Sales tax is the most confusing tax issue that is a day-to-day concern for small (and large) business owners. Getting sales tax wrong and being audited can cost you a lot of time, money, and headaches, but so can getting sales tax right. Here are a few things you should consider.
Do You Have Items To Sell That Are Taxable?
There are obvious things that are taxable - things you can physically touch. But, in today's age, there are a lot of digitally related services that are not as clear cut and can vary from state to state. Services can even be taxable. You need to do your research before making assumptions. An item that involves both services and products needs to be broken down accurately to avoid unnecessary taxes.
What States Do You Need To Be Registered In?
Again, this answer is not as easy as it seems. If you are physically in a state, have employees or contractors there, or do deliveries there, you likely need to register.
If you only sell items or taxable services into the state, you may also need to register. See a list here for thresholds by state. You'll want to look at the cost/risk of not registering as well before you make a final decision.
Do You Only Sell To Wholesalers?
This does not exempt you from registering. It only exempts you from needing to collect the money, BUT you must document accurately and completely. Also note, anything you purchase for resale but either give away or use in your business will need a special tax amount calculated and sent to the state. This is called use tax, and most accounting systems do a poor job of helping you track and report this. Also subject to use tax is anything you buy from out of state that does not have sales tax charged.
How Will a State Know I Am Not Registered?
There is no guarantee they will or will not know. If you're already registered as a business in the state, they may find you by cross-referencing the business lists. If you are not registered as a business, they may find you through another business they are auditing. They may look at who that business bought from and send you an inquiry.
How do I Calculate & Track Sales Tax?
Accounting software programs usually have a sales tax calculator available. It's usually basic and requires proper setup. If you sell to multiple regions or states, or have more complex needs, we strongly recommend you consider a sales tax service to help you with your calculations.
While we are not sales tax specialists, we can help you look at what you’re doing and help you look at your options. We can also help refer you to firms that specialize in this challenging field. Reach out to us today! We're happy to help.
