Business Taxes – The BigCommerce Blog https://www.bigcommerce.com/blog Ecommerce Blog delivering news, strategy and success stories to power 2x growth for scaling brands. Fri, 15 Jun 2018 16:19:41 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.6 https://www.bigcommerce.com/blog/wp-content/uploads/2016/05/cropped-e8d7fa0a-3b0e-4069-91b1-78460a4d4af1-150x150.png Business Taxes – The BigCommerce Blog https://www.bigcommerce.com/blog 32 32 Business Taxes in 2018: Your Checklist for a Penalty-Free Tax Season [Important Dates Included] https://www.bigcommerce.com/blog/business-taxes/ https://www.bigcommerce.com/blog/business-taxes/#respond Wed, 13 Jun 2018 18:07:12 +0000 https://www.bigcommerce.com/blog/?p=28930 Every business is unique and so is its tax situation. This not only leaves a lot of room for different…]]>

Every business is unique and so is its tax situation.

This not only leaves a lot of room for different tax strategies across all businesses, but it also means most business owners are unsure about where to start.

What is certain is that there are two things every business can do to succeed when it comes to taxes:

  1. Be on time
  2. Be organized

Once you’ve embraced these two mentalities, there are actionable steps you can take to avoid penalties and fees, as well as alleviate yourself from spending too much time, money and resources when preparing and filing your taxes each year.

Your Step-By-Step Checklist for Conquering Business Tax Laws

When it comes to taxes, to be perfect is to be punctual.

While it’s tempting to get caught up in the world of lowering your tax liability through deductions and credits, the real reason most small businesses overpay on taxes each year is because they miss their tax deadlines.

Businesses that are behind on taxes face financially crippling penalties, fees and interest.

Follow these steps to build a strategy around your key tax dates and lower your tax liability:

1. Know your due dates.

This is listed first for a reason — you need to know your deadlines to hit them. You can use this infographic to get started building your own basic tax calendar and avoid paying more than you have to.

Add these tax-filing dates to your 2018 calendar:

2018 Business Tax Deadlines for 2017 Tax Filing
  • Due March 15, 2018: Original deadline for partnerships (Form 1065) and S Corporations (Form 1120S).
  • Due April 17, 2018: Original deadline for C Corporations (Form 1120) and individuals (Form 1040).
  • Due May 15, 2018: Original deadline for exempt organizations (Form 990).
  • Due Sept. 17, 2018: Final deadline for partnerships and S Corporations (with extension).
  • Due Oct. 15, 2018: Final deadline for C Corporations and individuals (with extension).
  • Due Aug. 15, 2018: Final deadline for exempt organizations (with extension).

2. Pay your tax liability on time, no matter what.

Even if you file for the extension, that filing extension does not extend your deadline for paying any income tax liability owed.

If you fail to pay your taxes on time, you’ll be on the hook for both the late payment penalty (half of 1% of your unpaid taxes, per month), as well as interest (the federal short-term rate plus 3%), compounding daily.

3. When in doubt (any doubt), file for the deadline extension.

It’s very rare that the IRS gives you the gift of more time.

If for any reason, you’re worried you won’t be able to pull a return together before your initial due date, file for the extension and use that time to get organized (see more below) or give your tax preparer everything they need.

In addition to the penalties and interest you pay on your owed tax liability, there is also a late filing penalty.

This penalty starts accruing the day after your due date and ranges from 5% to 25% of your unpaid income taxes for each month the income tax return is late.

4. Spend money at the right time.

Your tax return and liability are based on the income and expenses your business had over the course of your tax year.

This means if you want to lower your tax liability for a certain year, you’ll want to make tax deductible purchases during that year.

Knowing when your year-end is based on your fiscal year and understanding how/when your business recognizes revenue and expenses based on your accounting method will allow you to plan to spend accordingly.

How to Manage Business Information for Tax Purposes

Fussy, persnickety, particular: these are all words you can use to describe the IRS.

Really, you can never know exactly what nook and cranny they’ll dig into when it comes to inspecting your business’s finances.

There’s no such thing as being too organized when it comes to dealing with tax authorities.

Here are a few ways you can organize your business records in anticipation of the IRS’s questions:

  • Solid bookkeeping year-round: This is the key to a stress-free tax season. When you give your accounting proper attention throughout the year, taxes are much more straightforward. Closing your books each month, quarter or year helps you plan ahead for tax filing as you go (in real-time with your business activities) and at the end of your fiscal year just before your file.
  • Separate business spending: Using a business account for personal spending (or commingling) is against tax law. The IRS will almost certainly flag any spending that could potentially fall outside of what is ordinary and necessary for your business.  Un-commingling these expenses after the fact is even worse, so keeping these transactions as delineated as possible using separate accounts is best for your own sanity.
  • Proper documentation for claiming tax credits and deductions: According to the IRS, you should keep records of your gross receipts, proof of purchases, expense documents and documents to verify assets. These will all come in handy when claiming deductions for qualifying business expenses as well as applying for tax credits for your business activities.
  • Well-organized essential company information: There’s basic information you’ll need to disclose about your business (incorporation details, legal name, legal address, etc.). Having all of your company’s essential tax information in one place will help you start off on the right foot when inputting your information when you go to file.
  • Cognizance of your location: In addition to your tax responsibilities on a federal level, you’ll also need to be aware of the responsibilities based on the states where you have tax nexus and any foreign activities. Online retailers and other ecommerce businesses should keep a special eye on state sales tax requirements based on the states where they sell, ship or house their merchandise.

Check off all the above points and you’ll be in good shape for a stress-free, IRS audit free business tax year.

Want more insights like this?

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How to Use and Accept Resale Certificates in Your Online Business https://www.bigcommerce.com/blog/resale-certificates/ https://www.bigcommerce.com/blog/resale-certificates/#respond Wed, 13 Jun 2018 18:04:56 +0000 https://www.bigcommerce.com/blog/?p=28932 One of the more common ecommerce business models is to buy products at wholesale or retail and then turn around…]]>

One of the more common ecommerce business models is to buy products at wholesale or retail and then turn around and resell those items for a profit online.

But sales tax can throw a monkey wrench in those works.

You will generally be required to pay sales tax on these purchases, even if you just intend to enter them into inventory in your online store.

And then you’ll be required to turn around and charge sales tax on those same items when you sell them to your customers.

Fortunately, online sellers can bypass paying sales tax when buying inventory by using a resale certificate.

What is a Resale Certificate?

A resale certificate is a document proving that you are a legitimate retailer or purchaser and are buying products to either resell or use as component parts of products you plan to resell.

To use a resale certificate, you generally need to be registered to collect sales tax in at least one US state.

Resale certificates are also sometimes called “reseller’s permits” or sometimes just the blanket term “exemption certificates.”

Your resale certificate is generally the same thing as your sales tax permit (sometimes called sales tax license.)

However, in some cases, a state may issue a reseller a separate “resale certificate” number.

Though it has the word “certificate” in the name, a resale certificate these days isn’t always a specific piece of paper.

While some states do issue retailers a specific resale certificate to present to their vendors, most just require that you fill out certain information.

