With a complicated problem, such as sales tax, there are not many general rules. However, over the years, I have discovered that there are at least seven truths about this unique excise that all retailers face.
In other words, there are no two equal states in the way they regulate sales tax. This is because, in the United States, each state is solely responsible for its sales tax. It is entirely governed at the state level. There is no national sales tax. And each state decides precisely how it wants to tax, which elements are taxable (or non-taxable), and how much should be collected.
To further complicate matters, most states also allow local areas to levy a sales tax.
Note: Do not assume that you know the sales tax of a state simply because you know the sales tax rules of another state. All states are really different animals in terms of sales tax.
In the United States, retailers should apply sales tax only in states where they have fiscal constraints. The sales tax link is merely an elegant way of saying "significant presence" in a state. Although each state differs slightly when it comes to creating a link, the factors that can create a tax nexus are:
In addition, although the most tangible personal property is taxable, in some states, items such as clothing, textbooks, or food may not be taxable. Because of these factors, the combination of each retailer's sales tax requirements is slightly different.
The more you sell, the more regularly you file
When you establish that you have VAT connections and are requesting VAT elimination, the status affects a storage frequency. This means that you usually file your tax returns monthly, quarterly, semi-annually, or annually.
Generally, the more tax sales are collected in a state, the more often it wants to file a tax return and submit sales tax. For better or worse, states use the sales tax to pay for budget items, such as schools, roads, and public safety, so as not to leave money in their professional bank account for a long time.
For a physical store owner, the collection of sales tax is quite simple. Collect the sales tax from your store. But for an online seller, things get complicated. For tax purposes, the tax is levied at the point of sale. And with many online purchases, the store is considered the shipping address of the buyer.
Suppose you are an online salesman residing in Stamford, NY, but making a sale to a Detroit buyer. Due to New York's sales tax rules on "destination-based offers," you will not pay an 8% house tax, but the Detroit tax.
Because of all the rules and laws we have discussed, it can be straightforward to make a sales tax error. A common mistake is to forget to pay on time. In some states, the sales tax expires on the 20th of the month following the tax period. In other states, the last day of the month, the 15th or the 23rd.
Another common mistake is to collect or report the incorrect amount of sales tax. If you are an online salesman, it can be surprisingly easy to forget to collect sales tax on one of your channels. Unfortunately, these mistakes can result in fines and interest even for honest mistakes.
On a lighter note, some states are softer than others and will waive a fine or sanction for the first time. It's always a good idea to try at least to get a fine or forgiven interest.
It is essential to know the situation notices. Sometimes, sales tax rates change, or the state changes the storage frequency of the sales tax. In other cases, a state begins to tax an element that has not been previously taxed or to tax an item used for taxation.
On a larger scale, online sales tax laws are also changing. As things continue to spread, many states are trying to break the precedent set by the US Supreme Court in 1992, in Quill vs. North Dakota, and asked independent sellers with no nexus to collect sales tax (or use a new definition of Nexus).
Obviously, the sales tax includes many moving parts. But fortunately, technology comes to the rescue. You can automate sales tax collection, so you do not have to worry about taxing the right buyer online. In addition, you can automate the submission of sales tax reports, so you do not have to worry about reviewing complex spreadsheets and tax tables, or missing a deadline for submitting tax returns — sales tax. You are busy enough to grow your business without wasting time on unprofitable administrative issues.
