To run any business successfully, it is crucial to abide by the law of the land. When you are a small business operating out of your garage, you may not worry about the marketplace regulations. But, when your business starts attracting revenue, it becomes imperative to comply with all the required paperwork and legalities. One such very important part of running a business is sales tax.
Except for some essentials like groceries or prescription medicines, almost all products and services are subject to sales tax. If you are doing business in the US, the federal sales tax will be applicable. This means the sales tax rules vary from state to state within the country. When you have a brick-and-mortar store, you will be complying with the law of the state where the store is situated. But, if you are doing an online business, you may be shipping products to customers residing in other states as well. In such a scenario, the sales tax calculations get complicated. Strikingly helps you to set different tax rates for different states, thereby making your life easy.
What is sales tax?
Before getting into the nitty-gritty of sales tax in different states, let us first understand what type of tax is a sale tax. Whenever a product or service is bought by a customer, the government charges a small fee on top of the buyer quotes’ actual cost. This fee is called sales tax, and it is calculated as a fixed percentage of the actual cost.
The government relies on business enterprises like you to collect this tax. As a registered business entity, you will collect the additional sales tax from your customer along with the actual price. At regular intervals such as monthly or quarterly, you need to report all the details of the sales tax you have collected and remit the amount to the government. This process is called tax filing.
In short, sales tax is the additional money that the consumer has to pay to the government while making a purchase, and it is the responsibility of the business owner to collect and remit it to the government.
Things to remember while collecting sales tax
Here are a few things that you need to take care of while collecting and filing sales taxes.
- Get sales tax permits
In order to do business in a state and collect taxes, you need first to apply and get the sales tax permit from that state. If you are running a physical store, you will only apply for the permit from your home state. If you are doing online sales, you may have to obtain sales permits from multiple states where you are shipping your product or where your customers are accessing your service. In government jargon, the presence of your business in a particular state is called sales nexus. In whichever state you have a sales nexus, you need to get a sales tax permit too.
- Get the taxes calculated for different states
Sales tax computation varies widely from state to state. Forty-five of the fifty states in the US charge state sales tax, and thirty-eight of them charge an additional local sales tax. The percentage of sales tax also varies. If you are a newbie in the retail business, then it is wise to get help from a professional to get the state sales taxes calculated for different locations of your stores and product destinations.
- Factor in tax exemptions
In almost all the states, food and medicines are tax-free. Only in seven states, these essential items are taxed. Even then, the percentage of tax levied will be less when compared to other items. In some states, clothes are also exempted from tax. If you are into any of these businesses, then be sure to factor in the exemptions wherever applicable.
Another critical aspect of exemption is the purpose of purchase. If your business follows a B2C model, then your product is bought by an end-user, and he will be taxed for it. But, if your business is B2B, then your customer is buying your product to sell it to somebody else again, or use it as raw material and build his own product. In either case, the tax will be exempted.
- Collect sales tax on all channels
Today’s customers have very particular preferences when it comes to buying products. Some may prefer to buy from your website, while others may buy the same product through other retail platforms like Amazon. Some others may choose the plain old way of visiting the physical store, trying out the product, and then buying. To cater to all these customers, you need to make your product available through multiple channels. But the catch here is that you need to collect taxes in all these channels, maintain records of it, and collate everything into a single report at the time of filing taxes.
How to make some extra bucks while filing sales tax
You may think that you are just a facilitator in the state’s process of collecting taxes. But, if you get it right, you can even make some extra money by collecting and filing sales tax. The trick here is to understand the tax regulations in different states and benefit from tax exemptions and discounts.
- Avoid taxes while buying from your supplier
If you are buying products from a wholesale supplier and marketing it to consumers in turn, then you can get yourself an exemption from paying sales tax at the time of purchasing your inventory. Since you are not the end consumer, you need not pay taxes for it. Inform your supplier that you are a business and submit your registration details. With this information, your supplier should be able to give you the tax exemption.
- File your sales tax on time
Each state follows a different set of sales tax rules when it comes to the frequency and date of filing taxes. In most cases, it will be monthly or quarterly, and the due date for remitting the taxes for a particular period will be the 20th of the following month. Check your state’s Department of Revenue to know the exact frequency and due date for your business. The frequency may vary depending upon the volume of your business too. The Higher the sales volume, the higher the frequency will be.
Whatever be the frequency, make sure you file your taxes well ahead of time. Some states penalize businesses heavily when there is a delay in filing taxes. At the same time, if you pay your taxes promptly, you will be eligible for discounts, and you can keep a portion of the tax that you collected. File taxes on time and don’t let the money slip out of your hands.
Remember, you need to file taxes even if you did not make any sales in a particular financial year. This is just for the governments to check on all the businesses in their states, irrespective of how their business is doing.
How to collect taxes during online sales?
Strikingly provides you a simple and elegant way of charging differential tax rates depending on the product and state. This comes as a relief in the busy life of an entrepreneur. Follow the below steps and set up sales taxes in your Strikingly online store.
- Open the site editor view of your online retail store. In the left-side bar of the site editor, select the store section and click on ‘Click here to start selling’ button in the layout.
Image taken from Strikingly website.
- Navigate to the ‘Taxes’ section under ‘STORE’. Here, you can see the various modes for collecting taxes. If you are in a country with the same tax rate for transactions, you can choose the first option ‘Flat Tax Rate’. If you are in the US or the European Union, then choose the appropriate option accordingly. This will let you set different tax rates as applicable in each state or country in the region.
Image taken from Strikingly website.
- In this example, we have chosen the ‘US State Sales Tax’ option. Now, you need to select whether to show tax to the user as an additional item at the time of checkout or include it in the product price. This decision depends on your customer’s mindset. If your customers are financially aware and want to know the final invoice’s split-up, then select the first option. On the other hand, if you sell to simple folks who want to know the total cost of a product before adding it to the shopping cart, then go for the second option.
Image taken from Strikingly website.
- The final step is to fill up the state sales taxes for each state and non-US destinations. If the tax rate is similar for all or most states, you can use the ‘Apply a rate to all states’ feature, and then edit only those states that differ.
Image taken from Strikingly website.
That’s it. Your website can now collect sales tax depending on the location of your business or customer. Save the changes and publish the site with these updates. If you need any help while setting up these tax rates on the website, our Happiness Officers are available round the clock. Talk to us :)
