When building a business, one prime thing to consider is the tax rate your country, region, or city implements to the goods and services you plan to sell. The sales tax rate is the percentage of the price of goods you or your customer buys. A few organizations are exempted from paying the sales and, similarly, can sell taxable items as long as they acquire a sales tax permit.
This article will help you know how to calculate sales tax, generally and in certain states like Texas, and possibly even avoid it legally as a small business owner.
Texas has a 6.25% sales tax rate, which means that any taxable goods and taxable services will have an additional 6.25% of the selling price to the total price.
Sales tax = 6.25% X retail price
Retail price: $100
Sales tax rate in Texas: 6.25%
Sales tax = 6.25% X $100
Sales tax = $6.25
The price would now be $106.25 with the total sales tax.
Note: Local tax authorities can impose an additional 2% on top of the Texas sales tax rate. So, the highest sales tax rate in Texas would be up to 8.25%.
Accounting for online businesses can be tricky if you think about the sales rate—this value is different across states, cities, and countries. If you are in eCommerce, you must know that sales rates still apply to the goods you sell even without a brick-to-mortar location or if you are shipping overseas.
When a customer buys from you, the customer will need to pay consumption tax or sales tax on top of the shipping fee. The majority of the time, the sales rate depends on the customer's shipping address. For example, even if you are a Texas-based business but a customer made an online purchase from Arizona, the tax rate added to the total sales might be 5.6% instead of 6.25%.
However, if you are both from Texas, the sales tax rate will depend on your location. If your customer is interested in knowing which tax rates they will be paying, you can help them by searching their location on the Tax Comptroller's Tax Rate search engine.
Being a business owner doesn't exempt you from paying sales tax yourself. For example, if your business requires you to purchase items to build your product or resell, you may have to pay the sales tax implemented on the seller you purchased it from.
It would be best to get a reseller's certificate to avoid reselling your products at a higher price due to the sales tax. This certificate allows you to buy the taxable items at the exact price it is sold. So, for example, if you need to buy a car worth $150 in Texas, instead of paying $159.38, you will only pay $150.
If you are a business entity, it means that you should file your first sales tax returns on the 15th, one month after the date of registration, and every following month until either termination or renewal.
Also, if you are due for your first sales tax returns and filing on time is not an option for you, the Tax Comptroller's office allows you to make quarterly payments instead of filing monthly until all owed taxes (or instalments) are paid in full.
Essentially businesses are tax collectors for the government and need to collect sales tax as sales tax liability and must file a tax return to the government periodically, depending on how much you have collected. So if you have collected $500 or more per month, you may need to file a tax return monthly. If you make less than that, you may need to file a tax return quarterly. Seeking the help of a bookkeeping business helps keep track of the sale tax you collect monthly in your growing business.
Keeping track of how much sales tax you have collected monthly may be a formidable task, especially if you are a one-man-employee in your business. To keep up with your paper trail of receipts or financial statements for your growing business, you need to seek the help of an online bookkeeping service with sales tax automation for eCommerce.
Online bookkeeping services can help you calculate your monthly sales tax, as well as do multiple bookkeeping tasks such as bank reconciliation, keeping track of your receipts, and more.
Unloop offers a bookkeeping service that can best suit your monthly needs. If you want to know more, you can book a call with us, so we answer your inquiries!
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.