October 16, 2017
Posted by Jennifer Dunn

Get Ready for Q4 Sales Tax with These 5 Tips 

Have you ever forgotten to change the oil in your car and ended up paying a lot of money in repairs you could have been saved had you taken the time to do proper maintenance? Ouch! In a way, sales tax compliance is like car maintenance–you can avoid a disaster in the future by taking a few minutes now to make sure everything’s running smoothly. Here are five tips to keep your sales tax compliance chugging along happily.

1. Make sure you are collecting sales tax from customers in the right states

Have you recently started collecting sales tax in a new state? "Sales tax nexus" means that your business has a significant presence in a state. You will always have sales tax nexus in your home state, but there are other ways you might have sales tax nexus in other states as well, like a warehouse that stores your merchandise or remote employee in a new state.

If there’s a state where you find you have unexpected nexus, you should make sure to register for a sales tax permit in that state and set up your online shopping carts and marketplaces to ensure you are collecting from buyers in that state.

cashRegisterStatesUS.jpg

2. Make sure you are using the correct product tax codes

Collecting sales tax is a bit like walking on a tightrope for sellers–if you collect more sales tax than you are allowed, you’ll have unhappy customers, but if you err on the other side and don’t collect enough sales taxes, you could be on the hook to make up the difference out of your own pocket. Different items are taxed at different rates, and these rates can also change at any time.

Many online shopping carts and marketplaces allow you to tag your products with “product tax codes” (sometimes called “tax classes”) to ensure that you don’t charge sales tax on non- taxable products in the wrong states.

Here’s an example. If you sell textbooks, you should know that in New Jersey, textbooks are non-taxable and your penny-pinching student customers there will not appreciate it if you charge them sales tax when you are not obligated to do so by the state. Entering the right product code for your SKUs makes sure the right amount of sales tax is withheld every time.

3. Make sure you've set up sales tax on shipping correctly

Some states consider the shipping charges an eCommerce sellers charges her customer to be taxable. However, this is entirely dependent on the state. You can read here if your state considers shipping taxable. Just like with product tax codes, your online shopping cart or marketplace should allow you to specify if you want to collect sales tax on shipping or not.

Keep in mind that sales tax laws when it comes to shipping can sometimes change. On August 28, 2017, the state of Missouri changed their tax code to state that shipping charges are no longer considered taxable. If Missouri is a nexus state for you, make sure your settings reflect the current laws.

tax.jpg

4. Make sure you are collecting sales tax in all online shopping carts and marketplaces in all of your nexus states

One of the biggest traps we see ecommerce businesses fall into is forgetting to set up sales tax collection for all of your shopping cart platforms in all of your nexus states.

A lot of sellers decide to start selling through new marketplaces during the holiday season, places such as Etsy or on Shopify. It is great to expand your reach during the busiest sales season, but you can fall into a trap if forget to collect sales tax for all of your nexus states with your new platform. Even if the only reason you have nexus in South Carolina is because you sell on Amazon and Amazon stores some of your merchandise in a South Carolina warehouse, this means you still have nexus in South Carolina and are obligated to collect sales taxes for your Etsy and eBay sales in South Carolina as well. It is probably a really good idea to go and double check this right now.

5. Automate sales tax compliance

Q4 is here. Now is the calm before the storm, but as we get closer to the holidays your schedule will become increasingly tight. As a seller, this means you will have to balance the surge in your business with wanting to spend quality time with your family. This is a perfect time to consider putting your sales tax compliance on autopilot so you won’t need to worry about missing a deadline and you can focus on filling orders and making memories. If you have better things to do than file sales tax returns, try sales tax automation.

I hope that this post helped you simplify your business by providing preventative measure to ensure when the end of the quarter hits you can bask in a smooth and profitable Q4. If you have any questions, feel free to start the conversation below in the comments!

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!

JDunn-Headshot.jpg        Jennifer Dunn - Chief of Content

Get weekly shipping tips, delivered straight to your inbox!

Recent Posts