6 Small Business Sales Tax Management Tips
- February 28, 2015 | Ryan O'Donnell
For the small business owner, finding an effective solution to record, file, and remit sales tax to the proper jurisdictions can be difficult. Sales tax compliance laws vary from state to state, and attempting to comply with varying statutory laws and rules, within the required time frames can puzzle both the online seller and the brick and mortar proprietor.
Sales tax compliance laws may vary slightly between brick and mortar and online sellers, and are ever changing. Tax regulations applicable for the previous may not be applicable for the current year, so it's important to have a refresher by checking the IRS site. Along with useful accounting software, such as Quickbooks, Fresh Books, Wave, and Zero, to help automate your sales tax filing and sales tax remitting, you can use these tips to develop an effective tax strategy that will dissuade the tax auditor from knocking on your door.
Tips for Brick and Mortar Sellers
Taxable products and services.
It's important to learn which products and services that you sell from your brick and mortar shop are taxable to your customers in your state. If you own shops in multiple states, each may have differing tax laws. The IRS has many helpful guides on collecting taxes for small businesses.
Sales tax exemptions.
Many states where businesses operate brick and mortar shops, such as Oregon, are not required to collect sales tax. Another applicable exemption is special sales tax holidays, which may apply to certain products and services on certain dates but not include everything. Some states also offer tax exemptions on children's clothing. No matter the reason for the exemption, careful records must be kept for these exempt dates.
How to remit sales tax.
A small business owner needs to learn not only how to collect sales tax for products and services sold, but also to understand when to submit taxes to the IRS, and how to remit them. This requires learning how to fill out business tax returns. It's important to be aware of varying state tax deadlines, as well as whether you can e-File now, and if pre-payment may be required. Be sure to file taxes on time to avoid late penalties.
Tips for Online Sellers
Nexus tax law awareness.
Be aware of nexus laws, the connection between an online business and the taxing jurisdiction and how it pertains to doing business from state to state. Selling online to customers in other states means that you could be required to register in these states in order to comply with nexus tax laws. Identify which states have nexus law, such as Pennsylvania, New Jersey, and Michigan, and be sure that your business is registered in each state where you do online business. Keep up to date on rules so that you're not at the risk of having an audit, due to outdated tax rates in your computer system.
New European Rules for the Sale of Digital Items
For online businesses selling digital e-books to customers located within the European Union, they may soon be required to collect VAT and submit to the required body, in order to comply with tax laws between the USA and the EU.
Updating software systems to reflect state tax laws.
If you've added products and services to your online shop, you'll need to update sales tax rates to reflect customer jurisdiction. Certain states charge for a wide range of services while others may tax very few. You may search for the latest changes on the American Institute of CPA's website.