Just about every product seller based in the United States will have to pay sales tax in January. Some sellers have to file more than once per year and some sellers sales tax down to the T. However, many only file this tax once per year. If this sounds like you, then due dates for sales tax can be a wake up call and be an unfriendly welcome after having a good holiday season.
Learning about this is althemore important because people are now easily buying Shopify stores for sale and getting a headstart in their ecommerce business. Hence learning to comply with sales tax is very important.
Don’t worry, though. The whole complying with sales tax thing can be broken down into five steps. You can start right here and before you know it, you’ll be compliant with sales tax.
Figure Out If You Have A Nexus
There are 45 states that require sellers to collect sales tax from buyers. Most states only require you to collect sales tax if you have a nexus in the state. A nexus is basically if you have a significant business presence in the state. What is classed as a presence?
Some of the things that may count as a significant presence includes an office or an employee in the state. Others include having a warehouse, storing inventory or having affiliates. Drop-shipping from a third-party provider might count too.
If you have a temporary presence in the state, then this could be counted. For example, if you are at a trade show or a craft fair, then you might need to collect sales tax. If you’re not really sure whether or not you have a nexus in a specific state, then simply head over to the state’s taxing authority’s website. They should have useful information that can help you determine if you have a nexus.
Where Exactly Do You Have A Nexus
Next, you have to figure out where your sales tax nexus is. Then you have to set your online store up, so you can collect sales tax. Do this for any other channels or platforms you use to sell products. After you do this, the next step is:
Register For A Sales Tax Permit
If you have a nexus in a state, then you’ll want to register for a sales tax permit. Head over to your state DOR’s (Department of Revenue) website. Otherwise, you can give them a call to find out how to register for a permit.
Before you start collecting taxes, you’ll want to get a permit, if it’s required. As previously mentioned, you can go to your Department of Revenue’s website. You can call them, too.
Remember, sales taxes are used by states for various things. This includes roads, schools and public safety. This is why they are very invested in sellers that have a nexus in their state.
Some states charge a small amount for a sales tax permit. Other states give them away for free. Regardless, make sure you register for a permit.
After you have registered, you’ll be told when you should pay and how frequently you should pay. Generally speaking, you’ll be required to pay monthly or quarterly, or possibly annually, which usually means you pay some time in January. This is why January there are many sellers rushing around to get everything in order.
Don’t skip the above because many states consider it against the law to collect sales tax without having a permit. Registering for a permit is generally easy. You shouldn’t have any issues with this step.
Collect The Tax
After you’ve register in the states you have a physical presence, you’ll want to set up a way to collect sales tax. You can easily go to your settings in your Shopify account and select “taxes” under the settings tab. This will help you with setting up sales tax.
If you are a multi-channel seller, then you’ll have to collect sales tax from customers in each state you have a nexus through, and this goes for every single channel you sell on. Don’t stress out though because if you only have a nexus in one state, then things are pretty easy. If that’s not the case with you, then check each and every channel you sell through. You want to make sure you are properly collecting sales tax from customers.
Calculate What You Collected
As the due date gets closer, you want to determine how much tax you’ve collected. Do this for every state you have a nexus. This is important, so do not put this off.
If you only use Shopify and you have the unlimited or professional plan, then you can use the sales tax report feature. However, things become more difficult when you sell via multiple platforms. The good news is you can use software such as TaxJar to handle everything for you, but if you decide to do everything on your own, then you’ll have to report how much tax you’ve collected from customers in each state.
Some states are easy because all they want to know is how much you’ve collected from customers in the state. However, there are many states that are not that simple because they want to know the entire amount of tax you’ve collected and then they want you to break that amount down by specific areas, such as city and county. This means you’ll want to go over your reports and determine where exactly your customers are located. This is where things can become stressful.
Have you calculated what you’ve collected? Good, you’re almost done. The next step is:
File Your Sales Tax Returns
This is the part when you have to turn in the sales tax collected from customers that are in your state or states where you have a presence. The good news is that many states make filing easy. In fact, some states allow you to do it online, but you’ll want to check the state you are paying taxes to when taxes are due and how to file your return.
If you didn’t collect sales tax for this period, then don’t automatically think you’re off the hook. In fact, some states have a zero return, which means you still have to file a return, regardless if you didn’t collect sales tax. This type of return is a sales tax return that tells the state you didn’t collect the tax during the the period.
Zero tax returns are states’ ways of knowing that you’re still in business. Always file a zero return if required. If you don’t, then you could end up being hit with a penalty.
On that note, you’ll want to file your sales tax by the due date. Many states do know that sales tax can be a hassle. This is why they may offer a discount if you file and/or pay on time. By not filing on time, you could very well be leaving cash on the table.
After you’ve done the above steps, you’re all done. At least you are for now. The next step is to know when your next due date is and then prepare to do everything all over again.