If you start a business, whether putting up a physical store or selling things online, you can't run from the fact that you have tax obligations. Almost everything you sell is imposed with taxes, and as a business owner, it's important that you know how to navigate around taxes to operate your business properly.
Understanding your tax liabilities will help your business grow and even help strategize your next move to improve your income. Moreover, neglecting your taxes can result in fees and penalties that can damage your company and lead to your business’s closure.
To help you jumpstart your business, we'll give you a quick and easy overview about ecommerce taxes. So take down notes and carve your way up to success.
Getting to Know Sales Tax in Online Business
If you’re a business owner and a seller, it’s guaranteed that you will encounter sales tax. All the items you will put on sale will be levied with sales tax. These taxes are certain percentages added to the final bill of your consumers. Customers pay for the sales tax, and business owners act as the middlemen that collect the tax and remit them to the proper tax collections agency.
However, as an online seller, your potential buyers can come from different places. In different countries and across states, sales tax differs, which may cause confusion among the sellers. Here are some practices to keep you up on track with these ecommerce taxes to run your business smoothly and properly.
Know where your sales tax nexus is
If you are a business owner in the United States, it's important to know that 45 states impose different sales tax percentages, and five states don't collect them. Understanding how the sales tax works in your economic nexus will help collect them properly. Here are some key points to help you further.
- Every sales tax nexus has a threshold for sales. Most states have a threshold of 200 transactions or $100,000 in sales before you start collecting sales taxes. Other states have lower thresholds at $10,000 and even collect taxes from the first goods sold. Take note of these thresholds to comply with your economic nexus requirements.
- Make a record of all your sales. At some point, your data will give a bigger picture of where the most volume of your sales comes from. Then, you apply the correct sales tax rate and collect them appropriately by pinpointing your sales.
- Do your research on ecommerce sales tax. Aside from government-mandated sales taxes, some locations also require local sales tax. If these taxes are piling up and are still confusing to you, you can hire professional accountants to help you manage your sales tax so you can focus on running other aspects of your business.
Always check your platform's affiliate policies.
If you sell your products through online marketing platforms like Amazon, Shopify, or Etsy, make sure to be aware of their policies. Online marketplaces have different programs that can help you collect and remit taxes hassle-free.
For example, when you sell on Amazon, the sales tax is automatically added to the final bill of your customer upon check out. Amazon will collect sales tax for you, and you can access the records of the amount collected in your Amazon seller profile to file the report at the end of each fiscal year.
According to Amazon policies, the sales tax rate they charge is higher than the law mandates because the collection service fees are payments for their simplified tax collection service. However, online platforms may vary in their policies, so it's best to check them out first to determine which marketing platform is best for your business.
Apply for a seller’s permit.
If you already know your location and percentage of the sales tax, your next step is to register for a seller's permit so you can start collecting taxes. Not all states require permits, but it's best to check their local websites if they require one.
Furthermore, each state has different tax compliance and paperwork requirements. But, most states allow applications through an online process, so you can skip those long lines and hours of waiting in the revenue department.
Sales tax collection and remittance.
There are different ways each state processes remittance of sales taxes. For example, some states require monthly and some allow for quarterly remittance. As a result, managing the collection and remittance of sales tax can be time-consuming and confusing. To help you manage the taxes, you can:
- Use accounting software to keep up with your sales and tax collection. Accounting software simplifies the tax handling of your business. The software can record and calculate sales taxes. It can also produce accurate reports you can use in your filing.
- You can hire professionals to analyze the numbers for you. However, if ecommerce sales taxes are simply too confusing for you, outsource the job to a professional to avoid damaging mistakes.
Final Thoughts
The ecommerce market is rapidly growing day by day. However, it's not enough that you know all the product trends to stay alive with the heavy competition. Other aspects of your business like inventory, advertising, finance, and taxes are also essential to keep your business on top. We hope this blog on the overview of ecommerce taxes helps you create a strategy for running your company smoothly.
If you need an extra hand to take care of technical stuff like finances and taxes, you can find your help here at Unloop. We have professionals who are experts on everything about ecommerce. Bookkeeping, income tax, sales tax, and even strategizing plans for your business—we’ve got them all. Your step ahead to success is with us, so what are you waiting for? Book a call with us now!