12 Tips for Navigating the January Sales Tax Perfect Storm

Dec 29, 2016 by Mark Faggiano, TaxJar
12 Tips for Navigating the January Sales Tax Perfect Storm
Posted Dec 29, 2016 by Mark Faggiano, TaxJar

Nearly every online seller will have a sales tax return due in January no matter if you file annually, monthly, or quarterly. For this reason at TaxJar we like to call January the “Sales Tax Perfect Storm.”

Just like when a hurricane or winter blizzard hits, no one likes to be caught unprepared, so we’ve assembled a list of our best tips to get you ready for the oncoming storm. Let’s dig in!

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Find Your Sales Tax Due Dates

Each one of the 45 states (plus the District of Columbia) that collects sales tax is slightly different when it comes to sales tax filing due dates.

In general most states set the 20th as their due date, but others want you to file by the 15th, the 25th, or the first or last day of the month following the closing of your filing period. Make sure to check your state’s sales tax due dates here to make sure that you file on time to avoid fees or penalties.

Check Your Sales Tax Nexus

Nexus is defined as “significant presence,” and if you have nexus in a state that means you are required to collect and file sales tax in that state.

You’ll always have nexus in your home state, but you could also have nexus from a remote employee, stocking your products in a warehouse, or selling at craft shows.

Here’s a guide to help determine if you have nexus in a given state.

Register for Sales Tax Permits as Soon as You Discover You Have Nexus

As soon as you’ve established nexus in a new state the best practice is to register for a sales tax permit in that state as soon as possible so you can begin collecting sales tax right away.

Discontinue Sales Tax Registration if You No Longer Have Nexus

Sometimes you may discover you no longer have nexus in a given state — perhaps your remote employee left the company or you no longer sell at that craft show 10 hours from home.

When that happens you should contact that state’s department of revenue and let them know you’re ending your business relationship with that state.

Keep in mind that some states has a practice called “trailing nexus” where you must keep filing for a certain period of time after your cause of nexus has ceased.

Make Sure You’re Collecting Sales Tax on All Sales Channels

Sure, Ecwid is your primary shopping cart but you may also sell on eBay or Amazon from time to time. One of the biggest mistakes we see at TaxJar is when a business forgets to collect sales tax on all of their sales channels.

Every so often you should go through the sales tax collection settings for each of your platforms to make sure that you’re collecting from all the states where you have nexus.

Know if You Sell any Non-Taxable Items

Most items sold in the United States are taxable, but not always. Some states do not tax sales of clothing and many states charge a lower sales tax rate (or none at all) on groceries.

Sales tax compliance is governed at the state level and you’ll want to check with your state’s taxing authority to see if any of the items you’re selling in that state aren’t taxable.

Determine How Much Sales Tax You’ve Collected

I’ll be honest, this is usually the biggest headache in the sales tax compliance process, but it’s important to deal with and not procrastinate.

You’ll need to go through Ecwid and each and every one of your other sales channels and figure out how much sales tax you’ve collected from customers in each state.

After that you’ll need to break down those amounts not just by state, but by county, city, and any other special taxing districts. This is exactly why we recommend having a sales tax automation service to take care of all of this bookkeeping automatically.

Check for Changes to Sales Tax Rates

Always keep in mind that state and local sales taxes are subject to change at any time and you’ll need to update the rates of your store if you discover a change.

Most rate changes happen either at the first of the year, in July, or in October. You can always double-check a sales tax rate by entering the ZIP code into a Sales Tax Calculator.

Figure out Your Filing Options for Each State

Most states prefer that you file online using the sales tax portal for each site — you’ll fill out their online forms and then create an account in a separate payment processing system to remit collected taxes.

You can still file sales tax returns by mail in several states but many are discontinuing that option. You can find out on the same sales tax portal for that state.

If you don’t want to deal with filling out forms or navigating payment gateways, you can get TaxJar to automatically file your sales tax returns in most states using the AutoFile service that takes care of all the work. It’s even smart enough to figure out if the state has a discount for filing sales tax on time and will apply the discount for you automatically.

File a Return Even if you Don’t Owe any Taxes

You’ll want to make sure you file a return for every state where you’ve registered for a sales tax permit, even if you didn’t end up actually collecting any sales taxes for that state.

Failing to file in states where you’re registered can result in fines or even having your sales tax permit revoked.

Review or Change Your Filing Frequency

In many states your business will begin filing monthly for the first year after you register for your sales tax permit, and following that first year the state may change your filing frequency to quarterly or annually.

This usually (but not always) linked to your sales volume. After some time filing with the state, some states will even allow you to change your filing frequency if you ask. Most sellers prefer to file annually or quarterly when possible so it can definitely pay to contact your state taxing authority to see if this might be an option for your business.

Get a Jump on Next Year’s Sales Tax Storm

We know that as soon as you’ve filed for each of your states in January you’ll be ready to not think about sales tax compliance for a quite a while, but keep in mind that periodically thinking about whether you’ve gained nexus in a state or made sure that your sales channels are all set to withhold in the proper states and at the correct rate will help keep your business running smoothly throughout the year and make next year’s “Perfect Storm” easier to bear.

Now that you have a dozen tax tips we hope you’re in a much better position to weather the upcoming January storm. For more about sales tax check out our Sales Tax 101 for Online Sellers Guide.

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TaxJar is a service that makes sales tax reporting and filing simple for more than 7,000 online sellers.  Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!

About The Author
Author Mark Faggiano is Founder and CEO of TaxJar. This post is geared toward sellers who live in the U.S. or who are required to collect sales tax in the U.S.

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