Managing sales tax for small businesses can be a tricky topic for a lot of business owners to figure out, especially if you sell online or through e-commerce platforms. You need to know what you have to do, how to do it well, and how to follow the rules.
It can seem like a lot of red tape and confusion. This complete guide will help you make sense of sales tax for small businesses in the US, giving you simple answers, useful advice, and easy steps to keep everything in order.
What is sales tax
Sales tax is a tax that you collect from your customers and remit to the government when you sell goods or services in the US.
However, sales tax rules and requirements can vary from state to state, and sometimes even within the same state. This can make sales tax registration and filing a challenging and confusing task for many small businesses.
The rate varies depending on the location, with combined state and local rates ranging from 2.9% to 9.53% as of 2024.
Different types of sales taxes
1. General Sales Tax
The most common type, applied to the sale of a wide range of goods and services.
2. Specific Sales Tax
Applies to specific products or services, such as alcohol, tobacco, or gasoline.
3. Transactional Taxes
Charged on each transaction, such as hotel occupancy taxes or rental car taxes.
4. State Sales Taxes
They are imposed by the state government and apply to all sales within the state, unless they are exempt or excluded by law.
5. Local Sales Taxes
They are imposed by the city, county, or district government and apply to sales within their jurisdiction, in addition to the state sales tax. Local sales tax rates can vary widely, even within the same state.
Some states also have special sales taxes, such as use tax, excise tax, or gross receipts tax.
- Use tax is a tax that you pay when you buy something from another state or country and use it in your state without paying sales tax to the seller.
- Excise tax is a tax that you pay on specific goods or services, such as gasoline, tobacco, or alcohol.
- Gross receipts tax is a tax that you pay on your total revenue, regardless of your expenses or profits.
Other types of taxes for small businesses
Besides sales tax, there are other types of taxes that you may need to pay as a small business owner, depending on your business structure, income, and location. Some of the common taxes for small businesses are:
1. Income Tax
This is a tax that you pay on your net income, which is your revenue minus your expenses and deductions. The income tax rate and rules depend on your business structure, such as sole proprietorship, partnership, corporation, or LLC. You may need to pay federal income tax, state income tax, or both, depending on where you operate your business.
2. Self-Employment Tax
This is a tax that you pay if you are self-employed, meaning that you work for yourself and not for an employer. Self-employment tax consists of Social Security and Medicare taxes, which are normally withheld from your paycheck if you are an employee. The self-employment tax rate is 15.3% of your net earnings, but you can deduct half of it from your income tax.
3. Payroll Taxes
This is a tax that you pay if you have employees, meaning that you pay wages or salaries to others for working for your business. Payroll tax consists of Social Security and Medicare taxes, federal unemployment tax, and state unemployment tax, which are withheld from your employees’ paychecks and paid by you as the employer. The payroll tax rates and rules depend on your payroll amount, frequency, and location.
4. Property Taxes
This is a tax that you pay if you own or lease property, such as land, buildings, or equipment, for your business. Property tax is imposed by the local government and is based on the assessed value of your property. The property tax rate and rules depend on your property type, location, and usage.
How to pay sales tax for small business
Paying sales tax for small businesses can be a complex and time-consuming task, but it is necessary to avoid penalties and interest for noncompliance. Here are the steps that you need to follow to pay sales tax for small business:
1. Figure out your sales tax collection responsibilities
The first step is to figure out where and when you need to collect sales tax from your customers. This depends on whether you have a physical or economic connection to the state, also known as a nexus. Nexus can be created by having a location, inventory, employees, or sales in the state. Each state has its own rules and thresholds for determining nexus, so you need to check the state’s specific requirements.
If you sell online or through e-commerce platforms, you may also need to collect sales tax from customers in other states, depending on the state’s laws and your sales volume. This is known as remote seller nexus or economic nexus. Some states have adopted the South Dakota v. Wayfair decision, which allows them to require online sellers to collect sales tax if they have more than $100,000 in sales or 200 transactions in the state in a year.
2. Register and apply for a sales tax permit with the appropriate state(s)
The next step is to apply for a sales tax permit with the state(s) where you have nexus and where your products or services are taxable. A sales tax permit is also known as a sales tax license, registration, or certificate. It is a document that authorizes you to collect and remit sales tax to the state.
