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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.

 

Tonight’s Special Is: Sales Tax A How-To Guide for Restaurant Owners

Before we get started, keep in mind that sales tax laws vary by state and municipality. While this guide serves as a general rule of thumb, be sure to check on the specific laws governing your area before making any changes to your restaurant’s operations or accounting.

Restaurant owners face many complicated rules and regulations when it comes to running their business, and sales tax is no exception. This simple guide is designed to help you understand how sales tax works and what you need to do to be prepared and stay compliant.

What is a sales tax?

Sales tax is a consumption tax imposed by Uncle Sam on the sale of goods and services. In other words, it’s a fee the government requires you to pay in order to sell your delicious food.

Sales tax is paid by your customers to you so that you can, in turn, pay this amount to the government every month or quarter. Unlike a federal tax, sales tax is a sort of “pass-through” from your customers to the government.

Does my restaurant have to pay sales tax?

You’re required to pay sales tax if your restaurant has what is known as a “nexus” in a given jurisdiction. So if your restaurant has a physical presence, like a brick-and-mortar location or a food truck, you will definitely be required to pay. If you have a food business that is strictly online, you may not have to but should double-check with your local jurisdiction. Having an employee, an affiliate, or some other type of presence may make you liable to pay.

So when do I pay sales tax exactly?

Think of it this way: your customer is the end-user of the food you sell – after it hits their stomach, it isn’t going anywhere else (sort of). But before it got there, you purchased ingredients from suppliers. The tax was not due at that time, because that was not the end of the food’s journey.

It may seem for a moment like you’re getting a break, but there’s no such thing as a free lunch. You don’t pay taxes on the purchase of food supplies because you will be collecting taxes on the final product. It is your responsibility to correctly calculate the amount of sales tax due by your customers (more on that later) – you’ll be required to pay it whether you remembered to collect it at the time of sale or not.

So it sounds like I’m probably required to pay sales tax…how do I do that?

  1. If you haven’t done so yet, you’ll want to file for a sales tax permit with your local agency. A quick search online should help you find those forms.
  2. Determine your sales tax rate – they vary by state and municipality.
  3. Distinguish between taxable and non-table items in your restaurant – certain carryout items may not be taxable. Be sure to check on the particular laws of your area.
  4. Set up sales tax in your POS – charging customers correctly means you won’t be liable for sales tax payments out of your own pocket

I’m already charging customers sales tax and have collected the funds. What do I do with them?

First, make sure you’ve collected the correct amount of sales tax – because if you don’t, the government sure will!

Tally up the sum total of all taxable items sold in your restaurant during the month.

Multiply that number by your sales tax rate.

For example, your tax rate is 5% and you sold $1,000 in total taxable meals and beverages, the sales taxes due that month is $50. 

The final step is to complete the sales tax forms for your state, due monthly, or quarterly at a minimum. Xendoo’s sales tax experts prepare and file your sales tax accurately and on time so you don’t have to (you probably have a lot on your plate as it is). They also give you plenty of advance notice to ensure you have the funds available for payment.

 

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.