While e-commerce expands a company's potential customer base, it also adds layers of complexity to even the most straightforward retail transactions. Sales tax identification is a major headache, especially with consumers from other states. A business owner is required by law to collect sales tax from customers whose purchases are made in, or sent to, the state where the business is located.
In most places, it is illegal to charge sales tax on orders from outside the state. If a customer from another state puts an order on their computer at home and has it shipped to their residence in that state, you do not have to collect sales tax from that customer on your behalf. Keep the money from each state's sales tax in its account, and have it deposited into the appropriate state's account regularly.
It requires a lot of work, coordination, and help to keep track of sales tax for online purchases. With these pointers in mind, you'll be able to keep up with changing state regulations and collect and remit online business sales tax by the law.
According to Luca CM Melchionna, managing member at Melchionna PLLC, keeping careful records is one of the greatest ways to remain on top of sales tax responsibilities. With the help of a solid accounting solution, you can keep tabs on your invoices and sales to determine your revenue source. "Be sure to consult with an attorney and a CPA with experience in this area," Melchionna said. Many states require ongoing participation in sales tax reporting. To be successful, small businesses need to keep meticulous records of every sale.
The deadline for submitting the sales tax collected from online transactions varies from state to state. Make a new calendar or add the due dates for each state to the one you already use to send payments on time.
Online sales tax reporting and payment procedures vary by state. Although some states will only take online payments, others may accept checks.
The same goes for any new sales tax licenses that your company may require. For instance, you'll need a sales tax permit if you routinely sold thousands of dollars worth of items in California before the new legislation.
It's just as vital to know the law as it is to know the consequences of late payments or improper payments in each state. The consequences of even accidental legal violations, such as possible legal action, can be severe for a company.
Talk to a tax expert, CPA, or lawyer if you need help understanding your state tax obligations. Your success as an online retailer depends on accurate sales tax collection and filing, and they can provide you with the expert advice you need to make the right decisions.
It is crucial to keep accurate sales records to remit the proper sales taxes to the appropriate state. The state of Michigan is one of many that requires sales tax returns to be filed monthly with sales tax payments. You wouldn't report the tax as revenue if you collected it directly from the customer and kept the funds in a separate corporate bank account.
The sales tax requirements might become more convoluted when dealing with online purchases. Some states may require a sales tax to be collected from a customer for a fully online retail transaction based on the customer's shipping address. The states assume that the person placing the online order is the person who will receive and use the product at the shipping address. Ensure you are familiar with the laws of the states where you do online sales.
When applicable, you must collect sales tax at the current applicable rate. Awareness of the ever-changing sales tax rates is essential, as they vary by state, county, and municipal. The most up-to-date sales tax rates are often available online in a centralized database for each state. Online stores typically find a customer's billing address in a database and automatically apply the requisite sales tax. You are solely responsible for deciding which taxing jurisdictions you will comply with. Make sure the technology you use to track sales tax is updated in real-time to stay in compliance with tax regulations. Modern accounting software makes it less of a hassle to use existing structures and keep up with the most recent rates.