The Typical Information You Need For a Reseller Certificate:
  • Your business identifying details
  • Your personal identifying details.
  • The type of business you operate.
  • What types of items you are buying tax-free.
  • A signature verifying that you are making the purchase in good faith and truly intend to resell the items you are purchasing.

Here’s an example of a Kansas resale certificate:

resale certificate Kansas

Resale Certificate Pro Tips

Forty-five US states and Washington DC all have their own sales tax rules and laws.

We always recommend you read your state’s rules of resale certificates.

In general, though, retailers can use resale certificates to buy products they either intend to resale or rent, or components of products they intend to resell.

However, it is unlawful to use a retail certificate to purchase items you do not intend to sell.

For example, office paper or printer ink purchased with a resale certificate (unless, of course, you own an office supply store and intend for those items to be resold) is not valid.

To avoid a hassle, always fill out the resale certificate completely before presenting it to your vendor.

Vendors are often the ones on the hook for unpaid sales tax should they accept a faulty or fraudulent resale certificate from a buyer.

This is why some retailers may refuse to accept a resale certificate.

Target, for example, is known for attempting to curb online competition by refusing resale certificates from any suspected reseller.

If you use a resale certificate to purchase an item, but do not end up selling it, your state requires that you pay “consumer use tax” on the taxable item.

This is generally paid at the time you file your state income tax return. This may be a separate filing if your state does not have an income tax.

It’s also important to note that nine US states will not allow vendors to accept resale certificates that were issued out of state.

The 9 US States That Do Not Accept Out of State Resale Certificates:
  1. California.
  2. Florida.
  3. Hawaii.
  4. Illinois.
  5. Louisiana.
  6. Maryland.
  7. Massachusetts.
  8. Washington.
  9. Washington D.C.

For example, if you have a North Carolina resale certificate but try to buy an item tax-free in Maryland, your Maryland vendor will be unable to accept your North Carolina-issued resale certificate.

To buy an item tax-free from a vendor in Maryland or any of the other states on the above list, you will be required to register for a sales tax permit in that state.

Note that if you hold a sales tax permit from a state, not only can you buy items tax-free from vendors in that state, but you are also required to charge sales tax to your own buyers in that state.

Weigh the pros and cons before registering for a new sales tax permit/resale certificate.

How to Accept a Resale Certificate from a Buyer

As an online seller, sooner or later you will potentially run into another reseller or purchaser who would like to buy from you.

In this case, it’s time to take your duties as a vendor seriously and meticulously review the purchase order.

In most cases, if you erroneously fail to charge sales tax, you will be on the hook to pay the sales tax you didn’t collect out of your pocket.

Here are a few pro tips for accepting a resale certificate from a buyer without finding yourself in sales tax hot water.

  1. Ensure the resale certificate is filled out accurately and completely – In the event of an audit, auditors will scrutinize resale certificates. Be sure each resale certificate you accept is completely filled out, including the signature.
  2. Verify that the resale certificate is legitimate – Most states allow vendors to verify a resale certificate online. This allows you to double check that your customer provided you with a valid resale certificate number and that the certificate is not expired.
  3. Make a good faith effort to ensure the purchase is valid – Let’s say someone presents you with a resale certificate. They say that they own a store that sells pet supplies, but they are purchasing a new suite of bedroom furniture for “resale.”

    It’s likely that this purchase is invalid, and you can refuse the resale certificate. If you do not refuse the resale certificate, you can find yourself on the hook to pay the sales tax you did not collect.

    The good news is that states don’t require you become a private detective, so if the customer falsifies the document, you can claim innocence as long as you made a good faith effort to verify the certificate.

  4. Keep the resale certificate on file – How often you should keep the documents vary, but most states require that you keep resale certificates on file for 5 years. In case of a sales tax audit, they will help you prove why you did not collect sales tax from a specific customer.

I hope this post has helped explain when and how to use and accept resale certificates in your online business.

If you have questions or something to say, start the conversation in the comments!

Make your sales tax reporting easier

TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers.

Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!

Want more insights like this?

We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.

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When and How to Charge Sales Tax on Shipping https://www.bigcommerce.com/blog/shipping-sales-tax/ https://www.bigcommerce.com/blog/shipping-sales-tax/#respond Wed, 13 Jun 2018 18:03:12 +0000 https://www.bigcommerce.com/blog/?p=28937 As an online seller, chances are good that you charge your customers for shipping or delivery fees at least some…]]>

As an online seller, chances are good that you charge your customers for shipping or delivery fees at least some of the time.

In the US, this can present a challenge because some US states require that retailers charge sales tax on shipping charges, while other states do not.

And each state’s regulation on sales tax and shipping charges is not always clear and concise.

Let’s dig into how sales tax on shipping works and how you can ensure that your sales tax policies are compliant with state tax laws.

Sales Tax and Shipping: Laws and Regulations

Forty-five US states and Washington DC all have a sales tax, and each state is allowed to make their own sales tax rules and laws.

For this reason, you’ll need to look to the state level to determine if you should charge sales tax to buyers in a particular state.

If you dig in and read each state’s law on taxing delivery charges, you’ll probably also notice that they can be a little confusing.

This is because many state sales tax laws were passed before the rise of ecommerce.

The letter of the law is often more focused on mail order purchases or delivery by company truck or freight.

The good news is that many states have more recently provided guidance to online sellers, whether in a letter ruling from the state’s taxing authority or in a website FAQ.

Sales tax and nexus within a state note

In the US, you are only required to collect sales tax from buyers in states where you have sales tax nexus.

If you do not have sales tax nexus in a state, then you are not required to collect sales tax (including sales tax on shipping charges) from buyers in that state.

When should you charge sales tax on shipping?

You should charge sales tax on shipping charges when making a sale to a buyer in one of your nexus states if that state’s tax law declares that shipping charges are taxable.

The Connecticut Department of Revenue, for example, makes it clear on their website that shipping charges to Connecticut buyers are taxable:

Connecticut Shipping Taxability

Conversely, the state of Massachusetts does not require online sellers to collect sales tax on shipping charges in many cases.

The Massachusetts Department of Revenue addresses that here:

Massachusetts Shipping Sales Tax

It’s not the most user-friendly read in the world, but in other words, if you as an online seller ship an item to a customer in Massachusetts, and do not include the shipping charges as part of the price of the item, then you are not required to collect sales tax from that customer.

As an online seller, it’s your job to check with the state(s) where you have sales tax nexus and determine if that state requires you to collect sales tax on shipping charges.

You can see a shipping taxability resources for each US state here:

States where Shipping is Taxable

Shipping Taxability Examples

Let’s look at an example of the same transaction in a state where shipping is taxable and a state where it is not:

States where Shipping is Taxable

Theo sells a $100 lamp to a buyer in a state where shipping is taxable, and charges $10 for shipping, for a total transaction amount of $110.

The sales tax rate for the sale is 6%.

Since shipping is taxable, Theo would charge the 6% sales tax rate on the entire $110 transaction amount.

He would collect a total of $116.60 from the customer.

