Share this
There’s no proprietor’s handbook whenever you begin your individual enterprise. That is very true with regards to coping with U.S. gross sales tax. Every state’s gross sales tax legal guidelines, guidelines, and rules are totally different. On prime of that, every particular person enterprise’s gross sales tax legal responsibility varies. As a result of gross sales tax is so mysterious, many rumors and myths swirl round this ubiquitous enterprise job. In the present day, we’ll bust the most typical gross sales tax myths!
Fable #1: I pay gross sales tax to the IRS
Many new enterprise homeowners are confused in regards to the distinction between revenue tax and gross sales tax. You pay revenue tax on the revenue your online business makes. The IRS is answerable for administering federal revenue tax. (And in case your state has revenue tax, your state’s taxing authority is answerable for administering state revenue tax.)
However gross sales tax is a state-level tax solely. Forty-five states and Washington D.C. all have a gross sales tax. Gross sales tax is run by every state’s taxing authority (normally known as the “[state] division of income”).
One other distinction between revenue tax and gross sales tax is that retailers gather gross sales tax from clients and move the gross sales tax on to the state. Gross sales tax is a pass-through tax and also you, the retailer, ought to by no means pay gross sales tax out of pocket.
Fable #2: I don’t have to gather gross sales tax if I solely promote on the web
Many on-line sellers, particularly new sellers who solely promote from dwelling, are beneath the misunderstanding that they don’t want to gather gross sales tax since they personal a small, home-based enterprise. Sadly, this can be a fantasy. In case you are promoting taxable merchandise in your online business, then you’re required to register for a gross sales tax allow along with your state and gather gross sales tax.
Fable #3: Each enterprise has to gather gross sales tax from clients
Gross sales tax is a tax on the sale of taxable merchandise. In most states, tangible gadgets (jewellery, espresso mugs, furnishings, and so forth.) are taxable whereas companies (landscaping, piano classes, accounting, and so forth.) are usually not taxable.
To make issues extra difficult, some states now think about some companies to be taxable. In case you’re uncertain whether or not you’re required to gather gross sales tax on the services or products you promote, test along with your state’s division of income.
Fable #4: I don’t have to gather gross sales tax after I promote a product if I paid gross sales tax when shopping for that product
Many on-line sellers get their begin doing “retail arbitrage.” Lengthy story brief, meaning shopping for merchandise at a low value and reselling them at the next value. Since you’re shopping for these merchandise from retailers who’re required to cost gross sales tax, you most likely pay gross sales tax when making the acquisition.
However the factor to recollect is that gross sales tax is charged on the transaction, not the merchandise. So even should you paid gross sales tax whenever you purchased an merchandise, you’re nonetheless required to cost gross sales tax to your purchaser whenever you resell it. (So long as you promote it to a buyer in a state the place you have got gross sales tax nexus, however that’s a subject for an entire different put up.)
Thankfully, there’s a strategy to forestall paying gross sales tax on and merchandise after which having to show round and cost gross sales tax to your patrons. You should utilize a “resale certificates” when making a purchase order. Whenever you use a sound resale certificates at a retailer who will settle for it, you aren’t required to pay gross sales tax on gadgets you plan to resale. You will discover extra information about resale certificates right here.
Fable #5: I ALWAYS solely have to gather gross sales tax in my dwelling state
As a product vendor, you solely have to gather gross sales tax in states the place you have got gross sales tax nexus. Many new companies solely have gross sales tax nexus of their dwelling state. However enterprise create gross sales tax nexus in some ways, together with:
- Having an worker or contractor in a state
- Having a location or stock in a state
- Having an affiliate in a state
- Having a drop delivery relationship with a vendor in a state
- Making momentary gross sales in a state
As your online business grows and modifications, you might set up gross sales tax nexus in a brand new state. Whenever you set up nexus in a brand new state, you’re required to register for a gross sales tax allow and gather gross sales tax from patrons in that state.
Fable #6: If I didn’t gather any gross sales tax, I don’t must file a gross sales tax return
Whenever you register for a gross sales tax allow, your state will assign you a submitting frequency and gross sales tax due dates. You’ll typically be required to file a gross sales tax return both month-to-month, quarterly or yearly. That is true even should you didn’t make a single sale or gather a penny of gross sales tax over the taxable interval.
You probably have a gross sales tax return due, file that return even when all you inform the state is “I collected $0.00.” Failing to file one among these “zero returns” can lead to every thing from a financial penalty to having your gross sales tax allow revoked. Don’t overlook to file your return by the due date!
I hope this put up has busted some frequent gross sales tax myths. For extra about gross sales tax, take a look at our Gross sales Tax 101 for On-line Sellers Information.
TaxJar is a service that makes gross sales tax reporting and submitting easy for greater than 8,000 on-line sellers. Strive a 30-day-free trial of TaxJar immediately and get rid of gross sales tax compliance complications out of your life!