Sales Tax: The Necessary Evil Every Small Business Owner Should Tame 🦸🗡️🐉
Ah, sales tax. The thing you never thought about before starting a business—right up until it became your responsibility. Suddenly, you’re knee-deep in tax codes, state regulations, and the dreaded phrase: nexus. (No, it’s not a sci-fi villain, but it can feel just as menacing. 👀)
If the mere thought of sales tax makes you want to crawl under your desk, don’t worry—you’re not alone. Let’s break it down in a way that won’t put you to sleep. 💤
What Is Sales Tax, and Why Does It Exist? 🤔
Sales tax is the little extra charge added to customer purchases that businesses must collect and pass along to the state. In theory, it’s simple: collect tax → remit to the government → sleep well at night. 😴
In reality? Each state does its own thing. Some have sales tax, some don’t (looking at you, Oregon and New Hampshire 👀). Some states have county and city sales taxes piled on top. And then there’s the internet, which threw a wrench into the system and forced new rules for online sales. 🌐
Do You Need to Collect Sales Tax? (A Quick Checklist ✅)
If you’re selling physical products or certain taxable services, you likely need to collect sales tax. But the real kicker is where you sell them. Ask yourself:
✅ Do I have a physical presence (like a store, office, or warehouse) in a state with sales tax? 🏢 ✅ Do I sell online to customers in multiple states? 🛒 ✅ Have I sold enough in a state to trigger economic nexus (typically $100K+ in revenue or 200+ transactions)? 💰 ✅ Am I selling items that are specifically taxable in that state? (Some states tax digital products, some don’t!) 💻
If you answered yes to any of these, congrats! 🎉 You’re in the sales tax game whether you like it or not.
Sales Tax Compliance: The Basics (a.k.a. How to Avoid a Nightmare Audit 😨)
Once you know you need to collect sales tax, here’s what you should do:
1. Register for a Sales Tax Permit 📝
Before collecting a dime, register with the state’s tax authority. Skipping this step is like trying to drive without a license—not a great idea. 🚗💨 For example, Virginia's sales tax information can be found here: https://www.tax.virginia.gov/sales-and-use-tax
2. Collect the Right Sales Tax Rate 📊
Each state, county, and city can have different rates (because, of course, they do). A good tax software or point-of-sale system can help calculate the correct amount to charge your customer. 💻
3. Track & File on Time ⏳
Most states require businesses to remit sales tax monthly, quarterly, or annually, depending on sales volume. Missing deadlines = penalties, and penalties = unhappy bank accounts. 💸
4. Automate if Possible 🤖
Sales tax software (like Avalara or TaxJar) can help automate tax collection, filing, and payments—because who wants to spend hours doing this manually? 😵💫
The Internet & Sales Tax: Do Online Businesses Need to Worry? 🌍
Short answer: YES.
Since the 2018 Supreme Court ruling (South Dakota v. Wayfair), states can now require online businesses to collect sales tax—even if they have no physical presence there.
For instance, if you sell just one product to someone in Texas, you likely do not need to collect and pay Texas sales tax—unless you have nexus there.
Here’s how it works for Texas:
✅ Physical Nexus: If you have a physical presence in Texas (like an office, warehouse, or employees), you must collect and remit Texas sales tax on all taxable sales in the state. ✅ Economic Nexus: Texas has a threshold of $500,000 in total sales into the state in the past 12 months. If you’re under that, you don’t have to collect Texas sales tax. Some states have lower thresholds such as $100,000 so be sure to track where you are making your sales and plan accordingly. ✅ Marketplace Sales: If you sell through platforms like Amazon, Etsy, or eBay, they might collect and remit sales tax for you, depending on their policies.
Read more on Stripe's blog post here about even more specifics:
That means if you’re selling across state lines, you may owe sales tax in multiple states. (Cue dramatic music. 🎶) If you’re a small seller, some states have exemptions—but it’s always good to check your state’s specific rules. ✅
Sales Tax Myths That Need to Die ☠️
🚫 “If I don’t charge sales tax, I don’t have to pay it.” Nope. If you should have collected it but didn’t, guess who’s responsible? (Hint: You. 😬) 🚫 “I only sell online, so sales tax doesn’t apply.” Thanks to Wayfair, this isn’t true anymore. 🛍️ 🚫 “Customers pay sales tax, not me.” You’re just the middleman, but if you don’t collect it properly, you could end up footing the bill later. 🏦
TL;DR – Keep Sales Tax from Ruining Your Life 😅
Figure out where you need to collect sales tax. 🗺️
Register for a sales tax permit before collecting. 📝
Use software to calculate the correct rates. 💻
File and pay on time to avoid penalties. ⏳
Don’t assume you’re exempt—check your state’s rules! 🔍
Need help keeping your sales tax (and your sanity) in check? A great bookkeeper (that’s me!) can help make sense of it all. Reach out today, and get compliant before the tax man comes knocking. 🚀