States where Shipping is NOT Taxable

Now Theo sells the same $100 lamp and charges the same $10 for shipping to a customer in a state where shipping is not taxable.

The sales tax rate is still 6%.

In this case, Theo is only required to charge sales tax on the $100 price of the lamp, and not the entire transaction amount.

In this case he would collect a total of just $116.00 from the customer, because he was not required to collect sales tax on the $10 shipping charge.

Common Exceptions to Sales Tax on Shipping

I recommend reading each state’s sales tax law or FAQ on shipping, because many states have exceptions to their normal rules. Here are a few:

  • You are delivering products in your own vehicle – State laws on shipping taxability generally refer to “common carriers.” A common carrier in this case is a service that anyone can use – such as the USPS, UPS or FedEx. But in some cases, if you deliver items in your own vehicle rather than using a common carrier, different shipping taxability laws apply.
  • You allow customers to pick up the item – Some states are adamant that shipping in an ecommerce transaction is taxable because the delivery of the item is an inextricable part of the ecommerce process. However, if you have a storefront, or otherwise give the customer the option to come to your location and pick up the item (in some cases, no matter how far away the customer may be), then the state considers shipping charges non-taxable.
  • “Handling” is included – In Virginia and Maryland, “shipping” charges are not taxable, but combined “shipping and handling” charges are taxable. Be sure to thoroughly read your state’s sales tax laws on shipping to ensure that your business process doesn’t inadvertently run afoul of a detail in the law.
  • The shipment contains a mix of taxable and non-taxable items – Some items, like groceries, clothing and medication, are not taxable in some states. For the most part, if you ship taxable items, then all shipping charges are taxable. And if you ship all non-taxable items in a parcel, then the shipping charges for that parcel are non-taxable. But if you ship a mixed shipment (i.e. some items are taxable and some are non-taxable), then some states say that you should only charge sales tax on the shipping charges used to deliver the taxable item. You may do this by dividing the weight of the items or the prices of the items and then assigning a shipping charge to each item.

Example of sales tax on a mixed shipment:

You sell a $50 taxable coffee table book and a $50 non-taxable pair of blue jeans to a customer and ship them in the same shipment, charging $10 for shipping.

In this case, you could weigh both items and figure out how much of that $10 was used to ship the weight of each.

Or you could simply consider the price of each item and only charge sales tax on the $5 you charged to ship the taxable coffee table book.

Fortunately, BigCommerce and other online shopping carts and marketplaces allow you to elect whether to collect sales tax on shipping charges in an individual state.

I hope this post has demystified when online sellers are required to charge sales tax on shipping charges.

If you have questions or something to say, start the conversation in the comments.

Make your sales tax reporting easier

TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers.

Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!

Want more insights like this?

We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.

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The Complete Handbook to Sales Tax, Business Tax and Amazon FBA Tax (+92 Ways to Save) https://www.bigcommerce.com/blog/ecommerce-taxation/ https://www.bigcommerce.com/blog/ecommerce-taxation/#respond Wed, 13 Jun 2018 14:00:31 +0000 https://www.bigcommerce.com/blog/?p=19431 Paying your taxes isn’t what any entrepreneur dreams of when starting a business. You don’t think about the spreadsheets and…]]>

Paying your taxes isn’t what any entrepreneur dreams of when starting a business.

  • You don’t think about the spreadsheets and the constant state updates.
  • You don’t think about how to charge sales tax, when, where, why and on which products.

That’s because taxes are just the cost of doing business.

Sadly, doing them incorrectly (and definitely not doing them at all) can cost you your business.

So, to make sure you are zipped up on everything you need to know to pay the right amount, charge the right amount and do it all in accordance with state and national laws, we’ve put together a comprehensive resource you can bookmark for future reference.

What’s in the Ecommerce Tax Guide:

  • The basics of sales tax, including when you need to collect based on state laws.
  • How to register for a sales tax permit (and what could happen if you don’t).
  • The difference between origin and destination-based sales tax sourcing.
  • The true definition of sales tax nexus, and what it means for your business.
  • How to file regularly and on-time, without taking focus from growing your sales.
  • How Amazon FBA sellers need to file sales tax.
  • Where Amazon has fulfillment centers (and what that means for sellers).
  • How to collect sales tax on Amazon and set up product tax codes on FBA.
  • How to report sales tax collected from Amazon.
  • What the defines a resale certificate.
  • How to properly use a resale certificate.
  • How to accept a resale certificate from a buyer.
  • When to charge sales tax on shipping.
  • What exemptions there are for sale tax on shipping.
  • When you need to pay business taxes –– with a calendar you can keep.
  • 92 business deductions to look into (and 11 you shouldn’t even try).

First things first, though, let’s talk about tax compliance automation.

The Benefits of Sales Tax Automation

Bigcommerce automatically configures sales tax if your business does not have any special tax needs.

U.S. merchants use automatic U.S. state sales tax calculation that determines sales tax rates during checkout based on a standard tax rate for states in which these businesses are required to collect sales tax.

And for merchants who require any special sales tax exemptions, BigCommerce has partnered closely with Avalara AvaTax to streamline the tax collection process by integrating with their sales tax automation software.

AvaTax serves as an automated end-to-end tax compliance solution that provides BigCommerce users with a one-and-done option for nexus and taxability requirements in all states.

It uses real-time tax rate calculations and calculates sales tax via geo-spatial mapping, ensuring accurate results every time.

Plus, flow-through data from Avalara AvaTax Calc to Avalara AvaTax Returns ensures a merchant’s sales tax returns are always on time.

Why is this important?

Because there are more than 12,000 tax codes in the U.S. alone. And those tax codes are individually subject to change throughout any given tax year.

Businesses without their own accounting departments, i.e. most folks in the process of building a sustainable, long-term venture, cannot afford the time cost in keeping track of compliance across 12,000 jurisdictions.

While this guide will walk you through everything you need to know and cover any “Gotchas” in ecommerce tax, it is much more efficient to use automation instead.

This is especially useful when it is tax time.

Here’s how it works with BigCommerce and Avalara’s sales tax automation software when needing to file your business taxes.

1. Enable document submission:

Available within “Tax Options” in the BigCommerce “Store Setup”. This feature ensures completed invoices and credits are recorded in Avalara and populate sales tax reports to help you reconcile and file returns.

2. Tax settings: 

Login to Avatax to ensure you have enabled the proper tax settings for your BigCommerce store. Most importantly, identify where you’re registered so Avalara knows to apply sales tax on all orders shipped within your jurisdictions.

3. Filing tax returns:

Don’t forget that you must file a sales tax return and remit all tax collected on a regular cadence for each jurisdiction. You can do that by either:

  1. Accessing free tax reports from your Avalara account to reconcile and file yourself
  2. Enabling Avalara’s automated tax return service and put your tax filings on autopilot

Still want to do it all yourself? Let’s dive in!

Want more insights like this?

We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.

