eCommerce Sales Tax: 5 Steps to Making It Worry-Free

Selling online used to be a breeze. Get the order, collect the money, ship out the product. No hassles with sales tax like a brick-and-mortar retailer have to deal with. Nowadays, unfortunately, it’s up to 46 times more complicated for an eCommerce business. That’s because 45 U.S. states plus Washington, D.C., now require you to collect and submit sales tax — each with its own set of laws that you need to follow.

The process can be daunting — and time-consuming — for a small business. Here’s how to make it more manageable.

1. Determine which states you need to collect tax in.

As of June 21, 2018, that’s any state where you have customers. Before that date, each state had a set of criteria known as “sales tax nexus,” which determined whether you would have to collect tax in that state. The criteria included such things as the physical location within the state, distributor, or sales rep location and total sales value.

However, the old rules are now out the window. With the Supreme Court’s decision in favor of South Dakota (in the case of South Dakota v. Wayfair), physical presence in the state is no longer required.

Many questions on how this will play out remain unanswered. For example, the decision includes language that the state tax system should not discriminate against or place an “undue burden” on out-of-state businesses. It may take states a year or even longer work out their new rules.

In the meantime, learn more about sales tax nexus here.

2. Determine which products qualify as taxable.

Again, rules vary by state. Some of the most common non-taxable items are:

• Grocery food
• Clothing
• Certain types of books (textbooks, religious books)
• Prescription and non-prescription medicine
• Magazines and subscriptions
• Digital products (books, music, movies)

3. Register for state sales tax permits.

In each state where you’ve determined you need to collect sales tax, apply to the state’s department of revenue for a sales tax number. You need this number in order to legally collect tax from customers.

Make a note of each state’s tax due dates. You may have to file monthly, quarterly, or annually. This information will be included with the tax permit the state sends you.

In most states, your sales tax permit is also a resale certificate. That means you can buy items tax-free at retail, as long as you intend to resell the items.

4. Update your website’s shopping cart to collect sales tax.

For sales within the state where you’re physically located, check whether your state uses origin-based or destination-based taxation.
• Origin-based: You charge the state, county, and city rates that apply to the location you’re shipping from.
• Destination-based: You charge the rates that apply to the shipping address.

In some states, shipping charges are also taxable. Most shopping carts allow you to add this function.

If you use drop shipping, you’ll have to work with your dropshipping supplier to decide who will be responsible for collecting sales tax.

5. File your return.

File a return for every state and every due date, even if you had zero sales in that state or time period. If you don’t file, you could be slapped with a penalty, or even lose your tax permit.

Be prepared to fill in the tax return form by county, city, and other special taxing districts. This is where automated software can make your life a lot easier.

Save money by filing on time or early. Some states give a discount for filing on time. And some need a few days to process payments. So even if you file on the due date, the money won’t reach the state’s bank on that day and you will be charged a late fee (plus interest on the amount of tax due).

Xendoo makes processing sales tax easy for eCommerce businesses. By integrating with both your business software and your bank, transactions are entered automatically in your books. Plus, each entry is tax coded as it happens, so there’s no last-minute rush at filing time. With the hassles out of your way, your time and energy are free to focus on growing your business.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Articles on

eCommerce

How to Set Up your Online Storefront in 4 Easy Steps

If you’re a small business owner with physical products for sale, an online storefront is a great, low-cost way to get started. And if you already have a brick-and-mortar store, expanding online might be just what you need to sell more products without the limitation of only reaching customers in your area.

Setting up an online storefront isn’t the major headache it used to be. Long gone are the days of troublesome, technical setups that took tons of time and cash. With so many customizable, easy-to-use solutions, you’re just a few steps away from selling online and growing your business.

Step 1: Consider your needs

Most online shops come equipped with the basics: a way to showcase your products, and easy-to-use showing cart, payment processing, and protection of your customer’s sensitive info. But does your product or shop require something special? Perhaps you want to give customers the option to customize the order or subscribe to your products. Think through those needs before you start exploring shopping platforms so you know the right questions to ask.

Step 2: Select a platform

Now you’ll need to consider whether you want to:
– sell your products through a third-party site like Amazon or eBay
– host a store on your business’s website using an eCommerce provider like Etsy or Shopify
– build out your own custom online shop

Each option comes with its own pros and cons. Selling on Amazon or eBay means you won’t have to set up a payment gateway, but it also means there’s very little room for branding or customization. Ecommerce providers offer greater flexibility but require a monthly subscription fee. Building out your own shop allows you to customize endlessly, but it also means you’ll have to take care of every little detail on your own. Weigh out what’s most important for your shop and think through the best way to reach your customers.

