Small business owners, you’re busy enough as it is.
Managing inventory, marketing your business, and providing excellent customer service are just a few things on your plate.
Managing sales tax payments doesn’t have to be another one.
We understand that sales tax compliance can be complex and time-consuming, and many small business owners are afraid of making mistakes. However, it’s important to remember that fulfilling your legal obligations is a necessary part of running a business. Uncollected sales tax is a debt to the government, and it can lead to penalties and fines.
Read this blog to learn more about sales tax compliance and how Peach BPO can help your business.
Just when you think you’ve got a grip on sales tax regulations, the rules throw you a curveball. Let’s say your online store sells to customers across different states. Now, each state has its own tax rate. One wrong rate, and you’re unintentionally shortchanging the state (and being penalized for it) or overcharging your customers.
Here are some sales tax compliance risks to consider:
If you answered yes to any of these questions, your business may be at risk.
Don’t wait until you’re audited to learn about sales tax compliance. Educate yourself today and get the support you need to stay compliant.
Sales tax nexus is the connection between your business and a state that requires you to collect and remit sales tax there. You can establish nexus through:
A physical presence in a state, such as a brick-and-mortar store, office, or warehouse, is the most traditional way to establish nexus. Even having a single employee or sales representative work in a state can trigger nexus. With the rise of e-commerce, the definition of physical presence has also evolved.
Many states have introduced economic nexus rules in response to the growth of online sales. Economic nexus is established when your business makes a certain amount of sales or transactions within a state, regardless of whether you have a physical presence there. The specific sales or transaction thresholds vary by state.
Around 20 states have affiliate or click-through nexus laws, including Connecticut, Georgia, New Jersey, Minnesota, and Idaho. This means that if you have affiliates in a state that refer customers to your online store through affiliate marketing programs, it could create a nexus, even if you have no physical presence there.
Storing inventory in a warehouse or fulfillment center can also establish sales tax nexus in some states. This is often referred to as inventory nexus. If you use third-party fulfillment services like Amazon FBA, you may inadvertently create nexus in multiple states where your inventory is stored.
Participating in trade shows, conventions, or temporary activities in a state might also trigger a temporary nexus. States often have specific rules regarding the duration and frequency of these activities.
Most modern POS systems have built-in tax calculation features that use the date, location, product or service type, and customer information you provide to calculate the sales tax rate.
Geo-location Services: Some POS systems use geo-location services to automatically apply the correct tax rate based on the customer’s location.
Tax Exemptions: Modern POS systems can accommodate tax exemptions for specific items or customers. For example, resellers who provide a valid resale certificate may be exempt from paying sales tax on certain purchases.
However, not all POS system configurations can track and account for sales tax paid through other payment apps. This can lead to an inflated sales tax basis, which means that you may be paying more sales tax than you are legally required to pay.
You may consult with our experts if you are unsure about how to configure your POS system.
Transparency in your sales transactions is important for maintaining customer trust and complying with tax laws. Accurate and comprehensive invoices are key to transparency. Your invoices should include the following
Sales Tax Amount: Clearly separate the sales tax amount on the invoice, so customers can understand the breakdown of their purchase and the tax they are paying.
Tax Identification Information: Include your sales tax permit number on invoices, so customers can verify that you are a registered and compliant seller.
Itemized Details: Provide a detailed breakdown of the items or services purchased, their quantities, individual prices, and the total amount before and after tax.
Customer Information: Ensure customer contact information, including their billing address, is accurate to determine the correct tax rate and jurisdiction.
In case of an audit, you will want to be able to explain in plain detail the amount you came to when paying sales tax. Sales transaction records (invoices, receipts, quotes, contracts, shipping records, and exemption forms) help you track sales, manage inventory, and resolve any disputes with customers or suppliers. These records can also be used to generate reports that provide valuable insights into your business’s performance.
At Peach BPO, we have a detailed record-keeping process, reducing errors and ensuring compliance with tax and other regulations.
Each state has its own rules and regulations for sales tax, including how often businesses are required to report and remit the tax they have collected. Businesses follow one of three filing schedules: monthly, quarterly, or annually.
Businesses with high sales volume and/or tax liabilities are required to file sales tax monthly.
Examples: restaurants, car dealerships, retailers that sell large items, such as furniture and appliances
Most businesses belong in this category. Quarterly filing is required for businesses that collect a moderate amount of sales tax.
Examples: online retailers, manufacturers, wholesalers
Few businesses are eligible to file their sales tax annually.
Examples: home-based businesses, businesses that only operate for a few months each year
Note: States have different thresholds for determining how often businesses must file sales tax returns. Check with your state’s tax authority to find out your business’s filing schedule.
Sales tax compliance can be tricky, but you don’t have to go it alone. Choose a partner that understands the ins and outs of sales tax and can help you implement best practices – it’s an investment that will pay off in the long run.
At Peach BPO, we can help you gain assurance you are paying the correct amount every time. We make sure you meet deadlines, navigate state-specific regulations, and save money! We have helped clients save hundreds of dollars by not overpaying each filing period, and we can do the same for you.
You may schedule a free consultation with our team to discuss your sales tax compliance needs.