Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Opening a business is not an easy feat. It's not all about selling products and generating an income. If you want to be successful, you must understand how the marketing world works. There are planning and strategic risks you need to take; there are permits and certifications you must undergo before you can start selling. And the most crucial of all is your finances—income taxes, sales taxes, bookkeeping, inventory, and payroll.
There are so many things that may confuse you if you’re a newbie in the industry. The e-commerce market is a crowded and competitive place, and you need to stand out against your many competitors.
Today's blog will focus on what sellers hate the most: sales taxes. What is it? Is your business affected by these taxes? And where can you get help running your numbers for your business? Continue reading below to know more.
Taxation 101: FAQs on Sales Tax for Retails
Dealing with taxes is confusing and overwhelming to sellers. And when you're not properly informed, simple mistakes cost you fees and penalties. To help you manage your finances and taxes, we'll answer some essential questions on sales tax to help you jumpstart your business.
What is sales tax?
Sales taxes are imposed on tangible goods or personal property purchased by the final end-user. For example, sales taxes are usually levied on products sold from retailers to households. Sellers need to collect and pay taxes to tax collection agencies. This could be included in the price of the product so the consumer shoulders it.
Does sales tax apply to my products?
Sales tax depends on the country or state where you offer your products. It must also be noted that some items are exempted from sales taxes. If you aren't sure whether or not the product you offer is taxable, here are the common products and services levied with these taxes.
- Goods. All the things you can buy in a grocery store or market are subjected to sales tax. Packed food, snacks, drink, crafting material, even gadgets are taxable. So if you're planning to sell these products, take note that you pay taxes for them.
- Medicine. In most countries, over-the-counter medicines are subjected to taxes. Examples of such medicines are cold medicine, tablets, or multi-vitamins. However, prescribed drugs are counted as non-taxable goods.
- Personal Property. Properties you sell for good are imposed with sales taxes. In other terms, a property where you transfer the title or the ownership to the buyer is mandated by the law to collect sales tax. However, if your properties are up for rent, as the owner, you must pay any sales tax.
How much tax is imposed on my products?
Every country applies a different percentage on the sales taxes. However, some countries implement a national sales tax system, so all goods and other taxable services are applied the same percentage.
If you're a seller in the United States, there's no fixed national sales tax system. Instead, you can identify the sales tax applied on your goods depending on the state where you offer your products. Sales tax in the U.S differs from every state, and it ranges from 2.9% to 7.25%. Additionally, local governments of different states can also impose taxes between 1 to 5%.
Meanwhile, if you are a seller in Canada, you should know different types of sales taxes. The first one is called the PST or the Provincial State Taxes. These taxes may vary depending on which Canadian state you are offering your products. The second sales tax is called the HST or the Harmonized Sales Tax. These taxes are the ones applied by the federal government. As of January 2008, Canada’s HST rate is 5%
Every province in Canada has different rates of PST with the addition of the HST. Except for Alberta, which has not implemented either of the two. You check out CRA's website to check the sales taxes rate in their different states.
Are there retail tax exemptions?
Certain goods are eligible for tax exemption. For example, a manufacturer is not required to pay the sales tax if their product is produced for wholesale goods distributed to retail sellers. It means that when a product is sold or distributed to resellers, you are not obliged to pay the sales tax because the consumer already pays for it when they buy the products.
Does the government require the filing of retail taxes?
The government requires physical store owners or online sellers to file their sales tax. For some states, businesses that reach a certain income annually must declare their taxes. But you should also manage your taxes even if you own a small business because the government will always check your records. It's the seller's responsibility to file their sale tax returns whether you are obliged to pay or not. In addition, a clean record in your government's tax collection agency can help you when you file for exemptions in the future or potential government loans.
Retail sales tax filing is separated from your income tax return filings. Before you can collect the sales tax of your products, you have to apply for a sales tax license that allows you to collect taxes. Once you have all the requirements, you can collect taxes, and later on, pay them through your country’s tax collection agency.
Can I outsource my sales tax duties?
If you’re a new entrepreneur, taxes can be overwhelming for you. It takes an expert to understand how these taxes and numbers work. However, there are sales tax online services available for you to consult and plan with professionals on the next step for your business.
And if you’re looking for a reliable partner when it comes to your taxes and finances, Unloop can help. Our sales tax services can help you sort out your tangled business financial matters. These include:
- Determining if your business is included in an economic nexus and knowing the proper sales tax you need to impose on your goods
- Helping you register sales tax permits and other certifications you need for your business
- Ensuring that your retail sales tax expenses are accurate, so you pay the right amount on time and avoid delays that can cause additional fees and penalties
- Assisting you with the sales price of your products, so you can sell them at the right price, attracting more customers
- Managing your sales tax filings and being up-to-date on changes in taxation laws so you comply properly and on time.
Not fully understanding taxes and finances can make your business go awry. Such things can overwhelm you, but taxation services aid you and your business to success. We hope this article has given you the basic retail sales tax information to help you achieve your business goals. Start the success story of your business with Unloop. Contact us now!