Tax legislation continually changes, with new laws and regulations springing up every time.
With the South Dakota v. Wayfair case, more complications were added to e-commerce companies' national business. According to the decision, states can charge sales tax to sellers not physically within the state. This means that one does not have to be in a state physically to pay tax. Late April in 2020 saw some panels arise to make the tax landscape smooth following the South Dakota v. Wayfair.
Even though this is good news, many believe that any tangible result could take several years. As a result, eCommerce businesses are better off reducing their risk by full compliance with the state that gives them the highest risk for nexus.
Economic Nexus means that once a business is above the state's threshold for a transaction or total revenue, the company is legally obligated to pay tax to the state.
Specific state-Level Changes
October of 2019 saw over 40 states change their laws on state tax. Sellers not located in the state will be affected by the law as they have to charge sales tax based on some criteria in the state.
The mode of operation of sales tax is that the business owner will charge customers sales tax and send the tax to the respective state, which could be every month or quarterly. Some businesses could defer the remit of such state tax to the state, like in the case of California.
The California Department of Tax and Fee Administration, for instance, allows small businesses having less than 5 million dollars as their annual tax sales to postpone payment of tax for up to $50,000 without interest.
What eCommerce Needs to Know about Sales Tax
All eCommerce business owners should consistently be proactive in understanding and taking care of any tax issue that can affect business operations. We explain a few ways such business owners can prepare for tax changes from eCommerce sales.
Know the states where you are collecting state tax from. This involves understanding various criteria the revenue state department employs in estimating a company's sales tax liability. These include physical nexus, economic nexus, click-through nexus, and marketplace nexus.
Come to terms with Your tax Compliance: after deciding whether your business must collect and submit sales tax, it is vital to register your firm in all your state of the transaction. This involves getting a critical tax permit and documents to take care of compliance.
Adjust Your Sales Channel: This means making sure you have a functional sales channel that makes it easy for you to calculate and report sales tax. This can happen either by manual configuration of your tax setting or by adding a tax plugin that helps calculate and report tax.
Have Report on Your Sales Tax: some states require you to make available annual reports to the purchaser and state agencies for you to address some sales tax issues.
Businesses in eCommerce can adjust to whatever law on sales tax by employing technology for support and employing accounting changes. With the use of software, it becomes easy to be aware of various state laws and get ahead of mistakes.
Ecommerce business owners need to understand that their state of physical (physical nexus) presence creates the highest risk for them. Also, things like employees, assets, and office space make available a physical nexus for the business. In states where you have no physical presence, keep abreast of tax changes, especially where you drive most changes.
Conclusion
Ecommerce sales tax could be tricky, but the good news is you can get all the help you need. Trying to wrap your head around it all alone is a recipe for trouble. As a result, you are better off with a professional that will guide you and prevent you from running into any issue.
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