The sheer volume of sales you experience during the holiday season could put you in a very different situation during tax season next year. There are several considerations you’ll have to keep in mind, such as an increase in revenue, locations where you or other staff members work, and potential exemptions. These tips won't make up for advice from an accountant, but these are some things to keep in mind when dealing with sales tax.
Know Where You’re Selling
There are so many different taxes you’ll be responsible for this holiday season, from federal all the way down to city and even specific districts. If you don’t know where your customers are buying, you might miss one of the sales tax responsibilities on your list. It is up to you to know the specific districts where your buyers live, and that means you can’t just go on ZIP codes. Postal routes are changed all the time, but that doesn’t mean your districts change, too. Those ZIP codes don’t even specify certain cities, so you can’t rely on them in any way.
Know What You’re Selling
Did you know some products might carry different tax regulations than others? For instance, if you sell foods, some might be taxed in certain states while not at all taxed in others. Then, in some states, some of those foods will be taxable while others are tax-exempt. Do you have any idea which products within your ecommerce company require a sales tax in the various locations where they’re available for purchase?
Know If Prepayment Is Required
Some districts actually require prepayment, especially if large tax amounts occur often. This may also mean you’ll be on a different filing schedule than regular returns. Because you might be located in more than one jurisdiction, you’ll have to keep prepayment schedules and regular schedules straight or suffer the audits.
Know Your Nexus
This is the trickiest of all the tips, because you may not have any idea where your nexus is. Did you know it’s possible to have more than one? That’s why so many ecommerce companies end up in trouble. For the most part, you’re subject to the laws where your ecommerce company resides. However, you could have more than one nexus if you’ve opened a new office, if a large part of your staff resides in another area, and even if your products are manufactured in another area.
Know Your Automation Options
Now, keeping up with all of these things is a full-time job, unless you have some way to automate the process. There are some ecommerce platforms that take care of the process for you. These automated programs will take into account where the business is being done, where the buyer lives, and all the requirements of the various districts and locations that apply. This greatly reduces the stress, work, and record keeping that you’ll need to do, while also minimizing your risk of an audit.
Now, have you considered your tax situation for the coming year? It’s not too late to get your taxes in order for the holiday season so that your books are balanced in 2016.
This blog post has provided information about the law designed to help our readers better understand the legal issues surrounding internet marketing. But legal information is not the same as legal advice -- the application of law to an individual’s specific circumstances. Although we have conducted research to better ensure that our information is accurate and useful, we insist that you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is accurate. To clarify further, you may not rely upon this information as legal advice, nor as a recommendation or endorsement of any particular legal understanding, and you should instead regard this article as intended for entertainment purposes only.
Originally published Dec 30, 2015 7:00:00 AM, updated July 28 2017