Editor’s note: This is a guest post by Mark Faggiano, CEO of TaxJar.
Sales Tax 101 for Online Sellers
Sales tax. Collecting and remitting it is one of those little administrative details that can derail a perfectly good eCommerce business. In the best case, you sell on one channel out of one state and have to deal with sales tax filings a few times per year. In the worst case, you find yourself with “sales tax nexus” in 15 states.
That means following 15 sets of state rules and regulations, filing dozens of tax returns a year, and watching your hair gradually grow gray in the process.
Well, in the very worst case you find yourself the subject of a sales tax audit, but we won’t get into that tale of woe today.
These four basic steps will help you get a firm grip on sales tax:
Get Clear on the Basics of Sales Tax 101
All but 5 individual U.S. states levy sales tax in order to pay for things like schools and roads. As a merchant based in a state, you are required to collect sales tax – based on a state and local rate – and remit it to the state. Basically, you are helping them collect their tax money from your buyers.
Figure Out Your “Nexus”
You are required to collect sales tax in any state where you have “nexus.” While all states have their own laws and regulations about sales tax, most consider “sales tax nexus” to be equivalent to a “physical presence.” For many online sellers just starting out, this is just your home state. But once you get bigger and have employees, offices or warehouses in multiple states, your sales tax nexus becomes much more complicated.
A note to FBA and other 3rd Party Fulfillment Sellers: Most states have language in their sales tax regulations indicating that storing goods in a warehouse in the state creates sales tax nexus. Because of this, Amazon sellers could find themselves collecting sales tax in all 15 states with Amazon Fulfillment Centers.
Register with the States
Once you’ve determined where you have sales tax nexus, register with the state (or states) for a sales tax permit. Most states consider collecting sales tax without a permit a crime, even if you’re just trying to follow the law.
Set up Sales Tax Collection Through Your eCommerce Channels
Most eCommerce platforms will help you automate sales tax collection, but you have to tell them where you need to collect. Many channels will assume you are only collecting in your home state until you tell them otherwise, so check and double check to avoid incurring penalties.
Once you’ve registered for your sales tax permit, states will assign you a sales tax filing date – usually monthly, quarterly or annually. Be sure you always file a sales tax return on that date. Many states will penalize you for failing to file, even if you owe $0 in sales tax.
When you’re dealing with multiple state laws, you’ll likely have questions. Where do I have nexus? How much sales tax do I collect? Sign up for a 30-day free trial of TaxJar and we’ll automate your sales tax collection.
Mark Faggiano is the founder and CEO of TaxJar, a service built to make post-transaction sales tax compliance easier for multi-channel ecommerce sellers. Mark’s passion is solving complex problems for small businesses. He previously cofounded and led FileLater to become the web’s leading tax extension service for both businesses and individual taxpayers before being acquired in 2010.