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10 Online Business Laws You Need to Know for Internet Selling [Updated 2018] https://www.bigcommerce.com/blog/online-business-laws/ https://www.bigcommerce.com/blog/online-business-laws/#comments Thu, 01 Feb 2018 14:00:04 +0000 http://www.bigcommerce.com/blog/?p=11568 After you’ve evaluated your online store idea and have a plan for product sourcing, it’s wise to research the restrictions…]]>

After you’ve evaluated your online store idea and have a plan for product sourcing, it’s wise to research the restrictions and regulations that may affect you when opening an ecommerce store.

Understanding these issues before you try to start selling online will help you plan wisely and save you time, energy and money.

In this chapter, we’ll highlight some of the obstacles that may lie ahead for your business.

Many of these issues are just part of the cost of selling products on the internet, but some may come as a surprise.

Knowing about them ahead of time is the key to working through them.

1. Taxes.

First, know that every state and country has different expectations and standards when it comes to taxes.

That means you have to conduct some research and understand your target market.

For instance, if your store’s demographic is located in the U.S., you’ll likely want to display your prices exclusive of tax. However, if your target market is Australia, where shoppers are accustomed to seeing all-inclusive prices, you’ll want to include tax.

Other issues are related to what you are selling and where you are selling it from.

For instance:

  • If you are located in New York and want to sell clothing, know that clothing is taxed in your state.
  • In Britain, VAT tax applies to all non-essential goods.
  • In California, items you sell in plastic bottles will carry a $0.11 recycling free, in addition to other taxes.

To cover all your bases, talk to a tax professional or whatever local authority is available to you.

They will be able to help you understand specific instances that may affect your product or business, give you insights on how you need to charge tax for your business’s location and help you apply for necessities like a tax ID, as well as let you know if you qualify for sales tax exemption and reseller certificates.

Keep in mind, too, that this information — and the regulations around it — is constantly changing.

This is just one of the many reasons why having a tax professional on hand or working with your local tax authority will be an important aspect of running a healthy business. Or, you can use an app to automate much of the process.

Have a Business Blueprint from Shipping to Taxes

Make sure that you have a blueprint for your business, even if you do not have a full business plan.

Make sure you have a life cycle written out of how you will market/source/sell and get your product to the customer.

Also when your sales ramp up, invest in an online shipping tool to automate shipping. This cut our cycle time significantly.

Be sure to set up your business bank account to keep everything separate from your personal business. Unless you are extremely good at accounting, find a good bookkeeper to record all of your expenses and hire a CPA that can file your taxes. If your record keeping is timely, it will save you money on your taxes.

All of these steps will set up a framework that will allow your business to grow.

– Laura LeMond, CEO/ Ownerm, Mosaic Weighted Blankets

2. Payment gateways.

There are many payment gateways available for ecommerce businesses.

Don’t feel limited by the fact that many of them will have restrictions on specific products or services you may want to sell.

When you’re vetting payment gateways, just be sure to ask if they have any limitations around certain products, in addition to whether they are hosted or non-hosted, include anti-fraud features, or require transaction fees, termination fees, monthly fees or setup fees.

BigCommerce connects with multiple payment gateways so you can choose which is right for your business. Learn more about the most commonly used:

The Power of Payment Choice

Our most successful growth tactic to date has been the ability to offer multiple channels of markets and utilizing accepted payment programs through integration.

– Marshall Murdough, Manager Ecommerce, Simplay3

3. Trademarks, patents and copyrights.

There tends to be some common misconceptions about what these words actually mean, with must-know legalities and laws around each one.

The United States Patent and Trademark Office defines them as the following:

  • Trademark: A word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others.
  • Patent: A limited duration property right relating to an invention, granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention.
  • Copyright: Protects works of authorship, such as writings, music and works of art that have been tangibly expressed.

Depending on what product you plan to sell, you may or may not want to apply for one of these.

Doing so isn’t strictly necessary, but you should at least check to make sure you’re not infringing on other patents or trademarks with your products or business.

For instance, if you want to sell t-shirts with Star Wars characters on them, you’re going to run into trouble.

Simply make sure to research with the appropriate copyright, patent and trademark organization. They’ll help you start off on the right foot.

Invention is the Mother of Entrepreneurship

For Emily Ironi, as for the founder of Spanx, an innovation turned into an invention – which spawned a business life all of it’s own.

Read the Dairy Fairy story.

4. Shipping restrictions.

Most shipping companies clearly note their restricted items.

Not all shippers restrict the same items, so you should have options — just do a little research to see if there’s a provider that will take on your product.

Typically restrictions are placed on items like:

  • Aerosols
  • Air bags
  • Alcoholic beverages
  • Ammunition
  • Animals
  • Cigarettes
  • Dry ice
  • Explosives
  • Fresh fruits and vegetables
  • Hazardous materials
  • Nail polish
  • Perfumes
  • Perishables
  • Poison

Also note that some providers may allow you to ship usually-restricted items, but will require some extra paperwork and fees. You’ll want to take this into consideration as you evaluate your provider.

For information on shipping internationally, check out the Federal Trade Commission’s Electronic Commerce: Selling Internationally guide, which will help answer questions about taxes, duties and customs laws.

5. Inventory.

If you’ll be holding substantial inventory, you should also check your lease, deed or zoning codes to see if there are any prohibitions on running a business like the one you’re contemplating out of your home.

Zoning Laws Matter

When Nine Line first launched, orders began coming in more quickly than they expected. Soon, they moved inventory and shipping to a foreclosed home they bought for the storage.

From the local police’s point of view, however, it wasn’t t-shirt shipping the squad first assumed when they staked out the house.

Find out how Nine Line overcame a police raid in Florida, and used it to help bolster their business.

Read the Nine Line story.

6. Age restrictions.

Anytime you launch a website, it’s essential to comply with the Children’s Online Privacy Protection Act (COPPA).

This act includes quite a few regulations, but the one that will likely apply to your site is the inability to collect any personal information from a child under the age of 13.

If you’re planning on selling a product or service that tailors specifically to a young audience, you’ll need to abide by COPPA regulations.

As far as age verification requirements for ecommerce stores selling age-restricted items, you should look into your country’s specific codes.

Sites selling items like vapes or alcohol, for instance, need to have age verification tools before checkout in order to be legally sold, for instance.

Every country is different as far as their demands on how to run a business, and things get especially tricky when it comes to age restrictions on products.

Do your research and stay on top of legislation to ensure your business is on the up-and-up.

7. Business insurance.

There are multiple types of insurance for small businesses, including general liability, product liability, professional liability, commercial liability and home-based insurance.

Reach out to your local provider to find out which type would be best for your business and location.

During your vetting process, it’s a good idea to at least take a look at product liability insurance. It’s intended for companies that manufacture, wholesale, distribute and retail a product and may be liable for its safety.

Also look into professional liability insurance (also known as errors and omissions insurance), which protects your business against malpractice, error and negligence.

8. Licenses and permits.

Depending on which product you decide to offer, you may need a license to sell it.

This varies based on the country in which you’re located, so contact your local licensing department.

Legal Zoom is also a great resource that can not only help with licensing, but also with some of the other red-tape items in this section.