You can apply for a sales tax permit online or by mail, depending on the state and method of registration.
You will need to provide some basic information about your business, such as your name, address, EIN, and estimated sales. Some states charge a registration fee, while others offer it for free. The process can take from a few minutes to a few weeks, depending on the state and method of registration.
3. Determine the sales tax rate(s) to use
The third step is to determine the sales tax rate(s) to use for your sales transactions. The sales tax rate is the percentage of the sales price that you charge your customers as sales tax. The sales tax rate can vary from state to state and sometimes even within the same state, depending on the type and location of the sale. You need to use the correct sales tax rate for each sale; otherwise, you may overcharge or undercharge your customers or pay the wrong amount of sales tax to the state.
To determine the sales tax rate, you need to consider the following factors:
- The origin or destination of the sale: Some states use the origin-based method, which means that you use the sales tax rate of your location, regardless of where your customer is. Other states use the destination-based method, which means that you use the sales tax rate of your customer’s location, regardless of where you are. You need to check the state’s website to see which method they use and apply it consistently.
- The product or service category: Some products or services are exempt from sales tax, meaning that you do not charge sales tax to your customers or pay sales tax to the state. Some products or services are subject to reduced or increased sales tax rates, meaning that you charge a lower or higher sales tax rate than the standard rate. You need to check the state’s website to see which products or services are taxable, exempt, or subject to special rates, and apply them accordingly.
- The local sales tax rate: Some cities, counties, or districts impose their own local sales tax, in addition to the state sales tax. This means that you need to add the local sales tax rate to the state sales tax rate to get the total sales tax rate for the sale. Just as I have said above, you need to check the state’s website to see which localities have local sales tax, and what their rates are.
To make the process easier, you can use a sales tax calculator like AtomicTax Calculator or sales tax automation software like AtomicTax to determine the sales tax rate for each sale, based on the factors mentioned above. This tool will help you calculate the sales tax rate accurately and automatically.
4. Collect the tax from customers at the point of sale
The fourth step is to collect the sales tax from your customers at the point of sale. The point of sale is the moment when the sale is completed and the ownership of the goods or services is transferred from you to your customer. This can be when you deliver the goods, perform the service, or receive the payment, depending on the terms of the sale. You need to charge the sales tax to your customer and add it to the sales price, at the point of sale. You also need to provide a receipt or an invoice to your customer, showing the sales price, the sales tax, and the total amount.
5. Record collected sales tax with your sales tax automation software
The fifth step is to record the sales tax that you collected from your customers with your sales tax automation software. You need to keep track of your sales and sales tax in each state, as they may change over time. You also need to keep records of your sales tax transactions, such as receipts, invoices, returns, refunds, and exemptions, for at least three years in case of an audit. You need to record the sales tax with your sales tax automation software so that you can easily access and manage your sales tax data.
6. Report and remit sales tax to the appropriate states
The final step is to report and remit the sales tax that you collected from your customers to the appropriate states. Reporting means that you file a sales tax return with the state, showing how much sales and sales tax you had in the state during the reporting period. Remitting means that you pay the sales tax amount that you owe to the state along with the sales tax return. You need to report and remit the sales tax to the state(s) where you have nexus and where your products or services are taxable, according to the state’s schedule and instructions.
To report and remit the sales tax, you need to consider the following factors:
How small businesses report and remit sales tax
1. Understand the filing frequency
This is how often you need to file and pay sales tax to the state, such as monthly, quarterly, or annually. The filing frequency depends on your sales volume and the state’s rules. Generally, the more sales you have, the more often you need to file and pay. You need to check the state’s website to see what filing frequency they assign to you, and follow it accordingly.
2. Note the filing due date
This is the deadline for filing and paying sales tax to the state, usually by the end of the month following the reporting period. For example, if you file quarterly, and your reporting period is January-March, your due date is April 30th. You need to check the state’s website to see what due date they set for you, and meet it on time. Otherwise, you may incur penalties and interest for late filing and payment.
3. Choose the right filing method
Understand the various methods available for submitting your sales tax return and payment—whether online, by mail, or by phone. While preferences and state options may vary, generally, online filing is faster, easier, and more secure than other methods. Check the state’s website to see what filing method they offer you and use it consistently.
