Should You be Charging Sales Tax on Your Store?
How sales tax work and why it’s there
If you buy products or services then you probably know about sales tax and you’re thinking it’s just around to add pain, but it isn’t. There are 50 states in the US, and only 45 and the District of Columbia collect sales tax. The taxes that you pay for are used for the salaries of employees, public resource improvement, police, fire departments and even road improvements just with that and you can see that it was collected for a cause, for the betterment of the public. When you shop in brick and mortar shops, you usually have to pay a little more per item for the taxes. Soon, in more places you will have to do that online too, the charging of sales tax online is changing and evolving.
The sales tax would depend more on if the state where you’re on has it or not. Let’s say you’re in Montana and you sell to your customer in Montana, you won’t have to worry about sales tax. But what if you’re in a state without tax but you’re sending to a state with tax, how will things be? This is where Nexus comes in.
What is “nexus”?
Nexus is a more classy way of naming or referring to the place where your business operates. So basically if the state where your business operates has a sales tax, if you have a nexus in the state that you’re operating then you have to collect sales tax. So Back to our example, if you were from Montana and you’re transacting with someone in Florida, Florida has a sales tax but if you don’t have nexus there, you still don’t have to pay. But when do you have a nexus and when do you not? The question “When should I charge tax? Is already difficult to answer as it is, and making sure you know all the places where you have nexus could add up to the difficulty. The thing is, you have nexus no matter what in the state where your business is based, but you could have nexus in other places as well. It’s more of the places where you have a warehouse, a tradeshow presence even if it’s just occasionally, and if you have a drop shipping relationship in that area. The definition of nexus varies from the state so it’ll be best to find out the details instead of assuming.Below is a photo of US sales tax by states:
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Sales tax permit registration
Before you even begin collecting sales tax if you’re transacting in places that you have nexus, you have to make sure you have a sales tax permit. You can secure that in your state’s Department of Revenue office or if you want to do it online you can check their website. Other sales tax permit has a fee, but most of them are actually free. When it comes to paying, when you’ve secured a permit, they’ll let you know when you have to pay and how often you’d have to. Most of the time it’s annually or quarterly but for some, it’s monthly. For annual dates, January is sometimes the busiest time of the month because that’s when the majority is scheduled to pay.
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