“If you’re selling special products to a regulated industry (e.g., medical devices or holistic health care supplements), you’ll need to check with your state to see if you need to be licensed to provide those kinds of products or service,” wrote Nina Kauman for Entrepreneur.

“But generally, the sale of digital information, clothing or handcrafted items (made in the USA) doesn’t require a special business license. Rather, the business licensing required for an online retail business is not substantially different than that of a storefront business.”

A Business License At Any Age

At 11, I started selling Bubblicious Bubble Gum to fellow students at school and on the school bus. I would buy a pack of 5 pieces for $0.25, then sold each piece individually for $0.25, grossing $1.25 a pack.

I built it up to a consistent $40 a day in gum sales before the school shut me down. They said I “needed a business license.”

More likely it was because I was creating too big of a distraction for”learning. It was an awesome learning experience for me though!

I was 26 when I started me first real business –– this time with a license.

– David Skeen, Owner, Matboard Plus

9. PCI compliance.

PCI compliance is a necessary protection for online sellers, and nearly all SaaS ecommerce platforms have it baked in to some degree.

Online businesses tend to be prime targets for data theft, which is why ecommerce providers take it so seriously.

However, make sure to educate yourself.

Being PCI compliant doesn’t just mean providing a secure, encrypted checkout experience — you’ll also need to avoid storing any purchasing information on paper or via recording (e.g., if someone were to give you their card number over the phone).

BigCommerce has your covered.

BigCommerce takes care of the vast majority of your PCI Compliance needs. Our Cardholder Data Environment is PCI DSS 3.1 Level 1 certified as both a Merchant and a Service Provider. This protects against credit card data breaches and eliminates the significant cost and hassle of compliance.

What it takes to become PCI Compliant.

10. What you didn’t know you needed to know.

There are also individual platform requirements that you may need to be aware of before starting your business.

For instance, when you download Facebook Messenger (which you can now use to transfer payments!), you are agreeing to have Facebook listen to you and serve ads based on what you say.

No, you were not imagining ads popping up after having a conversation with your spouse in the kitchen earlier that night.

Understanding the implications of all these laws is essential for the health of your business — and the protection of consumers who become your customers.

Continue on to the next chapter to learn how to conduct market research to ensure that your product idea is not only feasible, but profitable, too.

Want more insights like this?

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Amazon FBA Sales Tax Guide for 2018 https://www.bigcommerce.com/blog/amazon-fba-sales-tax/ https://www.bigcommerce.com/blog/amazon-fba-sales-tax/#respond Thu, 11 Jan 2018 15:00:26 +0000 https://www.bigcommerce.com/blog/?p=19438 Sales tax is a fact of life for most retailers, whether you sell online, at a brick and mortar store…]]>

Sales tax is a fact of life for most retailers, whether you sell online, at a brick and mortar store or all of the above.

Sales tax for Amazon FBA sellers is a bit more complex than it is for most other retailers.

Are you selling on Amazon? This guide is for Amazon FBA sellers who want the scoop on collecting and filing sales tax.

We’ll explain:

  • What sales tax is & why Amazon FBA sellers charge it
  • When FBA sellers are required to collect sales tax from customers
  • How to get sales tax compliant
  • How to collect sales tax on Amazon FBA
  • What to do with all the sales tax you’ve collected

If you need a refresher on what sales tax is, start with chapter one or see all the tax-related topics we cover.

Let’s get started.

When does an Amazon FBA seller need to collect sales tax?

For the purposes of sales tax, ecommerce sellers are treated just like all other online retailers.

As an FBA seller, you are required to collect sales tax in states where your selling meets two criteria:

  • Sales tax nexus
  • Product taxability

Understanding both will help you determine when and if you are required to collect taxes from your Amazon FBA customers.

Sales Tax Nexus, Explained

Sales tax nexus is just a fancy legalese way to say “significant connection” to a state.

If you have nexus in a state, then that state considers you on the hook for charging sales tax to buyers in the state.

You’ll always have sales tax nexus in your home state, but you may find that certain business activities create nexus in other states, too.

Ways to Have Sales Tax Nexus in Different States
  • A location: an office, warehouse, store, or other physical presence of business.
  • Personnel: an employee, contractor, salesperson, installer or other person doing work for your business.
  • Affiliates: Someone who advertises your products in exchange for a cut of the profits creates nexus in many states.
  • A drop shipping relationship: If you have a 3rd party ship to your buyers, you may create nexus.
  • Selling products at a trade show or other event: Some states consider you to have nexus even if you only sell there temporarily.
  • Inventory: Most states consider storing inventory for sale in the state to cause nexus even if you have no other place of business or personnel.

Inventory Nexus and Amazon FBA Sellers

That last point, storing inventory for sale in a state, is especially relevant to Amazon FBA sellers.

Most states’ sales tax laws say that this creates sales tax nexus. You can find links to each state’s sales tax nexus laws here.

It helps to think of it from the state’s perspective.

From their point of view, any online seller who uses resources in their state (roads for delivery, public safety should an emergency occur, etc.) has nexus.

For this reason, FBA sellers may have sales tax nexus in a state simply from storing their FBA inventory in an Amazon fulfillment center.

Here’s a list of all states with an Amazon fulfillment center as of this writing.

States with an Amazon Fulfillment Center
  • Arizona
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Kansas
  • Kentucky
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Nevada
  • New Hampshire
  • New Jersey
  • North Carolina
  • Ohio
  • Pennsylvania
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Washington
  • Wisconsin

Keep in mind that Amazon probably will not store your inventory in every state with an Amazon fulfillment center.

You can pull your Inventory Event Detail Report from Amazon Seller Central to determine where our inventory is stored.

Some Exceptions to the Rule

Two states, Virginia and New York, have ruled that if your only nexus with their state is as a 3rd party seller (where another company, in this case, Amazon, handles all the fulfillment and logistics), then you do not have to collect sales tax in the state.

Arizona also recently issued two letter rulings that, though they do not mention Amazon FBA by name, seem to apply.

Arizona has a transaction privilege tax (TPT) rather than a sales tax, which means that the tax is on “doing business” in the state rather than on the sale of goods and services in the state.

While sales tax experts currently disagree, the letter rulings appear to state that if retailers are only doing business in Arizona as 3rd party sellers then they do not need to collect sales tax.

Product Taxability, Explained

Once you’ve determined that you have nexus in a state, your next step is to determine if what you are selling is taxable.

Generally, tangible personal property is taxable while services are not taxable. Of course, as with everything having to do with sales tax, individual states may make exceptions to these two general rules.

Some common product categories are not taxable or taxed differently in some states. These categories include groceries, clothing and textbooks.

For example, clothing and grocery items are both non-taxable in Minnesota. In Tennessee, grocery items are taxable, but taxed at a reduced rate of 5%.

If you have questions about whether or not the products you are selling are taxable, you can check with your state’s taxing authority online or by giving them a call.

Keep in mind that most tangible good are taxable in most states.

How to Get Sales Tax Compliant

Once you’ve determined that you have nexus in a state and are selling taxable items in a state, your next step is to register with that state to collect sales tax.