How to register for sales tax
As long as you sell goods or services in the US, you would need to collect and remit sales tax to the government.
1. Identify which state you have a sales tax obligation
But before you can do that, you need to register your business with the state where you have a sales tax obligation. This is also known as obtaining a sales tax permit or license.
How do you know if you have a sales tax obligation? It depends on whether you have a physical or economic connection to the state, also known as a nexus. Nexus can be created by having a location, inventory, employees, or sales in the state. Each state has its own rules and thresholds for determining nexus, so you need to check the state’s department of revenue website for the specific requirement.
2. Initiate the application and registration process for sales tax permit
Once you know which states you need to register in, you can visit their websites and follow the steps to apply for a sales tax permit. You will need to provide some basic information about your business, such as your
- name,
- address,
- EIN,
- and estimated sales.
Some states charge a registration fee, while others offer it for free.
3. Note the registration duration and timeline
Know how long it takes to register for state’s sales tax. The process can take from a few minutes to a few weeks, depending on the state and method of registration.
4. Receive your sales tax permit
After you receive your sales tax permit, you can start collecting sales tax from your customers and remitting it to the state. You will also need to file sales tax returns periodically, according to the state’s schedule and instructions. Remember to keep track of your sales and tax rates in each state, as they may change over time.
5. Setup a process to simplify your sales tax calculation and filing
Registering for sales tax can be a complex and time-consuming task, but it is necessary to avoid penalties and interest for noncompliance. If you need help with sales tax registration or compliance, you can use a tool like Atomic Tax to simplify the process and automate the calculations, reporting, and filings.
Common mistakes to avoid when registering for sales tax
Sales tax compliance is not something you can ignore or take lightly. To avoid costly penalties and interest for noncompliance, you need to be aware of some common sales tax mistakes and how to avoid them. Here are some of them:
1. Not registering for sales tax in the right states.
You need to register for sales tax in every state where you have a physical or economic connection, also known as a nexus. Nexus can be triggered by having a location, inventory, employees, or sales in the state. Each state has its own rules and thresholds for determining nexus, so you need to check for the the state’s specific requirements
2. Registering for sales tax in the wrong states.
Registering where you aren’t required to register can create unnecessary paperwork and fees for your business. You should only register in the states where you have nexus and where your products or services are taxable.
3. Not taking advantage of the streamlined sales tax program.
The Streamlined Sales Tax (SST) program is a voluntary initiative that simplifies sales tax registration and filing for businesses that sell in multiple states. By registering through SST, you can use one form to register in 24 participating states and enjoy some benefits, such as free tax calculation software and audit protection.
4. Using the wrong NAICS code
The North American Industry Classification System (NAICS) code is a six-digit number that identifies your business type and activity. It is used by some states to determine your sales tax rate and exemptions. Using the wrong NAICS code can result in overpaying or underpaying sales tax or missing out on tax breaks.
5. Not keeping track of rates, rules, and boundary changes.
Sales tax rates, rules, and boundaries can change frequently and without notice. You need to keep track of these changes and update your sales tax calculations and filings accordingly. Otherwise, you may charge your customers the wrong amount of sales tax or file incorrect returns
6. Not using an automated solution to handle sales tax.
Sales tax compliance can be a complex and time-consuming task, especially if you do it manually. You can save yourself a lot of hassle and headache by using an automated solution that can handle sales tax calculations, filings, and remittances for you. Tools like AtomicTax can help you simplify the process and automate the calculations and filings.
Do small businesses have to collect and remit sales tax?
This depends on two factors: nexus and taxability.
1. Nexus: which means having a physical or economic connection to a state or locality that requires you to collect sales tax,. You may have nexus if you hav
- A physical location, such as an office, store, warehouse, or inventory in the state or locality
- Employees, contractors, agents, or representatives in the state or locality
- Sales or deliveries to customers in the state or locality
- Online sales to customers in the state or locality (depending on the state’s rules)
Each state and locality has its own rules and thresholds for determining nexus, so you should check with the tax authorities where you do business to see if you have nexus there.
