Updated: Dec 12, 2022
Understanding Sales Tax for E-Commerce Businesses
Although taxes might seem overwhelming, you need to file your taxes to ensure compliance with the federal and state government. If you run an e-commerce business and want to know more about sales tax to ensure compliance, you have come to the right place. Read on to learn more.
Understanding How Sales Tax Work for Online Sellers
Before we cover how you can file sales tax for your e-commerce business, it is important that you have a firm understanding of the basics. Sales tax is a small percentage that you need to pay on each online sale. It is also known as a consumption tax which means that customers must pay the tax and you just must collect it from them.
About 45 states in the US along with Washington D.C. require businesses to collect sales tax. There are even special taxing districts that have a sales tax on top of these states. It explains for New York has a different sales tax rate. As there is no federal sales tax law, sales tax is determined at the state level in the US. Therefore, online sellers need to deal with different sales tax laws if they sell to different US states.
Sales Tax Nexus and What Triggers It?
Sales tax is a term that is used for ascribing a connection to a state. If you have a nexus with a state, it will require you to pay sales tax. Your home state would always consider you to have a sales tax nexus. Here is how you will know that you have sales tax nexus with a state.
Have an office, store, warehouse, any other type of physical business presence in that state.
Have personnel such as employees or any other person working for you in that state.
Store inventory in that state.
Conduct marketing activities in that state.
Have a drop shipping relationship.
How to Register for Sales Tax?
Now that you have a better idea about sales tax for your e-commerce business, it is important that you know how to register for it. You need to contact the state tax authority to make sure that you are registered. It will require you to provide necessary information about your business activities. Besides, it is illegal to collect any sales tax without obtaining a permit first. Before you start your e-commerce business, you must get a valid sales tax permit. The following steps help break down the process for obtaining your sales tax permit.
Collect your EIN and other business information.
Head over to the revenue website of the state.
Click for the Sales and Use Tax section.
Click on the “Register Your Business” link.
That is about it.
Once you have finished reading our post, you will know everything there is to know about sales tax for e-commerce businesses. It is important that you take sales tax seriously as the last thing you want is to violate the law and end up having to pay hefty penalties.
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