What basic accounting will help process sales tax?
Collecting sales tax can be one of the most complicated issues that small business owners may face, especially if you sell online or have customers in many states. There are nearly 10,000 taxing jurisdictions in the US, and rules vary greatly from state to state. Is labor taxable where you provide your services? Is the state you are doing business in an origin state, or a destination state? Do you know where your business has nexus? What about tax-exempt customers?
If you provide a taxable service or product you should determine where you have nexus.
Nexus is defined as physical presence for the purpose of determining liability for collecting sales tax.
Most of the time this means your business’s physical location. However, you may also have nexus in a neighboring state if you send sales representatives or other employees to solicit customers or conduct business in that state. Once you have determined where you have nexus you need to register with the state departments of revenue and obtain a sales tax permit.
Origin state tax vs Destination state tax
If you run a business like a shop or restaurant, one where your customers come to you, then you just need to know the correct rate for your location. But if you conduct business in many places and ship products to your customers you need to stay on top of many issues. In an origin, state tax is charged at the business’s location, not the customer’s. In a destination state (most states fit in this group) sales tax is charged where the product’s ownership changed hands, usually the ship-to address. And you need to stay on top of rate changes.
Sales tax auditing
If you are ever audited by the department of revenue, your business will be held liable for any sales tax that you failed to collect. If you have customers that are claiming tax exempt status, it is your responsibility to make sure you get proper documentation from that customer supporting their status. Depending on the state, this may be:
- Exemption certificate
- Exemption number
- Affidavit that a transaction is exempt.
Keep this documentation on file to protect your business in case of audit.
Similar to payroll, sales tax collection is an area that many business owners can use outside help. If you are not sure if your service or product is taxable, or where you should be charging sales tax, consider speaking with an expert and avoid the time and expense of a negative sales tax audit.
We hope you enojyed our bookkeeping tips in this article!
LUXA Enterprises offers outsourced accounting services for small businesses in the Tulsa and surrounding areas. If you’re considering a short or long-term approach to outsource accounting, give us a call for more information at 918-928-7288.
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