What You Need To Know About Sales Tax

[this is a sponsored post, the above photo is from the Tax Foundation]

Most of us are familiar with sales tax but did you know, 45 states and the District of Columbia collect statewide sales tax, and local sales taxes are collected in 38 states. The five states with the highest average combined state and local sales tax rates are Arkansas (9.47 percent), Tennessee (9.47 percent), Louisiana (9.45 percent), Washington (9.21 percent) and Alabama (9.16 percent). 

If you're an online retailer trying to decide if you need to collect sales tax. The first question to answer is if your home state has a sales tax at all. Most states do impose some sort of sales tax, however, Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a statewide sales tax. Some cities and towns charge an additional sales tax. For example, in 2019 California has a statewide sales tax rate of 7.25 percent, but local districts are allowed to impose an additional sales tax. Sellers must be up to date and know the local tax rates and collect them from those home state customers. Many states that collect sales tax may also exempt certain items like food and clothing.

When are you obligated to collect sales tax online?For all the rules you should be following you will want to connect with a tax consultant.Here are some basic rules for collecting sales tax from online sales: 
  • If your business has a physical presence, or "nexus", in a state, you must collect applicable sales tax from the online customers within that state.
  • If you do not have a physical presence generally you do not have to collect sales tax from those online sales. However, states are soon expected to begin collecting sales taxes regardless of having a physical presence in the state.
What does it mean to have a physical presence?
A physical presence means that you have a business facility in that state. It could be any type of business operation, such as a storefront, warehouse or office.

What is the nexus required between the seller and the state?
The word "nexus" is used by the law to describe the connection sellers must have with a particular area before they re required to charge and collect taxes for online sales there. Different states define this connection differently, however, most agree that if you have a store or office in that state you need to collect sales tax from those who live in that state.

Selling products across the United States
As part of the sales tax act, if you send products or inventory to a large, online company that distributes them to buyers for you, this may be one of those connections, and now requires consumers within those connection states to pay sales tax.

For example, if you sell online from your home in Michigan and don't have any business presence in other states, you have "nexus" - or a physical presence only with Michigan.

However, if you sell your products through Amazon's FBA program (Fulfillment by Amazon), and send products to Amazon this is where the relationship could potentially require you to collect sales tax from customers in other states where Amazon does business.

Sales tax audit
A sales tax audit is the examination of a company's financial documents by a government's tax agency to verify if the proper amount of sales tax has been remitted to the proper authorities. You may choose to physically go to a sales tax auditor to receive help, you can look into the sales tax software.

No comments