Questions about sales tax are among the most frequent inquiries from small business owners across the country. In part one of our “Sales Tax and Small Businesses” post earlier this week, we defined sales tax, explored state-specific permit and sales tax requirements, and reviewed common situations in which sales tax does not apply. In today’s post, we’ll pick up where we left off with four additional lessons when it comes to small businesses and sales tax.
Lesson 5: When your business sells online
If your business sells goods and services online, you will likely still pay sales tax, but not necessarily on all transactions. E-Commerce tax laws can be confusing, but typically, you charge sales tax for customers located in states where your business has a presence. For example, if you only operate out of Virginia but sell your product to customers across the country, you would only collect and pay sales tax for customers located in Virginia. However, if you have your headquarters in Virginia, a warehouse in Ohio, and a distribution center in Arizona, then you would pay sales tax on any transactions that originate from those three states. Check out this article for more helpful tips on when to collect sales tax for online transactions.
Lesson 6: Time to pay your sales taxes
Depending on your state’s requirements, your business probably has an option to pay monthly or quarterly. Monthly payments may help you track your expenses more regularly and avoid a bigger tax bill to pay three times a year. Some states and localities may require businesses with larger tax liability to make electronic payment, while others do not have the infrastructure in place to support electronic payment. Regardless of whichschedule and process you follow, make sure you know your state’s sales tax deadline to avoid costly fines.
In addition to paying the state sales taxes your business owes, you will likely need to file periodic sales tax reports to your state department of revenue. Most states now allow businesses to pay and report sales tax online – a great, time-saving feature – and some states also give a discount for prepayment of sales taxes. If you can swing it, it will save you money in the long-run to pay in advance.
Lesson 7: Relying on accounting software may not be enough
Your business may use accounting software, but it’s critical to also keep track of your accounting personally. An incorrect entry could mean not collecting enough tax from customers, yet still having to pay state taxes. While technology can be an incredibly helpful tool, make sure you also keep track of your numbers to give yourself a backup method for avoiding mistakes when technology is being less than cooperative. Thisplanning guide outlines more helpful tips to keep your business on top of its numbers.
Lesson 8: Document in case of an audit
The word “audit” can strike terror into the heart of a small business owner, but if you have a reliable process for keeping track of sales taxes, it will serve you well in case of an audit. The current economic client has increased the chances of small businesses being audited as many states work to balance their budgets and locate unpaid taxes through audits. If your business takes the time now to review its process for keeping sales records, it could go a long way in minimizing your costs and time wasted in the event of an audit.
That wraps up our list of top lessons when it comes to small businesses and sales tax. Sound overwhelming? It can be – there are thousands of sales tax jurisdictions in the United States, which makes this topic a challenging one. Just remember that there are also dozens of resources available to help you with this process from start to finish.
Did you learn something new through part one or part two of this series? Do you have a great lesson to add to the list? Share your small business sales tax takeaways in the comments below.
The above is an excerpt adapted from the article, “Sales Tax and Small Businesses – Part Two.” For more information, please visit www.sba.gov.