Everything You Need to Know About Filing January Sales Tax
This post was written by Mark Faggiano at TaxJar. Remember, this post is for educational purposes only. For specific tax advice related to your business, consult a reputable accountant.
The busy holiday season is over. And after such a busy Q4, taxes are probably the last thing you want to think about.
But if you’re a product seller, January is actually the biggest sales tax filing due date of the year. And it's fast approaching — in most states, January sales tax is due by January 20. You can check when January sales tax is due in your state here.
If you've forgotten the basics (or don't file taxes often), we're here with a quick refresher. Read over these tips to tackle sales tax so you can get back to doing what you do best: running and growing your business.
File sales tax in states where you have sales tax nexus.
Sales or use tax nexus is just a fancy way of saying you have a “significant” presence in a state. You always have nexus in your home state where you run your business, but some business activities can cause nexus in other states, too. Maybe you hired a salesperson in another state or sold at a craft fair one state over.
Big sales tax due dates are also a smart time to reevaluate your business and determine whether you have sales or use tax nexus in any new states. Through this exercise, you may also find that you no longer have sales tax nexus in a state. For instance, perhaps you sold at an event in another state the previous year but decided not to attend this year.
If you no longer have sales tax nexus, contact that state’s department of revenue and let it know. While you may have “trailing nexus” for a period of time, this is your first step in ending your business relationship with that state (and thus avoiding collecting sales tax from customers there).
Make sure you’re registered for the sales tax permit(s) you need.
Once you have nexus in a state, that state requires you to register for a sales tax permit before collecting sales tax from buyers. Many states even see it as unlawful to collect sales tax without a permit. (In their suspicious eyes, merchants might tell customers they’re collecting sales tax but then pocket the difference.)
So make sure you’re registered for a sales tax permit in every state where you’re collecting sales tax.
Find your sales tax filing due dates.
When you register for your sales tax permit, the state also assigns your sales tax filing due dates. You generally file and pay sales tax either monthly, quarterly, or annually.
Your filing frequency usually depends on your sales volume. The more you sell, the more often you file. The exception to this rule is that some states ask for monthly sales tax filings in your first year as they evaluate your business.
To help you out, here’s a handy list of sales tax filing due dates for January 2017. At TaxJar, we call January the “sales tax perfect storm” because almost all sellers have a filing due date.
Calculate how much you owe.
Once you determine that you need to file, it’s time to calculate how much sales tax you should remit to the state. This means determining exactly how much you collected from buyers.
Don’t forget to include sales tax collected through Square and any other platforms through which you sold. Did a customer write you a check? Be sure to include the sales tax you collected there, too.
If you only sell on one platform (like Square) and only have sales tax nexus in one state, then figuring out how much sales tax you collected can be pretty easy. But if you sell on multiple platforms, it gets harder and harder.
And then there’s the actual sales tax form that must be completed. Most U.S. states are “destination-based sales tax” states. What that means is that they want to see how much sales tax you collected broken down by city, county, or other special taxing district.
This is where sales tax gets stratospherically complicated. Check out TaxJar's website if you need help determining just how much sales tax you collected and filling out your sales tax returns.
File your sales tax returns.
Once you’ve figured out all the hard stuff — how much sales tax you collected and where you collected it — then it’s time to file your sales tax return. You have a few options here:
- File by mail: This is slow and cumbersome; many states are even discontinuing this feature.
- File online: Find your state’s sales tax portal online and fill out its detailed form, then submit a payment through its (often separate) payment system.
- AutoFile: TaxJar will file your sales tax for you in nearly every state. No reporting, no forms. It’s automatic. AutoFile even factors in the little-known sales tax discounts that many states give you for filing on time.
Use tax versus sales tax
As a small business owner, you may also hear the concept of “use tax” thrown around. Generally speaking, “use tax” and “sales tax” are the same thing (although rates may vary depending on the jurisdiction), just applied to different merchants (you can read up on it here).
Use tax is what states call a tax collected and remitted by a “remote seller.” So if you sell in another state, it’s worth consulting with your accountant on this one.
And that’s it. You’re done with January sales tax. Now you can get back to your business.
To make doing taxes a breeze, link your Square account to the TaxJar app. Learn how to do that in the Square App Marketplace.
Sales tax is complex. That’s why we created TaxJar — to handle the burden of sales tax while you get back to running your business. Trusted by more than 7,000 businesses, TaxJar pulls in sales tax collected from all the channels where you sell, compiles your data into return-ready reports, and can even AutoFile your sales tax returns for you in most states. Sign up for a 30-day TaxJar free trial today and put a lid on sales tax. And check out Square App Marketplace for more information on how to link your Square account to TaxJar.