Hi, I'm Candace
Welcome to NewWay Accounting! Explore our resources for small businesses and entrepreneurs to help you maximize your profit and amplify your tax savings!
Sales tax can be…. tricky.
If you have a brick and mortar store it’s pretty simple. You generally charge sales tax on all of the products you sell and then remit that sales tax to your state each month or quarter. Easy.
But what about if you have an online store and sell to customers all over the country? Which sales are subject to sales tax? Which state tax rate do you use?
After the Supreme Court ruling in 2018, the rules got pretty complex. You still have to charge sales tax to all buyers who are located in your state. So if you operate out of Texas and your customer is also located in Texas, then that sale is subject to Texas sales tax.
But what about all of the sales you make to other states?
This is where it gets tricky, because every state has different rules. Generally, you now have to charges sales tax on goods shipped to other states once you reach “economic nexus” in that state. What does that mean? Basically, you reach economic nexus once you do a lot of sales to one particular state.
For example, you don’t reach economic nexus in South Dakota until you sell at least 200 transactions or $100,000 in revenue to South Dakota buyers in a calendar year. Therefore, a company that occasionally ships a few moderately priced items across state lines doesn’t have to deal with all the sales tax rules pertaining to South Dakota buyers and collect the tax and remit to the state.
You own Light Co, which is an online candle store. You are based in Pennsylvania. All sales where you ship candles to customers based in PA, you have to charge 6% sales tax. You will then remit that sales tax to PA each month or quarter (PA will tell you how frequently you have to file sales tax based on your sales volume). Let’s say you sell 100 candles to South Dakota in a calendar year. You aren’t required to collect and remit sales tax to South Dakota since you don’t reach “economic nexus” in that state. Once you sell 200 candles to South Dakota buyers in one calendar year, you’ll have to start charging South Dakota sales tax and remit it to the state.
Businesses that do a minimum amount of online retailing may not be greatly affected.
Conversely, small businesses that do a great deal of selling online, or plan to do so, might have to make extensive efforts to collect and forward sales tax to multiple states. If you are a large online retailer shipping products to many states, this can become an extremely complex and expensive burden.
But here’s the thing, every state has different sales tax rates and rules… crazy right? So do yourself a favor and work with a pro!
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
Sign up to get tax and bookkeeping hacks for entrepreneurs delivered straight to your inbox twice a month!
Get ready to feel more confident and in control of your business finances!