Taxes are an increasingly necessary and complex part of eCommerce business. And though we haven’t had any gigantic shipments of tea ruined in protest recently, folks nationwide find taxes incredibly frustrating. This isn’t without reason, as the United States has over 14,000 tax jurisdictions and 210,000 tax-specific laws to keep up with. We at Taxify, with our army of tax attorneys, happen to love taxes, so we’re here today to clear up (some of) the haziness around eCommerce sales taxes.
When you sell products out-of-state, you may have nexus. Nexus is a fancy way of saying you are legally obligated to collect and remit sales tax to a given state. It usually comes into play when you have a physical presence within a state, which, of course, is defined differently across the country. Any given business can owe taxes in multiple states. This means that neighbor selling old baseball cards on Amazon, or that small coffee shop that sells coffee online can have have an obligation to pay sales tax.
(Some of) The Details
States expect their cut when you benefit from their services. This means if you use roads or bridges, generate trash, or benefit in any way from infrastructure provided by tax revenue, you may have nexus. This is because as more and more sales happen over the internet, states are trying to figure out how to get their piece of the pie.
There are different types of nexus that can apply to your business. (To dive deeper into these, you can check out this sales tax resource.) Basically, if you have a physical presence in a state, you owe sales taxes. This is pretty typical at a high level: offices, employees, warehouses. But it can get pretty messy in some cases:
The Next Step
You’re on your own to determine if you owe taxes to a state. There are some things you can do though, to be proactive and protect yourself and your business.
For starters, make sure you keep track of where you’re selling products, where products are coming from (are you using a fulfillment facility?), and any other activity within a state.
Then it’s time to figure out where you owe taxes. This can seem like a daunting task, but there are tons of resources out there to guide you along the way. Using the checklist below can provide you with a starting point to see if you have nexus, and therefore are obligated to collect and remit sales taxes in a state.
If you determine that you do, in fact, have a sales tax obligation in a state, the next step is to determine that state’s sales tax rate. This map can help! Taxes are different throughout some states so there are certain things to keep in mind when selling out of state. You’ll want to dig into the details: Is this origin based, or destination based? Is it a home rule state? What types of products are you selling? This resource can provide some context for this search.
Once you’ve determined the proper amount of sales tax, it’s time to collect and remit them. To do this you’ll need to determine if it’s an e-file or paper return. States typically let you know this when you register your business within a state, but if you’re uncertain, don’t hesitate to call them. They know their rules best!
You’ll then need to file your taxes This requires mapping out the different states you owe taxes in, and determining each specific format for submission. States love to be unique, so they each have different expectations and standards for submissions. It’s essential to develop a timeline surrounding their specific deadlines to avoid fees, though. They’ll sneak up on you!
Sales tax is a lot to understand, but you don’t have to go at it alone. There’s tons of content out there to help you along the way. Be sure to check out more of our resources for more great content. Have a specific question? Let us know! We’re here to help, and our support team is just delightful.
Taxify is the first solution to give you world class sales tax software on a platform that is delightfully easy to use – and at a price your business can afford. And, our team is passionate about helping small to medium sized businesses grow by getting sales tax out of your way and off your mind. We call that Effortless Sales Tax.
What does Effortless Sales Tax mean exactly?
It means we cover every state, not a select few. It means we back your business with the same tax resources the Fortune 100 use. It means we are committed to beautiful product experiences that our customers love. It means our helpful people show you the love by enthusiastically supporting you and your business.