Sales tax is just part of consumerism in our society - you probably don’t even think about it much since we are all so used to paying it each time we shop!
But if you own a business, you may be wondering… “Do I need to charge sales tax to my customers?” And “What do I do with the sales tax I collect?”. Sales tax can be seriously confusing, so let’s go over exactly what you need to know!
What Exactly is Sales Tax?
Sales tax is the tax added onto the purchase of consumer goods. Not all states in the United States charge sales tax. For example, Oregon is a state that is exempt from sales tax. In the states that do charge sales tax, the business adds the sales tax charge to the goods they are selling and then the business turns the sales tax over to the state. Sales tax rates range from state to state.
Do I Need to Charge Sales Tax?
If you are selling physical, retail goods - you need to be charging sales tax. Some exceptions do occur though. If you are purchasing wholesale items that are going to be resold, you most likely will not need to charge sales tax. If what you are selling is actually raw material that will be used to make other goods, you don’t need to charge sales tax. You also don’t need to charge sales tax when you are selling items to non-profits. What needs a sales tax charge and what doesn’t does vary from state to state, so make sure to check about the area you live in. Don’t forget to purchase a sales tax permit so you can legally charge sales tax to your customers!
*Tip: If you are a photographer, and you sell a package which includes a physical item like an album or prints - you now need to charge sales tax on your whole sale!
Sales Tax and Out of State Sales
If you are selling to a different state, the rules for sales tax changes a bit. If your business has a physical address in a specific state, then you definitely need to be charging sales tax to your customers for that state. If your business does not have a physical address, then you need to check the laws of that state to determine if you meet their criteria (many requite it after 100 transactions or $100,000 in sales). This is especially important in the world of e-commerce.
Just recently, many states have started to collect sales tax from out of state sales which is a HUGE change. Sales tax rates also vary from state to state, so the easiest way to avoid the mess of calculating different sales taxes is to invest in an online shopping cart service like Shopify. The service calculates the sales tax charges for you. We love TaxJar also for automatic sales tax calculations and filings!
How do Small Businesses Pay Sales Tax?
Depending on the state, you will most likely either have to pay sales tax monthly or quarterly. Businesses are required to submit a sales tax return form, normally completed online. Along with this, you need to report to the state your total sales, taxable sales, and the amount of tax due. Turning sales tax over to the state is something you can not skimp on! There are serious penalties if you don’t do this correctly.
Have More Questions?
If you have more business tax-related questions, don’t hesitate to reach out to us! We are happy to help and will point you in the right direction for resources.