2. Taxability: this means whether the goods or services you sell are subject to sales tax in the state or locality where you have nexus. Generally, sales tax applies to tangible personal property (things that can be seen, weighed, measured, or touched), but some states and localities also tax certain services, digital goods, or intangible property (things that have value but cannot be seen or touched).
Again, each state and locality has its own rules and exemptions for determining taxability, so you should check with the tax authorities where you sell your goods or services to see if they are taxable.
Steps to take to start collecting sales taxes
If you have nexus and taxability in a state or locality, you need to take the following steps to start collecting sales taxes:
1. Register with the state or locality and obtain a sales tax permit or license.
This will allow you to collect and remit sales tax legally. You may have to pay a fee or post a bond to get your permit or license.
2. Set up your sales system to charge the correct sales tax rate to your customers.
You can use a sales tax calculator, a software program, or a third-party service to help you with this. You need to know the state and local sales tax rates, as well as any special tax districts or zones that may apply to your location or your customer’s location.
3. Collect the sales tax from your customers at the point of sale
You can either include the sales tax in the price of the item or service or add it separately to the invoice or receipt. You need to keep track of how much sales tax you collect from each sale and from each state or locality.
3. Record the collected sales tax in your accounting books.
You need to keep accurate and detailed records of your sales and sales tax collections for each state or locality. You may also need to issue resale or exemption certificates to your customers who are not subject to sales tax, such as wholesalers or nonprofits. You need to keep copies of these certificates as well.
4. Report and remit the sales tax to the appropriate states or localities.
You need to file sales tax returns with the tax authorities where you have nexus and taxability and pay the sales tax you collected from your customers. The filing frequency and due dates vary by state and locality and may depend on your sales volume or tax liability. You can file your returns online, by mail, or in person, depending on the options available.
You can also use a software program or a third-party service to help you with this.
Factors that determine how sales tax is calculated
The amount of sales tax you need to collect and remit depends on several factors, such as
1. The sales tax rate.
This is the percentage of the sale price that is charged as sales tax. The sales tax rate may vary by state, locality, product, service, or customer. You need to know the applicable sales tax rate for each sale you make.
2. The sales tax base.
This is the amount of the sale price that is subject to sales tax. The sales tax base may include or exclude certain items, such as shipping charges, discounts, coupons, rebates, or trade-ins. You need to know how to calculate the sales tax base for each sale you make.
3. The sales tax nexus.
This is the connection between you and the state or locality that requires you to collect sales tax. The sales tax nexus may depend on your physical presence, economic activity, or other factors. You need to know if you have sales tax nexus in each state or locality where you sell your goods or services.
4. The sales tax destination.
This is the location where the sale is considered to take place for sales tax purposes. The sales tax destination may be the origin of the sale (where you are located), the destination of the sale (where the customer is located), or a combination of both. You need to know the sales tax destination for each sale you make.
How to calculate sales tax for small businesses
To calculate the sales tax for a small business, you need to follow these steps:
1. Determine the sales tax rate for the state and locality where the sale takes place.
You can use a sales tax calculator, a software program, or a third-party service to help you with this. For example, if you sell a product in Dallas, Texas, you need to apply the state sales tax rate of 6.25% and the local sales tax rate of 2%, for a total sales tax rate of 8.25%1.
2. Determine the sales tax base for the sale.
This is the amount of the sale price that is subject to sales tax. You need to include or exclude certain items, such as shipping charges, discounts, coupons, rebates, or trade-ins, depending on the state and locality rules. For example, if you sell a product for $100 and charge $10 for shipping, and the state and locality include shipping charges in the sales tax base, then your sales tax base is $1102.
3. Multiply the sales tax rate by the sales tax base to get the sales tax amount.
This is the amount of sales tax you need to collect from the customer. For example, if your sales tax rate is 8.25% and your sales tax base is $110, then your sales tax amount is $9.08 ($110 x 0.0825).
4. Add the sales tax amount to the sale price to get the total amount due from the customer.
This is the amount you need to charge the customer at the point of sale. For example, if your sale price is $100 and your sales tax amount is $9.08, then your total amount due is $109.08 ($100 + $9.08).