You can find guides on how to register for a sales tax permit with each state here.

It’s important to register before you begin collecting sales tax. States consider it illegal to collect sale tax without a permit, no matter if your intentions are pure.

Once you receive your permit, you will also be assigned a sales tax filing frequency and sales tax due dates.

Your filing frequency is generally monthly, quarterly or annually and depends on your sales volume.

The more you sell in a state, the more often that state wants you to file a sales tax return.

If your sales dramatically increase or decrease as time goes by, your state may assign you a new filing frequency.

Always be on the lookout for letters or other communications from your state once you’re registered for a sales tax permit.

How to Collect Sales Tax on Amazon

Now that you are registered to collect, your next step is to ensure you are collecting sales tax from your Amazon FBA customers.

Fortunately, Amazon has a very robust sales tax collection engine.

Once you tell it what you want to collect, it will collect the right rate, even keeping up with complicated concepts like whether a state is “origin-based” or “destination-based,” or if a sales tax rate has changed.

It will also allow you to add “product tax codes” so you charge the right amount of sales tax on items like groceries and clothing, and allow you to choose whether or not you charge sale tax on shipping and gift wrapping.

Keep in mind that Amazon charges 2.9% of each transaction in order to collect sales tax.

The alternative, however, is not to collect sales tax from your Amazon customers and to instead pay out of your profits.

Setting Up Sales Tax Collection on Amazon FBA

Let’s go over setting up sales tax collection in Seller Central:

  1. Login to Seller Central
  2. Click “Settings” then “Tax Settings” from the dropdown menu
  3. Choose the option: “View/Edit your Tax Collection and Shipping & Handling and Giftwrap Tax Obligations Settings”

Here you can choose in which states you want to collect sales tax, as well as if you want to collect sales tax at the county and other local level. You can even enter a custom sales tax rate. We don’t recommend this because sales tax rates are subject to change frequently.

Note that you’ll need your state sale tax registration number before Amazon allows you to set up sales tax collection.

This is a safeguard to prevent sellers from unknowingly (and unlawfully!) collecting sales tax without be registered with a state.

Setting Up Product Tax Codes on Amazon FBA

Once you’ve entered your sales tax settings, return to your Seller Central Tax Settings Page (Seller Central > Settings > Tax) and choose the option “View Master Product Tax Codes and Rules.”

From here, you can choose the product tax codes that most closely fit your products. Here are some examples:

  • A_CLTH_GEN: General clothing. Keep in mind that clothing is non-taxable in some states. But in many cases, accessories, formal wear, athletic wear and other clothing types are still taxable. That’s where there are also separate product tax codes like A_CLTH_HBAGS for handbags and A_CLTH_CSTUMS for costumes.
  • A_FOOD_GEN: Use this to label food items. Just like with clothing, not all food is taxed equally, so there are also product tax codes for things like A_FOOD_CNDY (candy) and A_FOOD_SFTDK (carbonated soft drinks.)

If you can’t find a product tax code for one of your products, that’s probably because it is generally always taxed. You should just label that item with “A_GEN_TAX.” And if, for some reason, you never want to charge sales tax on a particular item, you can also label it with “A_GEN_NOTAX.”

PRO TIP

If you sell on other platforms aside from FBA, make sure you are collecting sales tax from buyers in your nexus states on all of your shopping carts and marketplaces.

Once you have nexus in a state, you are required to collect sales tax from all buyers in that state, no matter how you make the sale.

How to Report and File Amazon FBA Sales Tax

Now you’re all set collecting sales tax from your Amazon FBA sales are chugging along.

Soon enough, a sales tax filing due date will roll around.

From here, you need to report how much sales tax you’ve collected from customers in each state, and file your sales tax returns.

Reporting Amazon FBA Sales Tax Collected

The vast majority of states want to know not only how much sales tax you’ve collected in the state, but also how much you collected from buyers in each county, city and other special taxing district within the state.

You can find this information in two ways:

  1. Download a report form Amazon: Login to Seller Central and click Seller Central > Reports > Payments > Generate Date Range Report.  Choose the filing period. From here you can try to slice and dice your info to figure out how much sales tax you collected in each state, city, county, and other jurisdiction. Beware – it’s time consuming to try and figure out which taxing districts each of your customers lives in.
  2. Use sales tax automation: Use a sales tax automation solution to generate a report for you. A sales tax automation will connect with all of your shopping carts and marketplaces, not just Amazon to give you a comprehensive report of all the sales tax you collected from buyers within a state. It will also break down how much sales tax you’ve collected in each county, city and other taxing jurisdiction so you don’t have to spend time with maps and tax tables.

Once you’ve reported how much sales tax you collected in a state, it’s time to file your sales tax returns and remit the sales tax you collected.

Filing Amazon FBA Sales Tax Returns

You can file your sales tax returns in a couple of ways.

  1. Online: Login to your state’s taxing authority website and submit a sales tax return. Then make your payment through the state’s payment gateway.
  2. Automatically via sales tax software: Use a sales tax automation solution to automatically file your sales tax returns and pay what you owe to the state.

And finally, keep a couple of important things in mind when filing your sales tax return.

  1. Always file “zero returns:” File a sales tax return even if you did not collect any sales tax over the taxable period. States still require you to file by the deadline, and some of them will even levy a fine if you don’t file. If you fail to file for multiple periods in a row, they may even automatically cancel your sales tax permit.
  2. Take advantage of discounts: A little over half the U.S. states with a sales tax allow online sellers to keep a small percentage of the sales tax you’ve collected as bit of a monetary “thank you” for your effort collecting and remitting the tax.  While this is generally only 1-3% of the sales tax you’ve collected, it’s still free money!

You should now be prepared to tackle Amazon FBA sales tax. If you have questions or something to say, start the conversation in the comments section.

Want more insights like this?

We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.

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92 Small Business Tax Deductions to Use Now (+11 You Should Never Try) https://www.bigcommerce.com/blog/92-small-business-tax-deductions/ https://www.bigcommerce.com/blog/92-small-business-tax-deductions/#respond Thu, 11 Jan 2018 15:00:25 +0000 https://www.bigcommerce.com/blog/?p=19444 So far in this Ecommerce Tax Handbook we’ve covered sales tax, Amazon FBA, and tax law deadlines. Now we’re on…]]>

So far in this Ecommerce Tax Handbook we’ve covered sales tax, Amazon FBA, and tax law deadlines. Now we’re on to the fun stuff: deductions.

Taxes are business as usual, but so are a lot of other things. Small business in the U.S. are fortunate to have plenty of possible deductions to save money where they can.

Note that in order to use any of these deductions, you will need to prove the fees and cost. This means you need to keep receipts – all of them, and in an organized fashion.

Also, always consult with a tax advisor on when to use these and if you can. We’ve linked to several sites documenting when each deductible may apply to you. Not all of them will –– and some of the rules for being able to use the deduction can get quite granular.

Always double check with a tax expert to make sure you are neither overpaying or underpaying.

