Nearly every online seller will have a sales tax return due in January no matter if you file annually, monthly, or quarterly. For this reason at TaxJar we like to call January the "Sales Tax Perfect Storm."
Just like when a hurricane or winter blizzard hits, no one likes to be caught unprepared, so we’ve assembled a list of our best tips to get you ready for the oncoming storm. Let’s dig in!
Find Your Sales Tax Due Dates
Each one of the 45 states (plus the District of Columbia) that collects sales tax is slightly different when it comes to sales tax filing due dates.
In general, most states set the 20th as their due date, but others want you to file by the 15th, the 25th, or the first or last day of the month following the closing of your filing period. Make sure to check your state’s sales tax due dates to make sure that you file on time to avoid fees or penalties.
Related: Taxes 101 For E-commerce Business Owners
Check Your Sales Tax Nexus
Nexus is defined as "significant presence," and if you have nexus in a state that means you are required to collect and file sales tax in that state.
You’ll always have nexus in your home state, but you could also have nexus from a remote employee, stocking your products in a warehouse, or selling at craft shows.
Here’s a handy checklist to help you determine if you have sales tax nexus in a given state:
- Do I have a location, warehouse or other physical presence in a state?
- Do I have an employee, contractor, salesperson, installer or other person working for me in a state?
- Do I have products stored in a state?
- Do I have a drop shipping relationship with a vendor in a state?
- Do I have an affiliate program with affiliates in various states?
- Do I cross state lines to sell my products at a trade show, craft fair or another event?
If you answered yes to any of these questions, explore whether you have nexus by doing one or all of the following:
- Find out about nexus by reading the state’s sales tax nexus laws.
- Contact the state’s taxing authority and ask for a nexus determination in writing.
- Contact a vetted sales tax expert.
Register for Sales Tax Permits as Soon as You Discover You Have Nexus
As soon as you’ve established nexus in a new state the best practice is to register for a sales tax permit in that state as soon as possible so you can begin collecting sales tax right away.
Also read: Why Do U.S. Sales Tax Rates Vary So Much?
Discontinue Sales Tax Registration if You No Longer Have Nexus
Sometimes you may discover you no longer have nexus in a given state — perhaps your remote employee left the company or you no longer sell at that craft show 10 hours from home.
When that happens you should contact that state’s department of revenue and let them know you’re ending your business relationship with that state.
Keep in mind that some states have a practice called "trailing nexus" where you must keep filing for a certain period of time after your cause of nexus has ceased.
Related: New Automatic Tax Calculations in Ecwid
Make Sure You’re Collecting Sales Tax on All Sales Channels
Sure, Ecwid is your primary shopping cart but you may also sell on eBay or Amazon from time to time. One of the biggest mistakes we see at TaxJar is when a business forgets to collect sales tax on all of their sales channels.
Every so often you should go through the sales tax collection settings for each of your platforms to make sure that you’re collecting from all the states where you have nexus.
Know if You Sell any Non-Taxable Items
Most items sold in the United States are taxable, but not always. Some states do not tax sales of clothing and many states charge a lower sales tax rate (or none at all) on groceries.
Sales tax compliance is governed at the state level and you’ll want to check with your state’s taxing authority to see if any of the items you’re selling in that state aren’t taxable.
Not sure if your products are taxable? Check out this interactive U.S. map to help you find out!
Related: Tax Differences Between LLCs, C Corporations, and S Corporations
Determine How Much Sales Tax You’ve Collected
I’ll be honest, this is usually the biggest headache in the sales tax compliance process, but it’s important to deal with and not procrastinate.
You’ll need to go through Ecwid and each and every one of your other sales channels and figure out how much sales tax you’ve collected from customers in each state.
After that, you’ll need to break down those amounts not just by state, but by county, city, and any other special taxing districts. This is exactly why we recommend having a sales tax automation service to take care of all of this bookkeeping automatically.
Also read: 5 Steps to Sales Tax Compliance for Ecwid Merchants
Check for Changes to Sales Tax Rates
Always keep in mind that state and local sales taxes are subject to change at any time and you’ll need to update the rates of your store if you discover a change.
Most rate changes happen either at the first of the year, in July, or in October. You can always double-check a sales tax rate by entering the ZIP code into a Sales Tax Calculator.
Here’s an example:
Figure out Your Filing Options for Each State
Most states prefer that you file online using the sales tax portal for each site — you’ll fill out their online forms and then create an account in a separate payment processing system to remit collected taxes.
You can still file sales tax returns by mail in several states but many are discontinuing that option. You can find out on the same sales tax portal for that state.
If you don’t want to deal with filling out forms or navigating payment gateways, you can get TaxJar to automatically file your sales tax returns in most states using the AutoFile service that takes care of all the work. It’s even smart enough to figure out if the state has a discount for filing sales tax on time and will apply the discount to you automatically.
File a Return Even if you Don’t Owe any Taxes
You’ll want to make sure you file a return for every state where you’ve registered for a sales tax permit, even if you didn’t end up actually collecting any sales taxes for that state.
Failing to file in states where you’re registered can result in fines or even having your sales tax permit revoked.
Related: Tax Exempt: Improve Tax Settings in Your Ecwid Store
Review or Change Your Filing Frequency
In many states, your business will begin filing monthly for the first year after you register for your sales tax permit, and following that first year, the state may change your filing frequency to quarterly or annually.
This usually (but not always) linked to your sales volume. After some time filing with the state, some states will even allow you to change your filing frequency if you ask. Most sellers prefer to file annually or quarterly when possible so it can definitely pay to contact your state taxing authority to see if this might be an option for your business.
Some states also require that you renew your sales tax permit periodically. For example, Arizona sales tax filers are required to renew their sales tax permits every January 1, though this process is free if nothing about your business has changed.
On the other hand, Colorado requires businesses to renew their sales tax permits every two years. The most recent sales tax renewal due date is January 1, 2018. This applies to every business with sales tax nexus in Colorado and costs $16 per sales tax permit renewal.
Get a Jump on Next Year’s Sales Tax Storm
We know that as soon as you’ve filed for each of your states in January you’ll be ready to not think about sales tax compliance for a quite a while, but keep in mind that periodically thinking about whether you’ve gained nexus in a state or made sure that your sales channels are all set to withhold in the proper states and at the correct rate will help keep your business running smoothly throughout the year and make next year’s "Perfect Storm" easier to bear.
Now that you have a dozen tax tips we hope you’re in a much better position to weather the upcoming January storm. For more about sales tax check out our Sales Tax 101 for Online Sellers Guide.
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If you have questions about sales tax or want to take this administrative hassle totally off your plate, join us for a "Sales Tax 101" webinar with TaxJar.
The sales tax experts at TaxJar will explain the basics of sales tax, how to collect sales tax (and from which customers), how to troubleshoot sales tax issues and more.
TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!