In the ever-evolving business world, entrepreneurs and start-up businesses consider sales tax one of the essential criteria for running a business long term. Including Washington D.C. forty-five states enforce a sales tax on different types of businesses. And this sales tax is utilized by the states as government revenue for the development of roads, schools, public properties and safety.
So, the businesses run by any corporate tycoons or entrepreneurs do not matter. Everyone has to collect a certain amount of tax from their consumers. The procedure of estimation and timely collection of sales tax requires a systematic way of payment collection and submission of sales tax returns. But for start-up businesses sales tax payment becomes very time-consuming. As they deal with multiple types of products and operate the business in multiple states.
While your business deals with taxable products or services, you need to pay the estimated rate of sales tax in any state, where your business has a taxable identity as ‘tax nexus’. For an instance, you can link a nexus through the operation of a physical location in the state. The employment of single or multiple individuals in a state ensures the volume of sales in a state.
To short out the solution for making tax payments in time and hassle-free, seek sales tax help from the professionals is the best recommendation.
Table of Contents
Best Methods of Collection, Reporting and Payment of Sales Tax
1) Determine your Product or Service is Taxable or Not
First, do the research about state laws which enforce specific terms and conditions on the products or services. Then you will get a proper idea about the taxable category of the products and services. Another significant factor is if you are selling your business products in Delaware, Montana, Alaska and New Hampshire, then you do not need to pay state-wide sales tax.
A wide range of retail items including clothes, handbags come under the taxable category. Food, prescribed drugs come under the category of exemption of sales taxes. The terms and conditions can vary from state to state as well as the factors get complicated while you deal with online items or digital items.
2) Registration for a Sales Tax Permit
Before, the collection of sales tax, in each state you should have registration for a sales tax permit where your business has a taxable nexus. If you are dealing with your products and services in multiple states, you should have registration in those states. Sometimes, the revenue department of the state requires relevant business information including your employee identification number and address. And finally, the sales tax ID also helps to report the sales tax.
3) Calculation of Sales Tax Rate
A business firm enforces the sales tax rate, which can vary as per the location of selling. While you sell your products and services in multiple states, you will require estimating and accumulating the tax in each state. Most of the states prefer to enforce destination-wise sales tax. It represents that the sales tax rate should be estimated as per the locations of the buyers.
For an instance, if you run your business from a New York-based store, you can ship a product to the consumer, stayed in New Jersey. Thus, you must estimate the cost, which has been paid as a New Jersey sales tax return. There are also some states, which impose sales tax based on origin. While you want to ship any product you can also face a combined sales tax rate, as California enforces hybrid law for particular sales tax rates based on origin and destination.
Also Read: How to Open a Business Across the Country
4) Use Point of Sale for Sales Tax Collection
For easy sale tax rate estimation, you need to consider locations and input them in your sales tax compliance app, as it can estimate sales tax without any error.
5) Sending Payment to the State
The final process to submit the sales tax has been ensured by the payments collected from the consumers. Using accounting software you can keep the sales tax payment estimation consistent and flawless. The states, where you transact, matters a lot to fix the dates to file the sales tax. Generally, the deadline falls between 20th to 25th days from the end of the reporting period. Therefore, all these discussed factors play essential roles to schedule the reporting of sales tax estimation, collection and payment date quarterly, monthly or annually.