Managing sales tax for a number of states can become quite the chore. Here are a few strategies for streamlining the process from the experts at TaxJar.
In early January the winds of winter howl, but if you’re an online seller, the winds are warning of the upcoming ”sales tax storm.” January is the month that nearly every state requires sellers to file sales tax returns, regardless of whether your filing frequency is monthly, quarterly or annually. Because these requirements may hit you from every side, we at TaxJar call January “The Sales Tax Perfect Storm.”
Just as you should prepare for blizzards and power loss in a winter storm, so too should you prepare for the upcoming sales tax storm. To help, we’ve put together a list of our best strategies for surviving. Let’s dig in!
Do You Have Nexus?
Find the states where you need to file tax returns. You must file sales tax returns for every state where your business has nexus. Nexus is usually defined as “significant presence.” You’ll have it in your home state, but you might also have nexus in states where you have a remote employee, sell at craft fairs, or keep your products stocked in a warehouse. Here’s a guide to determining if you have nexus in a given state.
Find your sales tax filing due dates. January 20th is the most common January sales tax due date, but a few states have a different sales tax due date in January. It’s best to check each state to make sure you file your sales tax returns by the due date.
Find out how much sales tax you owe. How many sales channels and/or platforms do you sell on? Go through each of them and tally your taxable sales and the amounts of sales tax withheld for each of those sales. Then break them down by state, county, city and special taxing district. This can be tough, time-consuming and nit picky work. As an alternative, you can use an automated sales tax solution to do all this hard work for you so you can get back to focusing on the more profitable parts of your business.
Filing Sales Tax Returns
File your sales tax returns. Once you have the totals of the collected sales tax you owe for each state, you’re ready to file. There are a few different options:
- File Online: For each state, find the sales tax portal, fill out the online form, and create an account for the (usually separate) system they use to process payments
- File by Mail: This option was the standard, but many states are now discontinuing the option to file by mail. Again, find the state’s sales tax portal and check their policies.
- AutoFile: Use a sales tax service to automatically file your sales tax return and pay the balance owed to the state on your behalf in most states. It’s even smart enough to apply any available sales tax discounts for filing on time.
No matter how you file, we urge you to make sure you file for every state where you’re registered for sales tax collection, even if you owe no taxes for the filing period. Failing to file a “zero return” can result in a fine or penalty, even if you didn’t owe any sales tax that period. Ouch!
Prepare for the Future
Get ready for next year. Once you’ve filed in all of the states where you have nexus, you’re ready to forget about sales tax for a while and focus on growing your business throughout the next year. That’s great, but keep in mind that your new business activities may mean that you now have nexus in additional states. If so, make sure you register for permits in those states as soon as possible.
You may also find that you no longer have nexus in a particular state anymore. If that happens, contact that state’s department of revenue and let them know so you can begin ending your business relationship with that state, but keep in mind you may have “trailing nexus” and must keep filing for a certain period after you no longer have nexus.
The storm is coming for both the prepared and the unprepared. If you take time now and find a way to automate away the pain of sales tax compliance, you can make sure you stay on top of the January “Sales Tax Perfect Storm” and get back to all of your more fun, exciting and lucrative New Year’s Resolutions!