Different methods of calculating sales tax and examples
There are different methods of calculating sales tax, depending on the state and locality where the sale takes place. Here are some common methods and examples:
1. Origin-based method.
This method uses the sales tax rate of the origin of the sale, which is where the seller is located. This method is simpler for the seller but may not reflect the sales tax rate of the customer’s location. For example, if you sell a product from your store in Austin, Texas, to a customer in Houston, Texas, you need to apply the sales tax rate of Austin, which is 8.25%, even though the sales tax rate of Houston is 8.375%.
2. Destination-based method.
This method uses the sales tax rate of the destination of the sale, which is where the customer is located. This method is fairer for the customer but may be more complicated for the seller, especially if the seller sells to multiple locations.
For example, if you sell a product from your online store in New York, New York, to a customer in Los Angeles, California, you need to apply the sales tax rate of Los Angeles, which is 9.5%, even though the sales tax rate of New York is 8.875%.
3. Hybrid method.
This method uses a combination of the origin and destination sales tax rates, depending on the type of sale or the type of seller. This method may be more complex for both the seller and the customer, but it may also balance the interests of both parties.
For example, if you sell a product from your store in Chicago, Illinois, to a customer in Springfield, Illinois, you need to apply the state sales tax rate of 6.25%, the local sales tax rate of Chicago of 1.25%, and the local sales tax rate of Springfield of 2.5%, for a total sales tax rate of 10%.
Taxable and non taxable goods
Taxable goods are goods that are subject to sales tax in the state or locality where they are sold. Non taxable goods are goods that are exempt from sales tax in the state or locality where they are sold. The taxability of goods may depend on the type of good, the use of the good, or the identity of the buyer.
Examples of goods on which sales tax is levied are:
- Clothing and footwear
- Furniture and appliances
- Electronics and software
- Books and magazines
- Jewelry and accessories
- Toys and games
- Food and beverages (except groceries)
- Alcohol and tobacco
- Vehicles and parts
- Pet supplies and services
Examples of goods on which sales tax is not levied
- Groceries and food stamps
- Prescription drugs and medical devices
- Agricultural products and equipment
- Educational materials and supplies
- Religious items and publications
- Art and antiques
- Coins and stamps
- Gift cards and certificates
Taxable and non taxable services
Taxable services are services that are subject to sales tax in the state or locality where they are performed. Non taxable services are services that are exempt from sales tax in the state or locality where they are performed. The taxability of services may depend on the type of service, the nature of the transaction, or the identity of the provider or recipient.
Examples of services on which sales tax is levied
- Repair and maintenance services
- Cleaning and laundry services
- Personal care and beauty services
- Health and fitness services
- Entertainment and recreation services
- Professional and consulting services
- Telecommunication and internet services
- Transportation and delivery services
- Installation and fabrication services
- Advertising and marketing services
Examples of services on which sales tax is not levied
- Medical and dental services
- Legal and accounting services
- Educational and instructional services
- Religious and charitable services
- Financial and insurance services
- Real estate and rental services
- Government and public services
- Membership and subscription services
Taxable and non taxable digital goods and services
Taxable digital goods and services are digital products or transactions that are subject to sales tax in the state or locality where they are accessed or used. Non taxable digital goods and services are digital products or transactions that are exempt from sales tax in the state or locality where they are accessed or used. The taxability of digital goods and services may depend on the type of product or transaction, the method of delivery, or the identity of the seller or buyer.
Examples of digital goods and services that are taxable
- E-books and e-magazines
- Music and video downloads or streaming
- Software and apps
- Online games and virtual items
- Cloud computing and storage
- Web hosting and design
- Online courses and training
- Online news and information
- Online dating and matchmaking
Examples of digital goods and services that are not taxable
- Email and instant messaging
- Social media and networking
- Search engines and directories
- Online maps and navigation
- Online banking and payment
- Online auctions and marketplaces
- Online surveys and polls
- Online donations and crowdfunding
What are Sales Tax Exemptions
Sales tax exemptions are situations where sales tax is not charged or collected on a sale that would otherwise be taxable. Sales tax exemptions may be based on the type of property, the use of property, or the identity of the buyer.
Exemptions Based on Type of Property
Some types of property are exempt from sales tax because they are considered essential, beneficial, or non-consumable.
