If you accept credit card payments at your ecommerce business, you may have a diverse set of customers that spans all 50 states. While that’s great for your profit margin, it creates a good deal of confusion when you’re trying to figure out how much sales tax to charge. The following guide will give you some information and tips that will remove some of the gray areas.
What are sales taxes?
Usually collected by the seller, sales taxes are levied by most but not all states. A customer residing in a state with a sales tax who purchases a product from a company headquartered in one of the few that does not is still expected to report what they have spent and to remit the percentage required by their home state.
Ecommerce companies and sales tax.
In the past, online businesses only needed to collect sales tax from customers living in the states where the business had physical facilities, ignoring the rest. However, laws have changed in recent years. Now, many states have regulations on the books that require remote sellers to collect tax from customers at the time of sale.
Become educated about your business’s sales tax obligations.
There is no way around it: You will need to look at every state in which you have sales to learn about what is expected of you as a seller. Pay attention to the sales thresholds in each state; many are $100,000. If your volumes are lower, you may be exempt from collecting sales tax.
Several helpful entities can make wading through these details easier. Resources include the Streamlined Sales Tax Governing Board, the National Conference of State Legislatures, and the Tax Foundation.
Learn about affiliate policies.
Small businesses frequently work through marketplace sellers like Amazon or Etsy to sell their products. Many of these third parties handle most or all of the sales tax burden for you. Even so, be sure that you know the laws in the states where your customers live, and don’t just assume that the company is taking care of the sales tax on your behalf. Do periodic audits of your transactions to ensure accuracy.
Obtain any needed permits.
Some states require that you get a seller’s or sales tax permit to sell to customers living there. These are usually dispensed by state departments of revenue and often can be completed online. Additionally, many states have created online sales tax lookup tools that streamline the collection process.
Collect and remit sales tax.
Remember that each state has its own process. To make it easier, invest in a software package that simplifies sales tax collection and remittance. Also, ensure that your employees are knowledgeable about relevant sales tax details.
Monitor yourself.
The subscription model that many companies have embraced in recent years provides an excellent analogy here. Although the benefits of recurring payments include a certain perception that you can “set it and forget it,” you actually need to keep track of essential pieces of information such as customers’ credit card and account expiration dates. By the same token, you must recognize that sales tax laws are in constant flux, and it is in your best interests to constantly keep your finger on the pulse.
To that end, follow state departments of revenue on social media, and be sure to sign up for their newsletters to remain informed of changes. Also, monitor your sales in any state where you might be approaching the sales threshold.
Running an ecommerce business has many challenges and sales tax collection is definitely one. Stay on top of it, however, and you can reap the rewards that come with having a large and geographically diversified customer base.
