Businesses often get so busy with business operations that they forget to pay attention to the essentials of filing their tax returns. Some entrepreneurs are unsure about the process and how much tax they have to pay to the government. But it is vital that you take charge of the responsibility of filing tax returns regularly. Being tax efficient gives your business credibility and it helps you with keeping track of all resources exhausted and the possibility of expansion. Here are some things to take into account when filing sales tax.
Table of Contents
5 Key Things To Consider When Filing Sales Taxes
Collecting Sales Tax
Before collecting sales tax from customers, there are certain things that influence how to manage, collect, and file your sales tax returns.
Each business has to pay income taxes, however, there is no federal sales tax in the US. State-wide sales tax is collected in forty-five US states as well as the District of Columbia and local sales taxes are collected in thirty-eight states. In some instances, local sales taxes are more expensive than the state-wide sales tax fees. New Hampshire, Alaska, Oregon, and Montana do not have state sales tax; however, Alaska permits its localities to levy local sales tax.
What is a VDA?
A VDA (voluntary disclosure agreement) is a legit method for taxpayers to self-report back for any property, sales, income, property, and other forms of capital and income. In exchange for the voluntary devolution of tax due, states usually grant a waiver for penalties as well as a limited look back (three to four years generally) potentially lowering the tax due substantially compared to an audit.
When Do You Collect Sales Tax?
Sales tax is only collected if you have nexus, or if the state states so. Nexus is just another way of saying that the business is linked to a state and must therefore collect sales tax from customers there. Your business usually has nexus in the home state. However, it is also a possibility for the business to have nexus in other states, therefore, it is something to keep in mind.
Factors that make a business have nexus in other states include:
- A physical location like a warehouse or pop-up store.
- Inventory.
- Affiliates.
- Employees.
- Temporary sales.
- A drop shipping connexion.
- A large number of online sales.
Registration for a sales tax permit
You must register for a sales tax permit prior to collecting sales tax. States require that a business register for this permit (also called sales tax license or seller’s permit) prior to starting to collect sales tax from consumers. You must register with the Department of Revenue.
You must collect sales tax for sales on all business channels
Businesses are often tripped up when they sell services or products on multiple channels, like retail sales in a physical store, Amazon marketplace, shopping cart on their website, and social media. If you have business tax nexus, you have to collect retail sales tax from all customers in the state, on all sales channels.
Different sales tax rates
Certain states have “origin-based” sales tax while others have “destination-based” sales tax. In origin-based states, the sales tax is collected on the business location, whereas in “destination-based” states, the sales tax is levied on the buyer’s location.
Conclusion
We hope you have found our post on 5 key things to consider when filing sales taxes helpful and that you will take this into account before registering your business for sales tax collection.
