This post was written by our friends at TaxJar. This post is for informational purposes only. Seek a tax expert for your specific needs.
The beginning of the year is the perfect time to evaluate the old, figure out where your business excelled and where it needs work, and start fresh. Which means it’s also the perfect time to give your business a sales tax performance review.
Sales tax is one of those necessary business evils. If you’re lucky, you only need to file a sales tax return once per quarter or year, and your filing is simple and painless. But as your business grows, so does the complexity of your sales tax collection, reporting, and filing.
Take this opportunity to give your business a quick sales tax once over. We’ll let you know exactly what you should check for to make sure you’re “doing sales tax right” and give you some tips on making sales tax even less taxing.
Here’s how to give your business a sales tax performance review.
Know your sales tax filing frequency and due dates.
In a busy emergency room, the doctors and nurses perform triage to determine whom to treat first. Generally, anyone who is bleeding gets treated first. The same goes for sales tax.
The “bleeding” here translates to any sales tax filings that are overdue or due imminently. Nearly every product seller has a sales tax filing due in January. Check here to find your January 2017 sales tax filing due dates. Make sure to file on time to avoid any penalties or interest.
To make sure you have the right due date, you also need to know your sales tax filing frequency. Generally your state requires you to file sales tax either monthly, quarterly, or annually. The higher your sales volume in a state, the more often the state wants you to file.
You can usually find your sales tax filing due date by logging in at your state taxing authority’s website. But many states change retailers’ filing frequencies this time of year, so keep an eye out for a mailing from your state so you can be sure you’re filing and paying sales tax by the correct due date.
Double-check your sales tax nexus.
“Sales tax nexus” is simply a fancy way of saying a “significant connection” to a state. Each state’s definition of nexus is slightly different, but you always have nexus in your home state. Other things that often create nexus include having a location, employee, contractor, inventory, or affiliate in a state.
As your business grows, common activities might create nexus in states other than the state in which you’re based. Maybe you hired a customer service person in another state, spent a couple of weekends selling at a craft fair across state lines, or started storing your inventory in a warehouse on the opposite coast to ship product faster.
You can consult this list of what creates nexus in every state to determine if you might have nexus in a new state. And if you do have sales tax nexus in a new state, register for a sales tax permit in that state.
This can also go the other way. Maybe an employee in another state left your company, or you closed down your warehouse. If you no longer have sales tax nexus in a state, you can contact your state’s taxing authority and cancel your sales tax permit. Sometimes this is as easy as marking “final return” on your final sales tax filing.
Configure your sales tax collection.
Also be sure you’re collecting sales tax on all your sales channels from all the buyers in your nexus states. It can be easy for multichannel sellers to forget to collect sales tax from buyers on one or more platforms.
So if you sell using Square but also sell on Etsy, be sure you have sales tax collection set up on both platforms. You can find a guide to collecting sales tax using the most common sales channels here.
Once again, the opposite is true. If you no longer have sales tax nexus in a state, be sure to stop collecting sales tax from buyers in that state on all your sales channels.
Automate sales tax reporting and filing.
The process of reporting and filing sales tax, especially if you sell on more than one sales channel, can be a truly onerous process.
The vast majority of states want you to break down how much you collected from buyers in each of a state’s many counties, cities, and special taxing districts. Unless you’re a real geography whiz, you probably have no idea which city in your state is in which county, or which collection of cities and unincorporated counties fall into a “special taxing district” for education or transportation.
As your business grows and your time becomes more valuable, you should find ways to “buy back your time.” Use a sales tax automation solution to make filling out your sales tax returns and filing a snap.
Do any of these sound like you?
- You spend hours of your valuable time trying to fill out sales tax returns.
- You’re never sure you’re doing it right.
- You have to fudge the numbers to make your sales tax return work.
If any of those sound like you, ditch the uncertainty and try a sales tax solution like TaxJar.
And that’s it. Give yourself a pat on the back because you’ve successfully given your business a sales tax performance review.
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.