Unexpected Capabilities. Unmatched Service.
online sales taxes

Online Sales Taxes: What Small Businesses Need to Know

The brick-and-mortar storefront hasn’t vanished with the sands of time, but part of it has migrated online. Here and there, the little shop down the street has become the little shop with a sprawling e-commerce presence, shipping goods to every corner of the country.

The future is now, as they say, and with it a host of benefits. But it’s not without its difficulties and responsibilities, and among them is taking care of online sales taxes.

Collecting online sales tax can be a much more complicated task than doing so from the comfort of your store’s register, especially if your small business sends anything along outside of your state’s borders.

But it’s a necessity – one you need to get right. So here, we’ll provide you with some basic insight into how to properly deal with online sales taxes.

A Quick Guide to Online Sales Taxes

Here are a few things you need to know when figuring out whether you should collect sales taxes (and how):

Where Your Business Is Located Matters

Up until just a few years ago, businesses only needed to charge state and local taxes if they had a physical presence (say, an office or a storefront) there. After South Dakota vs. Wayfair Inc., however, states were granted permission to collect sales taxes from any company delivering goods or services there.

Thus, small and large businesses alike must determine tax amounts from anywhere they sell to. Most states have an income tax – but not all. Alaska, Delaware, Montana, New Hampshire and Oregon don’t have statewide sales taxes, while the remaining 45 states and the District of Columbia do.

Importantly, most states have their own distinct rules about “tax nexus” – what defines the connection between a business and any taxing jurisdiction. South Dakota, for instance, only collects sales taxes once a business exceeds $100,000 or 200 transactions in a given year.

You also have to account for local levies. Thirty-eight states (including Alaska, despite having no statewide sales tax) allow counties, cities and other localities to charge sales tax.

Be Precise, And Let Technology Be Your Friend

In short, businesses have to do a considerable amount of legwork to determine how much online sales tax to collect if they do a lot of business in several states.

And even then, the work is far from over.

You need to make painstaking efforts to keep accurate records, accounting for every dime that’s collected for each state, each county and each town.

Paying those sales taxes isn’t a breeze, either. Every state has their own filing frequency – one might be quarterly, another might be every month – so you need to pay close watch to when each remittance must be made. Even the methods of collection vary by state, with some allowing you to pay online and others requiring physical checks.

If you’re a small business with limited resources, that probably sounds unfair and overburdensome. It is. But you’re not completely without aid.

Software is an important ally in remaining compliant with collecting online sales taxes. Popular consumer names in the point-of-sale (PoS) space such as Square, PayPal and Shopify can help you collect sales tax, as do other powerful PoS platforms such as Lightspeed and Clover.

People are a vital resource too.

The accountants at McManamon & Co. can provide numerous services for small and midsize businesses, such as determining how much in online sales taxes you’ll need to collect for every state, not to mention specifics such as sales thresholds and the intricacies of each state’s filing requirements.

Building a sprawling e-commerce operation can be exciting – especially when you offload some of the burdens to trusted professionals. Reach out to us at 440.892.8900 or contact us online today.

Tags:  , , , , , | Posted in McManamon & Co., small business, small business taxes, taxes