Here are some tips to help you collect sales taxes for online and in-person sales for your home business.
How Businesses Collect Sales Tax
Sales taxes are required by most states for both in-person sales and sales over the internet. States require small businesses, including home-based businesses, to collect, report and pay sales if they have a tax nexus (a tax presence) in that state. Your home business can have a tax nexus if the business:
Sells or ships products from your home to buyers in the state Has an office or place in your home where you conduct business Has employees who work in the state for your home business, including independent contractors, salespeople, representatives, or agents
In addition to statewide sales taxes, many cities, counties, and other types of localities require sales taxes.
The Sales Tax Process
After you have determined that your home business has a tax nexus in your state, the next step is to find what products and services you sell are subject to sales taxes in your state. You’ll need to know if your products or services are taxable, the tax rate, and the difference in taxes if you are selling to individuals in different parts of your state. Check with your state’s department of revenue or taxing agency (it might be called something else in your state). You can find information on whether your products or services are taxable (most products are; many services are), and the tax rates in all localities in your state. The next step is to register to collect sales tax in your state by getting a seller’s permit. In most states, you can register, submit reports, and pay taxes online.
Sales Tax on In-Person Transactions
In-person transactions are the easiest to deal with. Let’s say you make and sell greeting cards for shops in your city. You will need to know the sales tax rate at the location where you deliver the product and charge that to each of your customers. If you make products at home and sell them to customers at a outdoor market or flea market, you will might want to get a phone with an internet connection and sales tax software to calculate the sales tax. Of course, you can also handle these transactions manually with a receipt pad.
Sales Taxes on Internet Transactions
All states that charge sales tax also have laws requiring businesses that sell online to pay sales taxes for online transactions. You are a remote seller if your business doesn’t have a physical presence in the state but it sells products or services for delivery into that state. The key thing to remember is “delivery into a state.” To help small businesses, each state has a threshold for annual sales or number of transactions below which the state doesn’t require reporting of online transactions. For example, Arkansas requires sales tax report if online sales are greater than $100,000 or 200 transactions during the current or preceding year. California requires reporting if total combined physical and online sales exceed $500,000 during the preceding or current calendar year. Consider the estimated sales for your home business and the number of possible states into which you might deliver taxable products or services in that state. You could potentially need to deal with 45 states and over 38,000 localities. The best way to solve this complicated problem is to find a tax software company that an automatically charge sales taxes on your online transactions. These companies are fairly up-to-date on the current requirements.