For example, groceries, prescription drugs, and agricultural products are often exempt from sales tax because they are essential for human health and welfare. Educational materials, religious items, and art are often exempt from sales tax because they are beneficial for cultural and social development.
Coins, stamps, and gift cards are often exempt from sales tax because they are not consumed in the transaction, but rather exchanged for other goods or services.
Exemptions Based on Use of Property
Some types of property are exempt from sales tax because they are used for a specific purpose that is exempt from sales tax.
For example, machinery, equipment, and materials that are used in manufacturing, farming, or research are often exempt from sales tax because they are used to produce other goods or services that are taxable.
Resale or exemption certificates are documents that prove that the property is used for an exempt purpose, and they must be issued by the seller to the buyer, or by the buyer to the seller, depending on the state and locality rules.
Exemptions Based on Identity of Buyer
Some types of buyers are exempt from sales tax because they are considered to be exempt entities or organizations.
For example, government agencies, nonprofit organizations, and educational institutions are often exempt from sales tax because they are funded by public money or donations, and they provide public services or benefits.
Exemption letters or cards are documents that prove that the buyer is an exempt entity or organization, and they must be presented by the buyer to the seller at the time of the sale.
What happens when a business doesn’t pay sales tax?
If a business doesn’t pay sales tax, it may face serious consequences, such as:
1. Get penalties and interest.
The business may have to pay penalties and interest on the unpaid sales tax, which can be a percentage of the tax due, a flat fee, or both. The penalties and interest may increase over time, depending on how late the payment is.
2. Attract audits and assessments.
The business may be audited by the state or locality to verify the accuracy and completeness of the sales and sales tax records. The business may be assessed additional sales tax, penalties, and interest if the audit finds any errors, omissions, or fraud.
3. Attract Liens and levies
The business may have a lien placed on its property or assets, which prevents the business from selling or transferring them until the sales tax debt is paid. The business may also have a levy issued on its bank accounts, income, or property, which allows the state or locality to seize them to satisfy the sales tax debt.
4. Get Revocation or suspension of sales tax permit or license.
The business may lose its sales tax permit or license, which means it cannot legally collect or remit sales tax anymore. The business may also be barred from applying for a new permit or license until the sales tax debt is paid.
5. Criminal charges and prosecution.
The business may face criminal charges and prosecution if the failure to pay sales tax is intentional, fraudulent, or repeated. The business may be fined, jailed, or both, depending on the severity of the offense
Common compliance pitfalls for small businesses
Sales tax compliance can be challenging for small businesses, especially if they sell to multiple states or localities, or if they sell different types of goods or services. Here are some common compliance pitfalls that small businesses should avoid:
1. Not registering or renewing the sales tax permit or license.
The business should register with the state or locality and obtain a sales tax permit or license before starting to collect sales tax. The business should also renew the permit or license periodically, as required by the state or locality.
2. Not charging or collecting the correct sales tax rate.
The business should charge and collect the correct sales tax rate for each sale, based on the sales tax destination, the sales tax base, and the sales tax rate. The business should use a sales tax calculator, a software program, or a third-party service to help with this.
3. Not keeping or issuing the proper sales tax records.
The business should keep accurate and detailed records of its sales and sales tax collections for each state or locality. The business should also issue resale or exemption certificates to its customers who are not subject to sales tax and keep copies of these certificates. The business should also keep copies of its sales tax returns and payments.
4. Not filing or paying the sales tax on time.
The business should file sales tax returns and pay sales tax to the state or locality where it has nexus and taxability, according to the filing frequency and due dates. The business should use a software program or a third-party service to help with this.
5. Not reporting or paying the use tax.
The business should report and pay the use tax to the state or locality where it uses, stores, or consumes an item or service that was not subject to sales tax. The business should use a software program or a third-party service to help with this.
Sales Tax FAQs
What is considered taxable revenue as part of sales tax?
Taxable revenue is the amount of money you receive from selling taxable goods or services in a state or locality that imposes a sales tax. Taxable revenue does not include the sales tax you collect from your customers or the money you receive from selling non-taxable goods or services, such as groceries, prescription drugs, or educational services
Do I need to collect sales taxes?
You need to collect sales taxes if you have nexus and taxability in a state or locality that imposes sales tax.
