ECommerce Sales Tax for Small Business Owners: A Handy Guide

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As more and more small businesses embrace the opportunities that come with ecommerce sales, it is important to know the rules and regulations around ecommerce sales tax. In this handy guide, you’ll get the basics on ecommerce sales tax and what your small business needs to do in order to stay in compliance with state rules and regulations. 

Are small business owners required to pay sales tax on ecommerce sales?

A Supreme Court ruling (South Dakota vs. Wayfair) ruled that small businesses that operate in the ecommerce space are required to pay sales tax. That means that if your business sells something online, then the business will have to pay sales tax as though the product were sold at a physical store. 

Are there any exemptions to the sales tax laws?

Yes. State sales tax does not apply to wholesale items, raw materials and any sales made to non-profit companies. All other ecommerce sales are subject to a state sales tax. 

What is a sales tax nexus and how does that affect your small business?

A sales tax nexus refers to the specific rules and laws that apply between a business and a state where the business made ecommerce sales. For instance, if a small business made ecommerce sales in 31 states, then the business will have to deal with 31 different sales tax implications. 

Since sales tax rules change frequently, it is important for any business operating with an ecommerce presence to stay on top of the latest state sales tax changes. 

How to manage and collect sales tax on ecommerce sales

As you can see, staying on top of sales tax reporting and remittance in dozens of states can be overwhelming. That’s why a small business, with an ecommerce presence, needs to have a system in place to accurately report sales tax to each state where the business had sales. There are a couple of solutions to this challenge. The first solution is to use a top point-of-sale (POS) system that will help organize the reporting and collection of state sales tax. Second, a small business should have a team of professionals who can help advise and keep on top of state sales tax payment deadlines. 

Top point of sale (POS) Systems

The following are the top point of sales (POS) systems that are designed to allow small businesses to make ecommerce sales around the world. Not only that, these POS systems can help collect sales tax payments and allow for easy state-by-state reporting. 

 

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Square

Square is a digital financial services company that allows businesses of all sizes to accept payments online or at a point of sale. This solution is particularly attractive for businesses who have both a physical as well as online presence. 

Clover

Clover is a point of sale processor solution that works with both Apple Pay and Google Pay. The platform can be set up to automatically apply sales taxes according to a certain geographical location. 

Paypal

PayPal is a premier online financial services company that also offers payment processing for millions of merchants. With PayPal, merchants are able to apply sales tax by location. 

Vend

Vend is a cloud based point of sale payment processor that can accept payments from both physical and online locations. Vend allows for easy processing for business with multiple locations and multiple sales channels.  

Tips on tracking your ecommerce sales tax 

On the surface, it may seem like a time consuming challenge to track and remit sales taxes from every state where a business has an ecommerce sale. However, there are some tips that can help streamline the process. Here’s a look at how small businesses can easily handle sales tax collection and payments. 

1). Use an accounting solution to track each penny 

Small businesses should have some sort of accounting solution in place that can allow them to stay on track of all of their sales tax collections and payments that are due. An online or virtual accounting service can help facilitate the process. 

2). Track each state’s payment deadline 

It is also critical that a small business understand when their sales taxes are due in each state. Since each state has their own unique rules and regulations, it is important that a small business understand what is due and when. 

3). Obtain the right sales tax permits 

A small business should also make sure that they have acquired the right sales tax permits in all the states where they are going to have ecommerce sales. This will ensure that the business will stay in compliance in the state where they have sales. 

4). Understand the penalties for non-compliance 

The small business owner or managers should also be aware of the consequences of non-compliance when it comes to either not paying state sales tax in time or not having the proper permits in a given state. 

5). Get expert assistance 

Finally, a small business should have the right team in place to make it easy to understand, collect and pay all sales taxes in all applicable states. The best qualified professionals that can help small businesses in this arena include CPAs as well as tax attorneys. 

Learning the basics on ecommerce sales tax 

A small business doesn’t have to be overwhelmed when it comes to dealing with ecommerce sales tax in each state. By having the right point of sales platform and qualified accounting assistance, a small business can easily make sales in every U.S. state without having to worry too much about ecommerce sales tax. If you have a small business, be sure to consider a top point of sale platform and tax accounting assistance for your ecommerce operations. 

Disclaimer: This content does not necessarily represent the views of IWB.

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