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92 Small Business Tax Deductions

  1. Accounting fees
  2. Advertising & marketing
  3. Amortization
  4. Bad debts that you cannot collect
  5. Banking fees
  6. Board meetings
  7. Building repairs and maintenance
  8. Business association membership dues
  9. Business travel (here’s what you need to know!)
  10. Cafeteria health-insurance plan (requires plan)
  11. Car expenses
  12. Charitable deductions made for a business purpose
  13. Charity or traveling to perform charitable services
  14. Cleaning/janitorial services
  15. Collection expenses
  16. Commissions to outside parties
  17. Computers and tech supplies
  18. Consulting fees
  19. Continuing education for yourself to maintain licensing and improve skills
  20. Contractors
  21. Conventions and trade shows
  22. Credit card convenience fees
  23. Depreciation
  24. Discounts to customers
  25. Eating out while you’re traveling for business
  26. Education and training for your employees
  27. Employee wages
  28. Employee benefits
  29. Entertainment for customers and clients
  30. Equipment
  31. Equipment repairs
  32. Exhibits for publicity
  33. Family members’ wages
  34. Franchise fees
  35. Freelancers
  36. Freight or shipping costs
  37. Furniture or fixtures
  38. Gifts for customers or employees ($25 deduction limit for each)
  39. Group insurance (if qualifying)
  40. Guard dog
  41. Gym for employees, located onsite
  42. Health insurance
  43. Home office (see our handy article)
  44. Insurance premiums for credit, liability, malpractice, worker’s comp, and other insurance
  45. Interest
  46. Internet hosting and services
  47. Inventory
  48. Investment advice and fees
  49. Legal fees
  50. License fees
  51. Management fees
  52. Materials
  53. Maintenance
  54. Medical expenses (with plan)
  55. Mortgage interest on business property
  56. Moving
  57. Newspapers and magazines
  58. Office supplies and expenses
  59. Outside services
  60. Payroll processing
  61. Payroll taxes for employees, including Social Security, Medicare taxes and unemployment taxes
  62. Parking and tolls
  63. Penalties and fines paid for late performance or nonperformance of contracts
  64. Pension plans
  65. Permits and fees
  66. Postage
  67. Profit sharing
  68. Publicity
  69. Prizes for contests
  70. Real estate-related expenses
  71. Rebates on sales
  72. Rent
  73. Research and development (we literally wrote the guide on this one!)
  74. Retirement plans
  75. Royalties
  76. Safe-deposit box
  77. Safe
  78. Service fees
  79. Software and online services
  80. Startup expenses
  81. Stereo equipment for playing background music at work
  82. Storage rental
  83. Subcontractors
  84. Taxes (amazingly, taxes incurred in running your business are deductible)
  85. Telephone
  86. Theft and loss
  87. Tips. Just because you didn’t get a receipt doesn’t mean you can’t deduct the cost, but you should document it just the same.
  88. Uniforms for your employees
  89. Utilities
  90. Waste removal
  91. Website design
  92. Workers’ compensation insurance

11 Deductions to Avoid All Together

  1. A small business loan—but you can deduct whatever you purchase with the loan
  2. Business attire that you can wear outside of work (ie, non-uniforms)
  3. Contributing your time to charity
  4. Membership dues, even to a professional organization
  5. Federal income tax payments
  6. Your life and disability insurance premiums if you’re a sole prop., partnership, or S Corporation
  7. Lobbyists
  8. Penalties and fines you pay as the result of breaking the law
  9. Political contributions
  10. Professional accreditation fees
  11. Your own salary if you’re a sole proprietor

Questions, concerns or any other deductions we missed? Leave them in the comments below.

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The Complete Sales Tax Guide for Online Sellers [Nexus by State Included] https://www.bigcommerce.com/blog/ecommerce-sales-tax/ https://www.bigcommerce.com/blog/ecommerce-sales-tax/#respond Thu, 11 Jan 2018 15:00:02 +0000 https://www.bigcommerce.com/blog/?p=19434 Let’s start with the basics of ecommerce taxes. Ecommerce tax refers to the sales tax associated with an online sale.…]]>

Let’s start with the basics of ecommerce taxes.

Ecommerce tax refers to the sales tax associated with an online sale. Sales tax is a small percentage of a sale tacked on to that sale by an online retailer.

Sales tax is a “consumption tax,” meaning that consumers only pay sales tax on taxable that items they buy at retail.

45 U.S. states and Washington D.C. all have a sales tax.

On top of this, most of those states allow local areas such as cities, counties and other “special taxing districts” to have a sales tax.

That’s why you may see local areas, such as Rhinebeck, New York, that have an odd amount of combined sales tax.

Here are all the components of the Rhinebeck, NY sales tax rate:

Sales tax is governed at the state level. There is no “national” sales tax law in the U.S.

Because of this, online sellers may find themselves dealing with quite different sales tax laws and rules when dealing with sales tax in the different U.S. states.

Do You Have to Charge Sales Tax for Online Sales?

As an online retailer, if you are responsible for sales tax in the state, it is your responsibility to charge your buyers the correct amount of sale tax and remit the taxes collected back to the state.

Let’s look at when and from which customers online sellers need to collect an internet sales tax.

The basic rule for online sellers when collecting sales tax is:

  • Your business has sales tax nexus in the same state as your customer.
  • The product is taxable in that state.

Let’s explore these concepts a bit more in-depth.

Sales Tax Nexus

Sales tax nexus is just a fancy legalese way to say “significant connection” to a state.

If you, as an online retailer, have nexus in a state, then that state considers you on the hook for charging sales tax to buyers in the state.

You’ll always have sales tax nexus in your home state. However, certain business activities create sales tax nexus in other states, too.

Ways to Have Sales Tax Nexus in Different States
  • A location: an office, warehouse, store, or other physical presence of business.
  • Personnel: an employee, contractor, salesperson, installer or other person doing work for your business.
  • Inventory: Most states consider storing inventory in the state to cause nexus even if you have no other place of business or personnel.
  • Affiliates: Someone who advertises your products in exchange for a cut of the profits creates nexus in many states.
  • A drop shipping relationship: If you have a 3rd party ship to your buyers, this may create nexus.
  • Selling products at a trade show or other event: Some states consider you to have nexus even if you only sell there temporarily.

What Conditions Create Sales Tax Nexus in Every State

Most definitions of nexus include the terms “doing business” or “engaged in business.”

Nexus Requirements By State:

Product Taxability

Most tangible personal property – like furniture or toothbrushes – is taxable.

But some states make exceptions for certain products.

For example, clothing is not taxable in Pennsylvania. So if you sell clothing to a customer in Pennsylvania, don’t charge them sales tax!

As another example, the state of Illinois charges sales tax at a reduced rate of 1% on grocery items.

So if you have nexus in Illinois and sell grocery items, make sure you charge that 1% sales tax rate instead of the full Illinois sales tax rate. The usual Illinois sales tax rate is 6.25% + any local rates that apply.

Each state decides which items are and are not taxable. If you think you may be selling an item that isn’t taxable, check with your state.

