Thursday, November 21, 2019

Is Your Small Business Sales Tax Compliant?

One of the last things anyone ever wants to receive in the mail is a notice from your taxing authority explaining that errors have been found or that they require more documentation from you. It doesn't ever seem to matter if you are guilty of cheating on your taxes or not keeping records, you could have everything documented and filed and sent in a timely manner every time, most of us still start stressing out when we receive a notice like this.

These days, thanks to the Internet, we have so many possibilities for entrepreneurs and it's so much easier to sell our products and services across the country and even around the world. While this may seem to be simple enough, depending on what you're selling, you have to be sure to keep on top of all of the legalities and laws that surround businesses and taxes. Especially those that cross state lines.

Most of us have had to, unfortunately, pay sales tax on most of what we buy. There are differences depending on which state you live in but, for the most part, sales tax can sometimes be a hindrance when shopping for big-ticket items. It can also be a huge obstacle when you are in charge of collecting sales tax from your customers and clients and when you have to be sure you're paying it on time. Wherever you live, it is very important to keep up with sales tax compliance.


Trying to determine who you are responsible to pay and which customers you are responsible for charging can feel like a nightmare at first. This is a fairly easy task if you have a home office or sell from your home. But, if you are selling through Amazon's FBA program (Fulfillment By Amazon) you send products to Amazon first so technically, you could be responsible for collecting sales tax from customers where Amazon sells as well. 

Basically, if you have an office in a state, you are responsible to collect and pay sales tax in that state. If you aren't living in a state but you have an employee or employees in another state, this could make you responsible for paying sales tax. The same goes for any time you or an employee travels to another state to perform services or to sell a product. 

The word, "nexus" is a word the law uses to distinguish the connection between the seller and the state. This also can differ depending on which state you're dealing with. This varies from state to state and again, can change at any time. A state will usually consider a physical presence or an economic connection will create a nexus meaning, you should definitely check in with each and every state you are doing business with or in. 

Prepare And Pay

As with practically everything else, the state just wants to take their share of anything you might be earning in their state. My husband and I own a trucking company and each quarter, we have to report each mile and each gallon of fuel purchased for each truck so that the states can either take their share or give us a refund. (Yes, we rarely see refunds, but, it happens!) I thought this was ridiculous back when we first started. I mean, we actually have to report how many miles were driven in each state and where the fuel was purchased so that the states could determine whether or not we owed them money. For instance, if we purchased cheaper fuel in a neighboring state and then drove through our state (PA), PA will say, "Ok, you owe us for the money it would have cost you to fuel up the truck here." So, they pretty much have you no matter where you turn. Collecting sales tax from your customers to pay into the state they live in is the same concept. Thanks to the Wayfair sales tax case, in 2018, the US Supreme Court decided that you can establish "nexus" through economic activity alone. 

You may or not be affected by this in some states. A lot of this will go by the thresholds that each state has set for businesses. For instance, Colorado has a threshold of $100,000 in sales or 200 or more separate transactions. They didn't make this easy for any of us but as long as you stay on top of it all, it shouldn't hurt so bad in the long run.

Record everything and keep solid records and your job will be much easier whether you file monthly, quarterly, or annually. Not to mention, if you were to receive any terrifying letters, you could easily find what you need and get it where it needs to be promptly. 

I know it's easier to throw worrisome notices off to the side. Especially when they come on a Friday or even a Saturday. But, whether you plan to or not, it's easy for this to be forgotten or to be put off and typically, these notices don't give a whole lot of time for you to respond. The quicker you can get to it, the better and the quicker you can get back to your life and your business of course. 

Start a system of some kind. It doesn't have to be 200 spreadsheets or numerous software programs. You could always check with a tax advisor or keep on top of laws for each state on your own. As long as you have accurate, up to date information, and you follow the laws and keep records, you'll get through any potential audit. 

Once you understand who you have to pay and when the next step would be to pay your tax bills on time and keep any receipts and bank records. Sales tax filing doesn't have to be a frightening experience. (It isn't often but, the Department of Revenue can make mistakes too!) Take a night off or buy yourself some new slippers or lots of chocolates to celebrate! (Just be sure if you're buying out of state, to pay your state's use tax if applicable!) 

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