What You Need to Know About Collecting Sales Taxes
As a consumer, you’re familiar with paying sales tax whenever you purchase goods from a retailer (unless you live in one of the five states that do not have a general sales tax). The sales tax is collected from the buyer by the seller, who then forwards it on to the state.
As a businessperson, you are the seller, so it’s your responsibility to collect, report and pay sales tax on most everything sold to a customer in a state where your business has a physical presence. That means the state where your physical building sits, where your employees are living or working, or where you warehouse inventory.
But sales tax rates and regulations are set by each state and the rules are as different as the weather in Minnesota versus California. Adding to the complexity, local municipalities such as cities and counties, may tack on additional sales taxes. To find the general sales and use tax rates and regulations for your area, go online and search your state’s department of revenue or taxation.
Doing the paperwork
Generally, to collect sales tax you’ll need a license or seller’s permit from your state, which assigns you a special identification number. You keep track of sales transactions and taxes collected, then file a return and pay the taxes to the state. Filings and payments might be done monthly, quarterly or annually depending on the dollar amount of your sales.
Internet sales: To collect or not to collect?
Internet sales have added yet another layer of confusion. There continues to be debate about whether a business must collect sales tax on products purchased online and shipped to states where they have no physical presence. Some states have passed laws requiring the collection of sales tax regardless of physical presence. And the federal government is considering legislation that would affect how this works on a national level. To learn more about how this may apply to your business, go online and search for “[YourState] Internet sales tax.”