Many new entrepreneurs are confused when it comes to sales taxes. A sales tax license gives you the authorization to act as an agent for a specific taxing jurisdiction to collect their sales tax. Sales tax was designed for brick and mortar type business and can get confusing when you have a mobile business or if you sell on the Internet.
To help shed some light on how to collect sales tax, here are seven general rules.
1, The business does not pay sales tax. It collects sales tax from the customer on behalf of the taxing jurisdiction.
2, Generally speaking, sales taxes are imposed on products and not services. There are exceptions in some states.
3, Sales tax only occurs when a business sells to the end consumer of the product. Therefore, if you sell electronic components to a radio manufacturer, who in turn sells the radio to a stereo store, none of these transactions trigger a sales tax. Only when the store sells the stereo to the customer, who buys the product for his own consumption when its value has reached its highest point, is the transaction subject to sales tax.
4, The sales tax a customer pays is the sum of many different taxing jurisdictions. The State, County, and City are all taxing jurisdictions, but there are also special taxing jurisdictions to fund construction projects, subsidize transportation services, etc.
5 Sales tax is computed depending upon the location where the end consumer takes possession. If you have a physical retail storefront and don’t offer delivery the sales tax calculation is always the same. However, if you offer delivery services or if you sell on the Internet, the sales tax you collect can vary depending on where the customer takes delivery.
6, In June 2018 the US supreme court upheld a lower court’s ruling (South Dakota vs Wayfair Inc.) that the state of South Dakota could force the online retailer Wayfair, a retailer with no nexus, which is a physical location, in the state to collect sales taxes on internet sales. This ruling sent shockwaves through the eCommerce community.
Prior to the court’s ruling, most eCommerce or internet retailers only had to have a sales tax license and collect sales taxes for all jurisdictions for a single location. Based on the location where the buyer took possession of goods, the seller only had to collect sales taxes for the taxing jurisdictions that the seller and the buyer had in common.
That all changed, as many states have used the supreme court’s ruling to impose their own requirements on online sellers to collect internet sales taxes.
Here is what you need to know about collecting sales taxes as an online retailer.
7, What most people don’t understand is that the receiver of goods is responsible for paying sales taxes to the taxing jurisdictions for which the seller did not collect sales tax. For example, if you buy a product through the Internet from a business and no taxes were assessed on the sale (because the retailer’s total sales never reached the threshold required to get a sales tax license), it is not really a tax-free sales transactions. You as the buyer are responsible to contact your local taxing jurisdictions (State, County, City, Special taxing districts) to pay the sales taxes owed.
Are handling Sales Taxes properly?
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