Most consumers are aware that they have to pay a certain percentage of the value of goods and services like sales tax. Most modern POS machines and cash registers print separate sections on bills, which mention sales taxes.
However, as a seller, the task gets a bit more confusing and complex. This is because every seller has three major responsibilities when it comes to sales tax-
- Collecting Sales Tax from consumers on behalf of the authorities
- Reporting Sales Tax collections to the authorities as records
- Depositing the proceeds from the Sales Tax collections to the authorities
In this article, we are going to look at some important aspects of Sales Tax. This is intended to help sellers become more aware of how the entire process works.
Sales Tax: A Brief Introduction
According to legal and financial experts, a sales tax is applicable to nearly all goods and services, which are sold in a state. If a business has a sales presence in the state, they will have to pay sales tax to the revenue and taxation departments of the state.
When it comes to sales tax, one important area matters- ‘physical presence’. To elaborate on the same, physical presence means that your business has an office, factory, or warehouse in the state. It can also be a small packaging unit, or any other physical areas, where your business operates from.
It should also be pointed out that sales tax percentages are different in every state. For example, the percentage of sales tax collected in Oklahoma differs from the one in Washington or Pennsylvania. As a business, you need to be aware of these minute, yet important differences.
Problematic and Confusing Areas in Sales Tax
The differences in sales tax within the different states are the least of your concerns. When it comes to sales taxes, the major areas of confusion pertain to Nexus Laws. In very simple terms, Nexus laws extend the principle of physical presence to the internet and digital domains.
For example, in the past few years, ecommerce companies might have one office located in an isolated state. However, they have consumers scattered all over the country in different states. Following a landmark ruling, the US Supreme Court decided in favor of the states and imposed Nexus Laws.
Nexus laws are aimed at internet corporations that do business digitally. It stipulates that a business has to pay sales taxes if it does a certain number of transactions or generates a set revenue from the consumers of a state.
What are some things Small Businesses do to help them with Sales Tax
As compared to big businesses that have huge legal and financial teams to deal with such issues, small businesses suffer from resource crunches. In most instances, it is the business owner himself or herself who has to do all these things.
However, given the complex nature of the entire process, it is suggested that experts should be engaged in sales tax filing. This will help the business owner avoid the paperwork, along with the penalties that come with faulty or delayed filings.
Almost all the states have their updates websites where all the information, dates and details are constantly uploaded. This means that they can spend some time to understand how the process works. Experts also suggest that it is imperative that a separate bank account is created by the business owners exclusively for sales tax collections.
This will help maintain a proper record of transactions, and ensure that the business is operating in a transparent and honest fashion. It will raise the credibility in the eyes of investor and lending institutions if the business decided to raise some capital in the future.
The Final Word
Any typical small business owner would ideally like to spend as much of his or her time in growing their business. Filing taxes, doing paperwork and engaging with authorities can not only cost you a lot of time, but it can also be mentally exhausting. By taking help from experts and professionals in the field, small business owners can ensure that they are devoting time to the improvement of their business.