Nexus means having a physical or economic connection to a state or locality, such as having a store, an office, an employee, a contractor, a sales representative, or a delivery service in that state or locality.
Taxability means selling goods or services that are subject to sales tax in that state or locality, such as clothing, furniture, electronics, or software. You can check with the tax authorities where you do business to see if you have nexus and taxability there.
What are sales tax resale forms?
Sales tax resale forms are documents that prove that the goods or services you sell are not subject to sales tax because they are used for an exempt purpose, such as resale, manufacturing, farming, or research. You need to issue a sales tax resale form to your customer, or your customer needs to issue a sales tax resale form to you, depending on the state or locality rules. You need to keep copies of the sales tax resale forms as part of your sales tax records.
What is the difference between zales tax vs. value-added tax
Sales tax and value-added tax (VAT) are both types of consumption taxes that are added to the price of goods or services at the point of sale.
However, sales tax is only charged once, at the final sale to the consumer, while VAT is charged at every stage of the production and distribution process, from the raw materials to the finished product.
Sales tax is collected and remitted by the seller, while VAT is collected and remitted by both the seller and the buyer. Sales tax rates vary by state and locality, while VAT rates are usually uniform across a country or region.
Should I charge sales tax on everything?
No, you should not charge sales tax on everything. You should only charge sales tax on the goods or services that are taxable in the state or locality where you have nexus and taxability.
You should not charge sales tax on the goods or services that are exempt from sales tax in that state or locality, such as groceries, prescription drugs, or educational services.
You should also not charge sales tax on the goods or services that are used for an exempt purpose, such as resale, manufacturing, farming, or research, as long as you or your customer provide a valid sales tax resale form
How do I pay sales tax on a small business in Texas?
- Register with the Texas Comptroller of Public Accounts and obtain a sales tax permit. You can do this online, by mail, or in person. You may have to pay a fee or post a bond to get your permit.
- Charge and collect the correct sales tax rate from your customers. The sales tax rate in Texas is 6.25%, plus any local sales tax rates that may apply to your location or your customer’s location. You can use a sales tax calculator, a software program, or a third-party service to help you with this.
- Keep track of your sales and sales tax collections for each reporting period. You need to keep accurate and detailed records of your sales and sales tax collections for each state and locality. You may also need to issue resale or exemption certificates to your customers who are not subject to sales tax, and keep copies of these certificates.
- File sales tax returns and pay sales tax to the Texas Comptroller of Public Accounts. You need to file sales tax returns and pay sales tax to the state on a monthly, quarterly, or annual basis, depending on your sales volume or tax liability. You can file your returns and pay your taxes online, by mail, or in person, depending on the options available. You can also use a software program or a third-party service to help you with this.
What taxes do small businesses have to pay in Ohio?
- Sales tax. If you sell taxable goods or services in Ohio, you have to collect and remit sales tax to the Ohio Department of Taxation. The sales tax rate in Ohio is 5.75%, plus any local sales tax rates that may apply to your location or your customer’s location. You need to register with the state and obtain a vendor’s license before you start collecting sales tax. You need to file sales tax returns and pay sales tax to the state on a monthly, quarterly, semiannual, or annual basis, depending on your sales volume or tax liability.
- Income tax. If you earn income from your business in Ohio, you have to pay income tax to the Ohio Department of Taxation. The income tax rate in Ohio ranges from 0% to 4.797%, depending on your income level and filing status. You need to file income tax returns and pay income tax to the state on an annual basis, or on a quarterly basis if you expect to owe more than $500 in tax for the year. You may also have to pay local income tax to the city or village where you do business, depending on the local rules and rates.
- Commercial activity tax (CAT). If you have gross receipts from your business in Ohio that exceed $150,000 in a calendar year, you have to pay the commercial activity tax (CAT) to the Ohio Department of Taxation. The CAT is a tax on the privilege of doing business in Ohio, and it is based on your gross receipts, not your net income. The CAT rate is 0.26% of your gross receipts that exceed $1 million, plus a minimum tax of $150 if your gross receipts are between $150,000 and $1 million. You need to register with the state and obtain a CAT account number before you start paying the CAT. You need to file CAT returns and pay CAT to the state on a monthly, quarterly, or annual basis, depending on your gross receipts.
