The current confusion about when and how much sales tax should be paid is troubling for many business owners because it leaves them uncertain about their current state tax obligations. However, if an internet sales tax is ever implemented it could put a large weight on the small and mid-sized businesses who are already struggling to make ends meet.
The Truth About How To Report Internet-Based Sales Tax
As of now, online retailers are only obligated to collect sales tax on purchases when the buyer is located in a state where a “sales tax nexus” is present. This is when a retailer has a “major presence” in a state, meaning they have a storefront, office, employees or a warehouse. It is important to note that a sales tax nexus is always present in your state of origin, even in cases of a single seller working out of their own home.
When sales tax nexus is applied, the seller is required by the law of the state to charge sales tax to all buyers located in the state. The tax is then used to provide funding for local budget items, such as schools, public safety and roadwork. When this is applied with reason, you will find this to actually be quite fair because it is likely that the business using at least some of the state’s resources regularly.
It is also not news that most states in the U.S. are struggling financially. An internet-based sales tax is a creative idea brought up by Congress to help increase state revenue. If a bill like this passed, online sellers who don’t fit the criteria for nexus would also be required to collect and pay sales tax to the state.
If your business already files sales tax, you can easily see the potential complications that could arise from a nationally adopted internet-based sales tax. Despite the claims to the contrary, this tax wouldn’t actually simplify anything. It would simply add another drain on small businesses that already play a huge part in driving the United States economy.
How Online Retailers Can Simplify Internet-Based Sales Tax Reporting
Without a universally accepted law, there are still a large number of issues faced by online retailers:
- How Much Sales Tax Should Be Collected?
This depends entirely on the home state your business is located in. Several states have sales tax based on origin, where the amount of sales tax is based on the location of the seller. Most states calculate sales tax based on the location of the buyer. It is up to the seller to make sure they are charging the appropriate amount of sales tax from each customer they serve.
2. When Should Sales Tax Returns Be Filed?
Each state has a different opinion on this issue as well. Some states require monthly tax filings, while others only need to see an annual filing. You will also find that the date of the month when sales tax needs to be paid also varies from state to state. This can create difficulty when trying to maintain a schedule to ensure taxes are paid on time.
- How Should Sales Tax Be Reported?
It is up to the sellers to determine the amount of sales tax they have collected from all the sites they use to sell product. This means it is necessary to download reports from BigCommerce, Amazon, Etsy, Shopify, etc. This is even further complicated due to the fact that most states require retailers to break down the sales tax collected not only by state, but by city, state, county, etc.
- How Can You Make Sure Your Returns Are Filed Correctly?
When figuring out how to report internet-based sales tax it is important to remember that each state’s internet sales tax return system is different. It is necessary to know how to log in to each state’s account and navigate effectively through their website. It is also important to note that most states require you to fill out a sales tax return even if you haven’t collected any taxes from the latest tax period.
Fortunately, there are several automation solutions available to help you tackle the difficulties associated with state sales tax. Some of these software systems can break down your totals by tax district and even file your sales tax returns on your behalf. For instance, QuickBooks provides you with a taxable sales summary, sales tax liability report and taxable sales detail report, which all help you to know for certain what your tax liabilities are.
If you are unsure about what your company’s internet-based sales tax reporting, be sure to contact your accountant today.