When you need to pay sales tax, you might think it sounds complicated. Sales tax regulations for small businesses is continually changing and can quickly lead to a headache.
Schooling yourself on the basic rules of sales tax, can help you avoid some common stumbling blocks and bring continued success and growth, no matter your industry.
When should a business pay sales tax?
You might ask yourself, “Does my small business have to collect and remit sales tax?”
Small business owners are required to charge and collect sales tax, depending on their situation. This can be the confusing part of running a business.
Did you know that forty-five states require the collection of sales tax? Each state offers certain exemptions, which depend on many factors like, point of sale, what type of product you sell, and other conditions. First, check whether your state or local jurisdiction requires you to get a license to sell or a sales tax permit.
So, what other questions should you ask yourself about sales tax?
Here are 5 questions to ask yourself about sales tax:
Do You Have Nexus?
Sales tax nexus is the business connection between a seller and a state. If you sell products in a state, you must remit sales tax. This might sound simple, but there are important steps to take first. The first step is to determine if your business has nexus in states where you do business. Nexus requirements vary in every state and consider such factors as, physical presence, economic nexus, transaction thresholds, and other business-related activities that may qualify.
Are Your Products Taxable?
Whether a product is taxable depends on the type of product being sold. Depending on whether your state collects sales taxes based on origin or destination, will decide if taxes are collected. Other factors are whether you’re selling a product or a service, and if your state simply requires that the product or service be taxed.
Are the goods sold for resale?
If your goods are sold for resale, your customer will need to provide a valid resale certificate. A resale certificate is a signed document that documents your customer’s plan to resell the goods or products you’ve sold them. Basically, this applies to you if you work as a wholesale dealer and are selling to retailers. Most states provide helpful resale certificate information on their Department of Revenue websites.
Does an LLC have to pay sales tax?
Yes! An LLC isn’t exempt from collecting sales tax on products sold in the various jurisdictions where their businesses currently operate.
How do small businesses remit sales tax?
Now, let’s get to how to pay sales tax to the state or local government.
Once you’ve begun collecting tax, you’ll need to document the sales tax collected on an invoice. Then, file it with the associated tax jurisdiction based on the sales tax due date and filing frequency set by each state. Rules can differ from state-to-state and may start at the middle to the end of each month, unless you qualify for a reduced filing frequency.
Sometimes, a sales tax return will need to be filed even though your business did not collect sales tax during a specific filing period. Don’t think that if your business wasn’t active during a period, you don’t have to file. Most states will require a return. Failing to do so can result in penalties, and can even result in having your sales tax license revoked!
How you remit your tax will be different depending on the state. You could get lucky and have simple filing options, by merely figuring out how much sales tax you collected from buyers in that state. Or, you might be required to break down the tax you collected by other geographical areas such as city and county.