What is the sales tax in Ohio for small business?
The sales tax in Ohio for small business is 5.75%, plus any local sales tax rates that may apply to your location or your customer’s location. The local sales tax rates vary by county, city, or special district, and they can range from 0.75% to 2.25%.
What is the current California sales tax?
The current California sales tax is 7.25%, which consists of a state tax rate of 6%, a local tax rate of 0.25%, and a statewide county tax rate of 1%. However, some cities and counties in California may impose additional local sales tax rates, which can increase the total sales tax rate to as high as 10.5%.
Which state has the lowest sales tax?
The state that has the lowest sales tax is Alaska, which does not impose a statewide sales tax. However, some localities in Alaska may impose local sales tax rates, which can range from 0% to 7.5%, plus any local sales tax rates that may apply to your location or your customer’s location.
Do small businesses have to pay taxes in Texas?
Yes, small businesses have to pay taxes in Texas, depending on the type and structure of the business. Some of the common taxes that a small business may have to pay in Texas are sales tax, franchise tax, and property tax, as explained above.
However, Texas does not impose a personal income tax, so sole proprietors and pass-through entities do not have to pay state income tax on their business income. They may still have to pay federal income tax and self-employment tax on their business income, depending on their income level and filing status.
How much tax does a small business pay in Texas?
A small business in Texas may have to pay various taxes, such as
- Sales tax. If you sell taxable goods or services in Texas, and the sales tax rate is 6.25%.
- Franchise tax.If you operate as a corporation, LLC, partnership, or other entity in Texas, you have to pay franchise tax. The franchise tax is a tax on the privilege of doing business in Texas, and it is based on your taxable margin, which is your total revenue minus your cost of goods sold or your compensation.
The franchise tax rate is 0.375% for wholesalers and retailers and 0.75% for other businesses, plus a surcharge for certain industries. You need to file franchise tax reports and pay franchise tax to the state on an annual basis, or on a quarterly basis if you expect to owe more than $10,000 in tax for the year. - Property tax.If you own or lease real or personal property in Texas, you have to pay the property tax to the county appraisal district where the property is located. The property tax is a tax on the value of the property, and it is determined by the county appraisal district. You need to file property tax returns and pay property tax to the county on an annual basis.
How much does a business pay in sales tax in Texas?
A business pays sales tax in Texas based on the amount of sales tax it collects from its customers. The sales tax rate in Texas is 6.25%, plus any local sales tax rates that may apply to the location or the customer’s location. The local sales tax rates vary by county, city, or special district, and they can range from 0.75% to 2.25%
Do I need to collect sales tax for selling online?
You need to collect sales tax for selling online if you sell taxable goods or services online and you have nexus and taxability in the state or locality where your customer is located.
Do I have to charge sales tax on handmade items?
Yes, you have to charge sales tax on handmade items if you sell taxable goods or services, and you have nexus and taxability in the state or locality where you sell your handmade items.
Do you charge sales tax on items shipped out of state?
Yes, you charge sales tax on items shipped out of state if you sell taxable goods or services, and you have nexus and taxability in the state or locality where your customer is located.
Do I have to charge sales tax if I paid sales tax?
Yes, you have to charge sales tax if you pay sales tax if you sell taxable goods or services, and you have nexus and taxability in the state or locality where you sell your goods or services
Do I need to collect sales tax in every state?
Yes, you need to collect sales tax in every state where you sell taxable goods or services, and you have nexus and taxability in that state. However, you do not need to collect sales tax in states where you do not sell taxable goods or services or where you do not have nexus or taxability.
Conclusion
Sales tax is a complex and dynamic topic that affects many small businesses that sell goods or services. Sales tax compliance requires the business to know if it has to collect sales tax, how to calculate sales tax, and how to report and remit sales tax to the appropriate states or localities.
Sales tax compliance also requires the business to avoid common pitfalls and mistakes that can result in penalties, interest, audits, assessments, liens, levies, revocation, suspension, or criminal charges.
We hope this blog post has helped you understand the basics of sales tax for small businesses and how to do and pay sales tax. If you have any questions or need any assistance with your sales tax compliance, please feel free to contact us. We are here to help you with your sales tax needs.