Sales Tax for Online Sellers

I can confidently say that Sales Tax is the most challenging obligation that E-Commerce business owners deal with when it comes to recurring bookkeeping & accounting work. In the United States alone, there are more than 13,000 sales tax jurisdictions with rules that you are required to abide by. This blog is going to kickoff a blog series on the concept of Nexus, so that you understand the basics when it comes to the connection between a taxing jurisdiction and your business.

Sales Tax Nexus for E-Commerce Businesses

Know Your Nexus

You may or may not have heard of the term “Nexus” floating around on the interweb, but what exactly is it? Nexus is the connection between your business and activity in a state that requires your business to register, collect, and remit sales tax. There are five well-known types of Nexus, and each state has its own rules and definition of those types of nexus, sothe first step in understanding your sales tax obligation, is to first identify which states you have nexus in. Factors such as the location of your business, where your products are stored, and where your customers are located can impact your nexus. If you fear you may have unknowingly hit nexus in a state, we can complete a nexus analysis for you to help you determine if nexus has been hit, as well as what your current sales tax liability may be. 

Understand Sales Tax Rates

Nexus is the easy part. You also need to understand sales tax rates, as they can vary significantly between states, counties, cities, and districts. Each state has different rules on the location a sale is made, determining that sales tax rate. This process can be complicated, as filing sales tax returns often require you to remit sales tax to the individual jurisdictions, so to make this process easy, we recommend using a sales tax software such as Avalara.  

Keep Accurate Records

Accurate record-keeping is essential for sales tax compliance. The most common mistake that we see business owners make in their bookkeeping is combining their sales tax with their gross sales. Though this is fundamentally incorrect the impact on your sales tax filings varies between state to state. Some states consider this mistake and allow you to deduct the sales tax when included, and others do not. Either way, it is vital that you work with a professional bookkeeping firm to ensure that the books are clean and match your state returns. 

Remit Sales Tax on Time

E-commerce businesses are required to remit sales tax on a regular basis, depending on the state’s rules. This can be monthly, quarterly, or annually. Each state has unique sales tax filing requirements and deadlines, so to avoid unwanted penalties and interest, it is important to stay on top of the rules for each individual state that you’re filing in. Sales tax software often alleviates this challenge. 

Use Sales Tax Software

Now, I understand that we’ve brought sales tax software up numerous times already, but I feel that this last item is important and worthy of a repeat: USE SALES TAX SOFTWARE. It will make your life easier. Sales tax software, such as Avalara, automates your sales tracking process for you and ensures that you are remitting sales tax to the correct jurisdictions. States are aggressive when it comes to sales tax audits, so skip the mistakes and get your business set up from the beginning. 

Are you interested in working with Upscale Bookkeeping? Use the link below to access our client interest form!

Navigating Finances: Spreadsheet Bookkeeping vs. Accounting Software

The choice between spreadsheet bookkeeping and accounting software is a crucial decision that businesses must make. Each approach has its merits, and the suitability depends on the specific needs and preferences of the business owner. In this blog, we'll explore who...

Your guide to navigating 1099 requirements like a professional

Please see our DisclaimerYOUR GUIDE TO NAVIGATING 1099 REQUIREMENTSLIKE A PROFESSIONALFREE EBOOK DOWNLOADHere's our #1 tip on how to save yourself from stress come January 1st: Think about 1099s all year long. Believe us when we tell you, that nothing is worse than...

Small Business Guide to Estimated Tax Payments

Please see our DisclaimerSMALL BUSINESS GUIDE TO ESTIMATED TAX PAYMENTSFREE EBOOK DOWNLOADFor small businesses in the United States, financial responsibility extends beyond day-to-day operations. Estimated tax payments stand as a crucial element in maintaining...

Budgeting for Small Businesses

If I sat you down right now and told you we were going to build a budget for your business, what would your first thought be? Cringe? Excitement? Whatever your initial feelings are regarding a budget, stick with me for a moment to convince you why implementing (and...

Understanding Inventory & COGS

E-Commerce businesses have the unique challenge of managing inventory and tracking the cost of goods sold (COGS), and the processes can be complex and time-consuming. To ensure efficiency and profitability, however, your e-commerce business must keep accurate records...

DIY Bookkeeping Tips

If you're going to DIY your bookkeeping: You Need to KnowWhile e-commerce businesses are exciting and rewarding ventures, they come with a unique set of challenges with bookkeeping. Properly tracking your financial records is essential for the success of your...

FBA and Physical Nexus

FBA and Physical NexusAs E-Commerce continues to rapidly expand and business owners take advantage of Amazon's FBA services, e-commerce sellers must understand the physical nexus rules and the varying definitions of it. For e-commerce sellers, physical nexus can be...

Accrual vs Cash Accounting

Accrual vs Cash AccountingPsst... You should be using accrual!For any business, keeping track of the financials is crucial for success. While cost accounting or cash accounting may make sense to many business owners, if you own an e-commerce business, you should run...

Taxes for LLCs

DISCLAIMER: The information provided in this blog is intended for general informational purposes only and should not be construed as professional tax advice. While efforts have been made to ensure the accuracy and completeness of the information, tax laws and...

Decode Your Profit & Loss Statement Like a Pro

Please see our DisclaimerDECODE YOUR PROFIT & LOSS LIKE A PROFREE EBOOK DOWNLOADUnderstanding this statement is not merely a financial nicety; it's a strategic imperative for any business leader navigating the path to sustained success. At its core, the P&L...