Step 3: Pick a merchant provider

If you’re not selling on a third-party site, you’ll have to separately set up a merchant provider like PayPal. This is what gives your business the ability to actually accept debit and credit cards as payment for your goods. The biggest hurdle at this step is verifying test deposit transactions, but after that — you’re good to go!

Step 4: Settle on your shipping and payment policies

Third-party platforms have policies in place to protect you and your customers. But if you’re using an eCommerce platform or have set up your own custom shop, you’ll need to determine these on your own and make sure they’re listed clearly on your site. Your shop’s policies should include how customers can pay, how quickly they can have their items shipped, and whether or not they can make a return.

By following these four simple steps, you’ll be well on your way to reaching more customers and growing your business. And by connecting your online shop to your accounting and inventory software, you can begin to automate, simplify, and scale!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Articles on

eCommerce

Sales Tax Nexus: How States are Closing the eCommerce Loophole

Once upon a time, retailers didn’t have to collect or remit sales tax on merchandise sold to out-of-state customers. Period. But with the phenomenal growth of online shopping over the last couple of decades, states realized they were missing a huge revenue opportunity. And so sales tax nexus was born.

The nexus concept basically says that if you have significant business connections within a state, you are obligated to abide by its sales tax laws. Although they vary from state to state, here are some of the most common factors:

  • Your location — headquarters, branches, stores, warehouses, other real estates
  • Drop shipper or distributor location
  • Employee location — sales reps, delivery people, contractors
  • Advertising and referral services location — including click-through advertising
  • Economic nexus — exceeding a total sales dollar amount and/or number of transactions within the state
  • Regular event attendance — trade shows, consumer fairs

To make things even trickier, states continue to expand their remote seller nexus rules, necessitating that you check regularly for the latest requirements.

eCommerce giants like Amazon have found it easier to simply register in every state as a preemptive strike against future regulatory and compliance hassles. For smaller businesses, this may not be a cost-effective solution. So how can you bullet-proof your sales tax strategy?

Read the rules.

Check with the taxing authority in each state where you think you might have nexus, and register for a sales tax permit when/as required. Also, you will be collecting tax based not on your home state’s rules, but on those of each state. So you need to know percentage rates, whether or not shipping charges are taxable, what classifications of merchandise are exempt, remittance due dates, etc.

Make sure you’re collecting tax on all channels.

For example, you may already be set up to collect sales tax on your own site. But if you start selling through Amazon’s FBA program, you may need to set up for some new states where Amazon is storing your inventory.

Notify the state when you no longer have nexus there.

Maybe you’ve moved your headquarters, or terminated your relationship with a distributor. Call or write the state’s department of revenue so they can update their records before the next return is due. Also, be aware that some states have “trailing nexus” that lasts for up to a year after your nexus in the state ends; you may have to file another return even if it’s for zero dollars.

Automate the process.

Good software makes compliance a breeze. Sales tax registration, returns, remittance, due date notifications, regulation updates, reporting tools and records maintenance, all done in just a few clicks, are some of the ways it can save you much time and effort.

Over the next few years, we expect that states will continue to close loopholes and challenge old legislation. Staying current will be the key to minimizing the time you spend on sales tax collecting, reporting, and remitting. And having the right processes and tools in place will be more important than ever.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Articles on

eCommerce

5 Ways to Reduce eCommerce Shipping Costs

“Free shipping” — it’s what customers today expect to see when they shop online. So how can an eCommerce seller absorb those shipping costs without wreaking havoc on its profits? You could just raise your prices, but customers won’t like that either. Fortunately, you can change things about the way you ship to minimize the financial impact.

Decide how much you can absorb

You just may not be in a position to pay 100% of the shipping on every single order. But you could still favorably impress customers by offering it on orders over a certain dollar amount. Figure out what that amount is, taking into account average order value, surcharges for weight or size, and so on.

Downsize your packaging

Lose the habit of using the same size box for many different sizes of the product. Smaller boxes cost less to buy. Plus, many carriers calculate their shipping prices based on a combination of size and weight called “dimensional weight,” so a smaller box will cost less to ship even if it weighs the same as a bigger one. To make box selection easy, there is software that will do it for you based on each SKU’s measurements and weight.

Also, are you automatically using bubble wrap for every item, whether it needs it or not? Invest the time to analyze each SKU’s real protection needs, especially those that are already boxed by the manufacturer. Conversely, giving some products more protection can prevent damage in transit and reduce the number of returns.

