Sales tax registration is a complex process that tends to confuse and overwhelm most business owners. After the South Dakota vs. Wayfair Supreme Court ruling, it is even more pertinent for businesses to be properly registered for sales and use tax in the state they have a physical or economic nexus. Whether you're an eCommerce seller or a brick-and-mortar business, you may find yourself overwhelmed with how to navigate your obligations surrounding sales tax. Let’s talk about what you need to know when registering your business to collect sales tax.
Know Where You Have Nexus
To achieve compliance, you have to know what your total sales tax responsibility is. If you don’t know what or where your responsibility to collect and/or remit sales is, you could find yourself in a tricky situation. In most states, an up-to-date sales and use tax permit is needed that requires you to collect and remit sales tax. There are only a few states that do not require businesses to collect sales tax at the state or local level.
The way to address this is to know exactly what your business’s total responsibility is. And to know that, you have to identify where you have sales tax nexus.
Nexus is a link or connection to a state that allows that state to impose a sales tax responsibility upon you. There are two types of nexus:
- Physical nexus is when your business has a physical presence in a particular state.
- Economic nexus gives states the right to force out-of-state sellers to collect and remit sales and use tax if they meet or exceed a state’s economic threshold.
The complexity lies in the multitude of sales tax applications in each state. Naturally, every state manages and dictates its own sales tax, income tax, property tax, business licenses, etc. The requirements can substantially differ, and the application process can be perplexing and tedious.
The Importance of Registering Your Business for Sales Tax Compliance
The landscape for sellers doing business in multiple states has evolved and continues to do so. Businesses and companies that did not have to collect and remit sales tax in certain jurisdictions prior to the Wayfair decision mentioned above are now required to comply accordingly.
If your company neglects to collect and file sales tax and you are audited, you could be assessed the tax due plus interest and penalties.
Steps To Navigating Your Business’s Sales Tax Compliance
1.Ask yourself three questions every seller should ask about their company’s sales tax situation in each state:
- Do I have nexus?
- Is what I sell taxable?
- Am I responsible for collecting sales tax?
2.After you’ve answered these questions you may find that you have sales tax obligations and must register your business.
You will need to start out by finding out which types of tax you are responsible for. You may be liable for seller’s use tax, vendors tax, sales tax, and more. Sometimes, eCommerce sellers may not realize that there's an income tax requirement to file and remit income tax in most states. Be aware that some states will automatically open up an income or franchise registration for you when you register for sales tax. Many states may want to know what your taxable sales and liability could be so they can determine how often you need to file.
3.Depending on your business and the state, if you register for sales tax you may need to register with the Secretary of State (SOS) to conduct business in that state, even if you may not have a physical presence there. You may then need a registered agent regarding mailing activities and legal matters that occur in the state.
Registering for your business's sales tax permit is just the beginning when it comes to managing your business’s continuous sales tax obligations and navigating compliance. Once you have registered you will need to begin to collect and remit sales tax from your taxable clients within that state or jurisdiction. This includes calculating the correct amount of sales tax, managing jurisdictional notices, keeping tabs on a tax calendar, and filing in a correct and timely manner.
The Value of a Sales Tax Professional
Registering your business for sales tax compliance correctly can be stressful. Just looking at the mountain of work in front of you and not knowing whether you have the knowledge to do it accurately is enough to make you want to turn your head and ignore it.
But please, don’t ignore it! We are here to help you. We are available on our no-strings-attached “What’s Next Call” where we can help guide you through any compliance issues or questions you may have. As we always say, there is confidence in collaboration. And collaborating with us will not only provide you with peace of mind and reassurance, but it may also end up saving you time and money.