Did you know? Do you have to file sales tax for your online business?
As Covid-19 is arising worldwide, consumers cannot go outside, so you shift selling goods online.
For every product, a tax was including once the buyer buys in retail. It is called a sales tax. Because you are charging it to your customers, prepare and file it to submit on time. Then you remit the taxes collected back in the state. Then it is called sales tax compliance.
For e-commerce companies, it is confusing and difficult to understand because of changed laws. This is true for beginners. Below are the reasons encountered by them.
Sell the online goods in different states.
Take the example you have a physical store in Los Angeles. Your typical business flow is your loyal customers, and walk-in enters your store to buy your goods. You deliver for customers living within your nearby store.
So you charge sales tax to your customers according to the tax rules of Los Angeles. It is simple as that. Suppose you have an online business and accepting delivery in different parts of the United States.
Remember that every state has its own set of rules and regulations in matters of charging sales tax. It is getting more complicated if your online business is in Los Angeles, then your customer living in New York that orders your goods and delivers them to her mother and sister in Hawaii and Florida, respectively.
Do you think every state should charge a sales tax on your customers?
Sales Tax Nexus and Economic Nexus Law.
Because more e-commerce companies sell in different states, you must know their Sales Tax Nexus law.
Sales Tax Nexus is a connection in a state that you need to comply with the sales tax law and collect it to your buyers then remit it back to the state.
Under the sales tax nexus, the online sellers are required to:
- Register as a seller in each state who has a sales tax nexus.
- Collect the right amount of tax to buyers.
- File the document and remit tax on time.
In June 2018, The Supreme Court ruling to favor South Dakota vs. Wayfair that every state can create an economic nexus law and its threshold.
For example, In the California threshold, in every excess sale for $500,000, the E-commerce company should collect sales tax to buyers in the state. While in Hawaii, sales of $100,000 or 200 transactions.
Today, there are more than 40 states that create the economic nexus law. In creating it, the seller should include the physical store, inventory, affiliates, and digital such as dropshipping.
With the different economic nexus laws and thresholds, the e-commerce companies might be confusing and difficult to negotiate the buyers for the additional sales tax.
If you are selling online products, you have to follow their economic nexus law. If not, you will face penalties in the long run.
Sells in various platforms to increase sales.
Different target market makes you as a seller find ways to satisfy your services and come back again. Using the various platforms is easy what you think. But because of different tax sales from states is a bit of confusion.
If you are new in business, the e-commerce company sells its products on platforms like eBay, Amazon, Shopify, Instagram, and Facebook.
Because many start a business online, every state creates the market facilitator law enacted last 2019.
What is a market facilitator means? It is a negotiation between the e-commerce business owner and the market seller to sell products in a marketplace for consideration. Under the law, the market seller can collect the tax and remit it in the state.
The market sellers can process the payment services, list the products on sales, the storage, and setting prices to buyers.
How does accounting service help to ease the burden from sales tax?
As your online selling is expanding, expect you to have additional filing and remit in various states. Compliance is your priority as tax season is coming.
If you do not consolidate data all over your channel, you will be wasting your time calculating manually.
And last, because of changes in sales tax compliance, if you do not know how to prepare it, you might lose your money because of under-calculating sales.