None of us like taxes; however, they are crucial for running a successful business, and you should be alert when it comes to the taxes of your business. We at Prestige Auditors have prepared short guidelines for your healthy business operation. First of all, let’s try to understand what e-commerce sales tax is and why we need it.

Sales tax is a percentage of sales that solely purchasers pay for a taxable item when making purchases from the retailer store. If you are running your e-commerce business in the United States, you should be aware that sales tax is being governed at the state level, since the United State does not have a national sales tax law. Here comes the most confusing part for online sellers: you can face completely different sales tax laws in each state if you decide to run your business throughout the United States.

Why Do You Have to Charge Sales Taxes?

If you are running your e-commerce business in a specific state, it is under your responsibility to collect sales taxes from your customers. But first of all, we should figure out in which cases you should charge seller taxes from your customers:

  • If your business has a sales tax connection in the state where your potential customer is located.
  • The products you purchase are considered to be taxable in that state.

What is Sales Tax Nexus?

If you are an online retailer and you are operating in one of the states, you have to collect taxes from your buyers in that state.

Here are the main Nexus requirements by states:

  • Product Taxability. Each state determines if the product is taxable or not. However, there are some untaxable products as well. If you find out that the product that you are selling is taxable in your state, you should register it for sales tax permits.
  • Getting permission to sell your unique products: for registering your product, you should reach the Department of Revenue and provide them with information on your business activities. Keep in mind that in some states, it illegal to collect taxes without getting permission from the government of your state.
  • Charge Sales Tax: After registering your taxable product, you are ready to start collecting your taxes.

As we have mentioned before, every state determines its own tax laws. If you’ve decided to sell your product in a specific state, your next step should be to decide which kind of sales tax sourcing you are going to use: origin-based or destination-based.

It means that the states have to decide whether e-commerce sellers collect sales tax at the “original-based sourcing” or “destination-based sourcing.” Usually, most of the states are destination-based. We’ll talk more on this subject in a different blog!

Report and File Sales Tax

After issuing your sales tax permit, you will be assigned for sales tax filing frequency. As a rule, sales tax due dates are varied among the states. Your main mission is to report collected taxes in your state. If you are running your business in multiple states, it would be a little bit complicated to report about your sales taxes. Prestige Auditors are ready to help you not only in the process of reporting about your sales taxes but also guide you in all of the stages of your business formation, business sales tax exemption, and various e-commerce business solutions.

 

 

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