Is Q4 coming?! While that’s mostly great news for online sellers, it also means that you’ll have to use every minute of your time to the fullest to take advantage of the sales rush. One thing you don’t want to have to do is troubleshoot your online business’s sales tax hassles.
These 5 tips will help you ensure you have sales tax under control before the Q4 tide sweeps you up.
1. Make sure you’re collecting sales tax in the right states at the right time
In the U.S., online sellers are only required to collect sales tax in states where you have “sales tax nexus.” Nexus is just a fancy way of saying a “significant presence” in a state.
When selling on online marketplaces like FBA that provide fulfillment services, you have nexus in any state where your inventory is stored. That’s why it’s important to take a moment once a month or so to determine if you have a new nexus state.
For example, a new Amazon fulfillment center just opened in Aurora, Colorado. This is the first Colorado fulfillment center, and that means that some FBA sellers will find themselves on the hook to collect Colorado sales tax this holiday season.
If you do discover that you have nexus in a new state, your next step is to register for a sales tax permit in that state. After you apply for a resale certificate, set up sales tax collection through Amazon and all the other online marketplaces and shopping charges you sell through.
Moreover, it is important to note that paying sales tax by a specific data could earn you some ”Vendor discount” in few states. Although we’re speaking of quite small discounts, deductions can add up over time, so we’d better be aware of which states offer them.
2. Ensure you’re only collecting tax on taxable products
Taxes are a little tricky in the U.S. Each state makes their own sales tax rules and laws, and that sometimes includes laws stating that a certain class of item isn’t taxable. For instance, clothing is not taxable in Pennsylvania and textbooks aren’t taxable in Kentucky. Groceries aren’t taxable in most states, though sometimes – such as in Illinois – they are taxable, but at a lower rate than other items.
Fortunately, Amazon makes it simple to ensure you charge the right amount of sales tax on the right items. All you have to do is ensure that you have tagged your items with the proper product tax codes. If you sell items that are non-taxable in some states, you can find out all about how to use product tax codes on Amazon here.
3. Double check sales tax on shipping and gift wrapping charges
While you’re in your Seller Central tax settings, you’ll also want to double check that you have set up sales tax on shipping charges and gift-wrapping charges correctly.
Many states consider shipping charges as a taxable part of a sale. For example, you sell an item for $10 and charge $2 in shipping. Most states consider that total $12 to be taxable. Though other states say that shipping charges are not taxable. In that case, if you sell the same item for $10 plus $2 in shipping charges, you’d only charge sales tax on the $10 price of the item. It’s a little confusing, I know!
Fortunately, you can see a list here of states that require sales tax on shipping charges.
Gift wrapping is the same way. Some states consider gift wrapping to be a taxable service, while others don’t. You can double check whether you should charge tax on gift wrapping services here.
4. Selling on a new marketplace? Be sure you’re collecting tax in nexus states
One of the biggest pitfalls we see online sellers face is selling on a new marketplace and forgetting to collect sales tax in all their nexus states.
For simplicity’s sake, let’s say you have nexus in South Carolina, California and Massachusetts because you sell on Amazon FBA. Then let’s say you start a Shopify store. You must remember to set up sales tax collection in South Carolina, California and Massachusetts in your Shopify store, too. This can be easy to forget!
5. Automate sales tax
Now that you’ve prepared your online business for all the surprises that Q4 can throw at it, the last thing you want to do is deal with filing sales tax returns. Fortunately, you can automate your sales tax life so you don’t have to worry about dealing with this unprofitable hassle while the sales are rolling in. Put sales tax on autopilot, so you can focus on the more important aspects of your business – like making money. Or on the more important aspects of your life around the holidays – like making memories!
We hope this post has helped you prepare your business’s sales tax life for Q4. Do you have questions about sales tax? Start the conversation in the comments!