The start-up businesses develop Ecommerce to get unrivalled branding recognition with a simplified business approach. Handling sales tax is not so simple for them because each state has individual rules and regulations for sales tax. Therefore, following those rules is mandatory for running your Ecommerce business without any interruption.
- 1 What do you mean the Term ‘Sales Tax’?
What do you mean the Term ‘Sales Tax’?
On the sale of individual goods and services, a certain amount of tax is levied by the local government. The sellers need to collect this tax on sold goods or services. A certain amount of money, which is included with the cost of any product or service, is called sales tax. And the consumers pay this amount as a part of the total cost of a product or service. This additional amount of price tag is calculated as per the local state tax rate. So, every time the consumers purchase new goods or services, they need to pay the additional amount on basic pricing.
Businesses are also responsible to track the amount of sales tax rate and collect the amount from all their customers. On a monthly or quarterly basis, the business owners have to submit this amount to the government. Above all, sales tax registration is one of the essential steps for sales tax compliance.
Registration of business sales tax permits is the first step to get compliant in the nexus state. If you are proceeding with this through the state taxing authority, then they will verify every piece of information about your business approaches and activities. Most of the states find it illegal the sales tax collection without having a permit. So, never skip this step for the sake of your business.
Here, the following discussions will guide every Ecommerce entrepreneur to face the hassles of sales taxes with full confidence.
Is Sales Tax also applicable on Ecommerce Sales?
Yes, the collection of Ecommerce sales tax is considered as a part of online business laws. But, for online merchants, it is a highly complicated procedure to apply the online sales tax rules. They also need to hand over the sales tax within the prescribed time. And not only on wholesale goods but also on each type of raw materials, the online merchants have to be responsible for sales tax collection.
Why does States emphasize on the Renewal of Tax Laws?
Before the Ecommerce era, remote USA merchants receive their orders through mail or telephone. At that time they only had to collect the sales tax from their buyers based on their physical locations and had to pay to the government.
Amazon also utilized another advantage of Quill decision: The consumers also got a chance to save a little amount of money, while they bought from the online portals. So, they prefer to buy anything from Amazon to avoid sales tax.
But the recent decision of South Dakota v. Wayfair announced every online business will be liable to pay the fixed amount of sales tax on each order, which is made in different states. Because, though online merchants have no physical presence, they have a certified economic presence. Therefore, monitoring the individual sales tax regulations as per state is highly important for Ecommerce businesses.
What things do you need to keep in Mind as an Ecommerce Merchant about Sales Tax?
Being an online retailer, it’s your responsibility to pay the sales tax to the state. You need to charge this amount with the cost of your products from your consumers. There are some specific rules to collect online sales tax from online consumers:
- The online start-up merchants should have sales tax nexus in similar states, from where their consumer orders products or services.
- The individual products are taxable in their consumer’s states.
Sales tax nexus is a conceptual way to establish a significant link with the state. Having nexus in any state as an online merchant you get the considerations of that state to charge sales tax on the consumers on their ordered products. Therefore, you must have sales tax nexus always at your home state. Today, the global business chains create sales tax nexus in different states too.
What are the options to create Sales Tax Nexus in Different States?
While you are confident of having nexus in a state, and you are determined to sell taxable items in a state, then you need to achieve a compliant.
- Your business should have a physical presence such as a warehouse, a store, an office etc in the state.
- Any personnel will handle the deals of your business in the state like a contractor, salesperson, employee or installer etc.
- Most states prefer having storing inventory is essential for having sales tax nexus, even without location or personnel.
- In few states, if you have an agreement for third party shipping, then you can create sales tax nexus for your business.