New product sellers soon find that there’s no sales tax user’s manual out there. Because of this, and because forty-five different states and Washington D.C. all have their own individual rules and laws, an online seller can quickly become confused about how sales tax applies to her business.
Today we’ll dispel four of the most common sales tax myths online sellers hear, and help you ensure you’re collecting and filing sales tax the right way.
Myth #1: I exclusively sell online, so I’m not required to collect sales tax
Any retailer – whether selling online, at a brick and mortar store or at a booth at a craft fair – is required to collect sales tax when selling taxable items to buyers in states where he has tax liability. Every business’s sales tax liability will be different, so get in touch with a good CPA if you’re unsure about how to go about collecting sales tax (or if you even need to).
MYTH #2: I will only ever have to collect taxes from buyers in my home state
It’s true that most online sellers are only required to collect sales tax from buyers in their home state, but online sellers may be required to collect sales tax from buyers in other states as the business grows.
In a nutshell, online sellers are required to collect tax from buyers in states where they have sales tax nexus. Nexus is just a fancy way of saying a “significant connection” to a state. Online sellers will always have sales tax nexus in their home states, but business activities such as having an employee or contractor, a location, or inventory for sale in another state also create sales tax nexus.
MYTH #3: My state won’t know if I don’t collect sales tax
I totally get it. Collecting can be an administrative hassle, and many online sellers find excuses to put off getting sales tax compliant. Just be warned that states are on the lookout for retailers who don’t collect sales tax, and will be ready with fines and penalties if they find you.
The good news is that getting started is the hardest part of sales tax compliance. Once you’ve mastered the basics, you’ll make collecting and filing sales tax part of your business routine.
MYTH #4: I didn’t collect any sales tax this period, so I don’t need to file a return
When you register for a sales tax permit and begin collecting sales tax in your state, the state’s department of revenue will provide you with sales tax filing due dates. Sales tax will be due either monthly, quarterly or annually depending on your sales volume.
You should always file a sales tax return by your due date, even if you took a hiatus and didn’t collect any sales tax over the period. Filing these “zero returns,” is simple – just login to your state’s department of revenue, or mail in a paper return, with all zeroes.
Don’t skip your zero return. If you forget to file, most states will charge you a late filing penalty even if you didn’t collect sales tax. And no business owner wants to have to pay a late fee, especially when you didn’t owe any money in the first place.
I hope this post has busted some of the most prevalent sales tax myths. Can I help simplify your sales tax life? Start the conversation in the comments!
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