KEY TAKEAWAY

If you have sales tax nexus in a state, and the products you are selling are taxable in that state, then you are required to register for a sales tax permit and collect sales tax from buyers in that state.

Most items are taxable.

3 Steps to Sales Tax Compliance

Once you’ve determined that you have nexus in a state and that you’re selling taxable items in that state, your next step is to get compliant.

1. Register for a Sales Tax Permit.

Before you do anything else, get compliant by registering for a sales tax permit in your nexus state.

You do this by contacting your state’s taxing authority (usually called the “[State] Department of Revenue.”) The state will require identifying information from you and your business and information about your business activities.

You can find out how to register for a sales tax permit in every state here.

Don’t skip this step!

Most states consider it illegal to collect sales tax without a permit.

In their point of view, if you collect without a permit you are representing to your customers that you’re collecting sales tax, but pocketing the money for yourself.

Always have a valid sales tax permit before you begin collecting.

When they issue your sales tax permit, your state will also assign you a sales tax filing frequency. This is generally either monthly, quarterly or annually.

As a rule of thumb, the higher your sales volume in a state, the more often the state will want you to file a sales tax return and remit the sales tax you’ve collected.

2. Collect Sales Tax.

Next, set up and start collecting sales tax online for all of your online shopping carts and marketplaces.

Each shopping cart and marketplace will have a way for you to collect sales tax, though some sales tax collection engines are more robust than others.

For example, Amazon has a very detailed and exact sales tax collection engine.

eBay, on the other hand, only allows online sellers to collect one sales tax rate from buyers in each state.

Why is it important to be able to collect more than one sales tax rate per state? It’s because of a concept called “sales tax sourcing.”

Let’s go over the basics.

Origin & Destination-Based Sales Tax Sourcing

We already mentioned that each state is allowed to make its own sales tax rules and laws.

One choice states get to make is whether or not to use “origin-based” or “destination-based” sales tax sourcing.

This simply means that states get to decide whether online sellers charge sales tax based at the sales tax rate of their business location (origin-based sourcing), or whether online sellers are required to collect sales tax at the customer’s ship to address (destination-based sourcing.)

The majority of states are destination-based.

From the state’s point of view, this assures that every local area receives the exact amount of sales tax collected from buyers in their jurisdiction.

But it can make sales tax collection, reporting and filing very difficult for online sellers who have nexus in destination-based states.

Origin-based sales tax collection example

Lou lives in and sells online from his home in Irving, Texas. Texas is an origin-based sales tax state, so when Lou makes a sale to a buyer in Archer City, Texas he charges that customer his home rate of 8.25% in Irving.

He does not charge the customer the Archer City rate.

Destination-based sales tax collection example

Amanda lives in and sells from her home in Stamford, New York. New York is a destination-based sales tax state, so when Amanda makes a sale and ships an item to a buyer in Buffalo, she is required to charge her customer the Buffalo sales tax rate.

She does not charge the buyer her home sales tax rate in Stamford.

Didn’t Pass the 2 Question Test Above?

You can read a whole lot more about origin vs. destination-based sales tax sourcing here.

3. Report and File Sales Tax.

When they issued your sales tax permit, your state assigned you a sales tax filing frequency.

This means your sales tax due date will roll around either monthly, quarterly or annually (and sometimes semi-annually.)

Keep in mind that every state’s sales tax due dates are slightly different.

Most states want to hear from you on the 20th day of the month after the taxable period, but others want to hear from you on the last day of the month, or the 15th, or the 23rd, etc.

When your due date rolls around, your job is to report how much sales tax you’ve collected in each state.

If the state just wanted to see one number, your job would be easy.

But to complicate matters, most states want to know how much sales tax you collected from buyers in each taxing jurisdiction.

This means figuring out how much sales tax you collected in each state, city, county and other special taxing jurisdiction in all of your nexus states. (And who on earth knows which city is in which county in a state without looking it up?)

This process becomes especially painful if you sell on multiple channels, and have to attempt to integrate more than one sales tax report.

Fortunately, we live in a time where ecommerce sales tax software automation technology exists to make this process simple.

Whew!

TaxJar is one sales tax automation app you can use within the BigCommerce dashboard.

THE BIGCOMMERCE BENEFIT

Basic automatic U.S. state sales tax calculation is available to all BigCommerce subscriptions and will determine sales tax rates during checkout based on a standard tax rate for states in which you are required to collect sales tax.

If you or your customers require any special exemptions, if you sell products which require an excise tax, or if you have other special requirements, you can link an Avalara AvaTax premium account to ensure you are collecting the correct sales tax by using product tax codes for each item in an order.

You can also define custom tax rules using the Manual tax settings if you do not have an Avalara AvaTax premium account.

Please contact your tax accountant for advice if you are unsure about whether your products require special tax calculation.

Once you’ve reported how much sales tax you’ve collected, your next step is to file your sales tax return and remit the sales tax you’ve collected from customers.

There are a couple of important considerations here:

  • Always file “zero returns:” File a sales tax return by your due date, even if you didn’t collect any sales tax from your buyers over the taxable period. States want to hear from you even if you don’t have any sales tax to remit. Some states will even levy a penalty on you for failing to file a zero return.
  • Take advantage of discounts: About half the states with a sales tax realize that asking retailers to act as tax collection agent is a burden. These states allow you to keep a very small percentage (usually 1-2%) of the sales tax you collect from buyers. Be sure to take advantage of this discount when filing in one of these states with a sales tax discount.

KEY TAKEAWAY

To be fully sales tax compliant, register for a sales tax permit in the states where you have sales tax nexus, then file and remit sales tax due by each of your sales tax due dates.

Other Important Sales Tax Facts for Online Sellers

With that, you have the basics you need to be sales tax compliant.

There are a couple of other interesting things to note about sales tax.

Resale Certificates.

In most states, your sales tax permit also serves as a resale certificate or seller’s permit.

If you do retail arbitrage – buying items at retail with the intent to resell them yourself – then you are not required to pay sales tax on those items if you present your resale certificate to a participating retailer.

Now keep in mind that retailers are not obligated to accept your resale certificate.

So if you do have a valid resale certificate, but the retailer from which you are buying items to resale charges you sales tax, you are often able to reclaim the sales tax you paid on your next sales tax filing.

Also, keep in mind that resale certificates are strictly to be used to buy items you truly plan to resale. It is unlawful to use your resale certificate to buy items like office or packing supplies, or items for personal use.

The state considers this fraud and both you, as the reseller, and the retailer who sold items to you could face fines and penalties.

Periodic “Sales Tax Checkups.”

You should double-check your sales tax compliance periodically.

Business activities such as hiring an employee in another state, or opening a location in another state may mean that you now have sales tax nexus in new states.

Conversely, you may also close a location or have an employee leave your company, which means that you no longer have nexus in a state.

If your sales tax liability changes, be sure to update your sales tax permits with each state, and also to update your sales tax collection on your various shopping cart and marketplaces.

A periodic review will ensure that you are fully sales tax compliant.

For more information about internet sales tax, you can check with your state’s department of revenue or a qualified sales tax professional.

Next up: Amazon for FBA Sellers.

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