Choose hybrid shipping options

In hybrid shipping, your carrier (such as FedEx) gets the package from you to its destination city, then hands it over to the U.S. Post Office for local delivery. This enables significant cost savings while keeping the customer happy with your speed and service.

Compare carriers

Look beyond UPS and FedEx. There are many other shipping services out there who can provide better prices and equal if not better service.

Automate shipping processes

Let shipping software save you time, manpower, and money in every step of the fulfillment process, from verifying address accuracy to printing labels to tracking deliveries.

These days, no eCommerce seller can afford to leave its shipping process on autopilot. Look for new solutions and strategies to minimize costs, and keep your net profits right where you want them.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Articles on

eCommerce

3 Great Cash Flow Ideas for Retailers

What do a used book store, garden nursery, and boutique clothing shop all have in common?

No, this isn’t the set up to a joke. Unfortunately, all three types of businesses are at risk of failing if their cash flow isn’t in good shape. According to the Small Business Administration, “inadequate cash reserves” is a top reason small businesses close their doors for good.

So whether you sell novels, shovels, or dresses with ruffles — if you’re a retailer, cash flow is king.

What exactly is cash flow?

Think of it like a checking account. Cash flow looks at all the money coming in and out of your business each month. If there’s more coming in than going out, you’re in the green! If you’re spending more than comes in, read on. That means your cash flow is negative and your business could be in trouble

Here are three simple ways to get your cash flowing in the right direction.

1. Bundle products

If you sell several accessories apart from your core offering, try packaging them together with a small discount. This can also be an effective way of clearing out dead stock while creating goodwill with your customers, who feel like they’re walking away with a great deal.

2. Understand the risks of discounting

If you do decide to bundle products or offer another type of sale, make sure you know exactly how that will impact your bottom line. You should know the profit margins on every product you sell and your overall cost basis – it’s the only way to determine if you’ll break even with the sale or take a loss.

3. Encourage repeat business

Offering perks or freebies to returning customers helps create loyalty and makes it easier for them to choose you over other options. Go old school with a punch card, get creative with a contest, or print an offer on receipts that are good for a future purchase.

If you’re struggling to determine the state of your cash flow, it could be time to call in for some backup. With Xendoo’s suite of affordable bookkeeping and consulting services, you’ll be able to spend more time at the “cash-out” bringing the cash.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Articles on

eCommerce

Selling on Amazon: To FBA or Not to FBA?

Unless you’re living under a rock on the moon, you’re well aware that Amazon is the eCommerce success story of the century — not only for Amazon itself but for thousands of independent sellers who take advantage of its marketing reach and customer confidence. Amazon’s FBA (Fulfillment By Amazon) program goes a step further: it gives smaller eCommerce businesses the clout and convenience of its warehousing, shipping, and customer service facilities.

So if you use FBA, you do less than half the work of the transaction: listing your product on Amazon and getting your merchandise shipped to an Amazon fulfillment center. They take care of the rest: merchandise storage, order processing, picking, packing, shipping, and shipment tracking.

A fundamental decision any third-party seller on Amazon must make is whether to use FBA or its fulfillment facility. Here are some things to consider:

Comparative costs.

Which will be more profitable: paying for your warehousing, packaging materials, and staff to do the picking, packing, and delivery to the shipper; or paying the FBA fee to have Amazon do all that for you?

Amazon makes it easy for you to compare the numbers with this Fulfillment by Amazon Revenue Calculator. Fill in the item price and your costs, then click “Calculate” to see the FBA costs for the same item, and which is your best option in terms of net profit and net margin.

Time investment.

The more you sell, the more time fulfillment takes out of your day. The time that should be spent on management and development, not putting items inboxes. This is often a major roadblock to scaling your business.

Sales tax obligations.

When some or all of your inventory is stored in and shipped from Amazon warehouses, you may be required to collect and remit sales tax in the states where those warehouses are located.

Amazon Prime eligibility.

Only third-party sellers who use FBA are Prime eligible, and many say that this is their number one reason for doing so. When customers see “Fulfilled by Amazon” on the product page, they have confidence that:

  • Their purchase will be delivered in just 2 days
  • They are getting a better deal because shipping is free
  • They will receive excellent shipment tracking and customer service

Even Amazon shoppers who are not Prime members often choose to buy from a seller who is Prime eligible rather than one who isn’t. This gives FBA sellers a huge advantage over those who do their fulfillment.

Each business must weigh the pros and cons of Amazon FBA concerning its needs and goals. But we think that in 99 cases out of 100, the advantages far outweigh the costs. It’s certainly worth a try.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

Articles on

eCommerce