What do Online Sellers Need to Know about Sales Tax?
If you sell online in the U.S., then chances are you have to collect and remit sales tax from buyers in your home state. If your business is complex – say you have employees in another state, or use 3rd party logistics or drop shipping – then you may have to collect sales tax from buyers in multiple states.
All of this can get very confusing, very fast when it comes to collecting sales tax from your buyers and then filing sales tax returns with the state.
Many online sellers, even if you only sell a small volume and file annually, have sales tax due dates this January. Here are the basics you need to know to ensure you’re ready for sales tax:
Where do you have sales tax nexus?
Nexus is just another way of saying a “significant relationship” with a state. If you operate your business in a state, then you have sales tax nexus there. But other activities, like having an employee or sales rep, storing products in a warehouse, or even selling goods at a trade show can constitute sales tax nexus, too.
If you have sales tax nexus in a state, then that states requires you to charge sales tax to buyers in that state. Before you do this, be sure to register for a sales tax permit.
Collecting Sales Tax
Your next step is to set up your shopping cart to collect sales tax. We’ve made this easy with 7Cart, but remember that if you sell on multiple online channels, you must collect sales tax from buyers through all of those channels you sell on.
Remitting Sales Tax
When you sign up for your sales tax permit, your state will tell you how often they want you to pay. Most of the time, they’ll want to hear from you either monthly, quarterly or annually. Be sure to file on time to avoid penalties. Some states will even give you a small percentage discount for filing on time.
Summary of Sales Tax Best Practices
Like many things involving taxes and government regulations, sales tax isn’t simple. Here are a few best practices to keep in mind to get you on the right track:
- Sign up for a sales tax permit before you collect sales tax
- Collect sales tax from buyers in every state where you have sales tax nexus
- Always pay on time – avoid penalties and get discounts!
- If you buy products for resale, obtain a resellers certificate so you don’t have to pay sales tax yourself on the items you buy to resale
- Always check with your state’s Department of Revenue and/or an eCommerce sales tax expert if you have questions about your sales tax liability
Good luck with January’s sales tax deadlines!