Sales tax can be tricky, but asking the right questions can help you stay compliant and avoid costly mistakes. Watch the video below for three key sales tax questions every business owner should consider.
Key Takeaways:
Do I Need to Collect Sales Tax? Not all businesses are required to collect sales tax. It depends on nexus, which is your business’s connection to a state.
Physical Nexus: A physical presence in a state, like a store or employees.
Economic Nexus: A sales threshold that triggers tax obligations, even without a physical location.
Each state has different rules, so it’s crucial to check thresholds where you operate. Selling to a customer in another state doesn’t automatically mean you owe sales tax, monitoring these rules helps prevent penalties and back taxes.
Is What I’m Selling Taxable? Not everything is subject to sales tax. Most tangible goods are taxable, but exemptions exist depending on the state.
Some food items and medical supplies may be exempt.
Shipping and handling charges may or may not be taxable.
Services are taxed differently by state.
If you sell tax-exempt items, ensure you have proper documentation, like exemption certificates, to support non-taxable sales.
How Do I Track Sales Tax? Keeping accurate records is key to compliance. The best method depends on your business size and complexity. Choosing the right method for tracking sales tax depends on several factors:
The volume of sales your business processes.
The number of jurisdictions you operate in.
The frequency of local tax rate changes.
Businesses with high sales or multiple locations may need tax automation software, while smaller ones may manage with accounting tools or spreadsheets. Choose a system that fits your needs, adapts to tax changes, and review it regularly to stay compliant.
Sales tax compliance starts with knowing the rules. Ask yourself these three questions, stay informed, and use the right tools to avoid tax headaches.
Have questions? Contact us or book a session, we’re here to help!
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