxConnex!
If you can’t answer yes to all of the above, or you’re confused, you’re in the right place. TaxConnex is an outsourced sales tax provider that provides both consulting and compliance services for businesses looking for help understanding and managing their sales tax obligations. We have a deep understanding of how sales and use tax impacts retail and ecommerce businesses. Get in touch to learn how we can help you!
This is an excerpt from a recent guide published by TaxConnex. If you’re looking for more information on how to set up a more sales tax compliant business or want a further check-up into how you are managing sales tax – download our full checklist – Sales Tax Checklist: What Retail and Ecommerce Should Consider