The post How Do I Calculate Sales Tax Backwards? appeared first on AccurateTax.
]]>To determine the total amount of sales tax in the sales price, a simple formula can be used.
To determine the amount of sales tax collected on a purchase, you must divide the total cost paid by (1 + tax rate). As an example, for a purchase in the State of Florida, where the sales tax rate is 6%, the calculation would look like this:
Total Price: $106
Tax Rate: 6%
Formula: 106/1.06
Gross Cost: $100
Sales Tax Paid: $6
Using this formula, you can determine that the sales tax amount in the final price is $6 and the gross price of the product is $100. Be sure when adding the percentage rate of the sales tax to “1” that you move the decimal point by two to reflect that it is a percentage.
To effectively use a reverse tax calculator, you must know the exact sales tax rate, including both state and local sales tax, paid by the customer. This will change for most customers depending on their location, as well as potentially the location of the recipient of the product (if different than the purchaser).
As such, it’s important to know the total sales tax rate. However, you can also separate the tax rates to determine how much of the sales tax is being collected for state versus local. For example, if the same $100 Florida purchase was made in Miami, a 7% sales tax would apply instead of 6% due to the Miami-Dade County surtax.
The formula remains the same:
Total Price: $107
Tax Rate: 7%
Formula: 107/1.07
Gross Cost: $100
Total Sales Tax Paid: $7
There are many reasons a reverse sales tax calculation may be needed. Thankfully it is an easy process to perform, and quickly provides an accurate total for both the gross price of a product and the final sales tax paid. To ensure you have accurate local tax rates for everywhere you do business within the United States, from both state and local governments, check out our sales tax calculations software.
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]]>The post A Guide to Collecting and Validating Sales Tax Exemption Certificates appeared first on AccurateTax.
]]>Whether you’re selling to other businesses or to groups that don’t have to pay sales tax, you need to know how to handle these forms correctly. This post will help you understand what these certificates are, how to get them the right way, and how to check if they’re valid.
Sales tax exemption certificates are forms that buyers provide to sellers. They prove that the buyer doesn’t have to pay sales tax for certain reasons, such as purchasing products for resale or purchases made by a nonprofit organization.
There are different types of exemption certificates. Not all states have each kind, but throughout the United States, these are the types of certificates you may encounter:
It is important not to charge sales tax on sales that should be exempt, but due diligence is required to make sure the sale is truly exempt. Collecting and validating these certificates helps businesses avoid legal issues and penalties. If state tax authorities discover a business has been handling these incorrectly (or not at all), it could lead to fines or audits.
Collecting sales tax exemption certificates is a critical step for businesses that sell goods or services exempt from sales tax under certain conditions. Proper collection and storage of these certificates keep your business compliant with tax regulations and protect you in the event of an audit.
The best practice is to collect the exemption certificate and validate it prior to the sale being made. If you wait until after the transaction is completed, you may find your buyer to be uncooperative in providing the certificate, or even fraudulent in claiming the exemption in the first place.
Validating sales tax exemption certificates is as crucial as collecting them. Validation ensures that your business is not liable for sales tax on exempt transactions. Here’s how to approach the validation process effectively:
Whether you store certificates digitally or in paper form, security and organization are critical. Organizing certificates by customer and by state will help you locate them when needed, as it’s important to be able to find the appropriate certificate if you need to verify the information, applicability, expiration date; or if you are audited.
Keeping track of expiration dates is also important, which is where a database or spreadsheet of certificate details can come in handy. Exemption certificate management services can perform this task as well.
Exemption certificates often contain sensitive PII (Personal Identifiable Information). Therefore, it’s also important to store the certificates securely. For digital storage, you’ll want secure storage with access control and regular backups. Paper forms should be kept under lock and key, with only critical team members having access.
The length of time that you store certificates is also a consideration. Different states have different requirements, but generally, it’s advisable to keep certificates for at least four years after the last use.
Once the certificate has been received and validated, it likely needs to be integrated with other systems such as your e-commerce website, point-of-sale systems, and accounting software. These systems need to know not to charge sales tax to exempt customers on applicable items and orders.
Regularly update and review your records to ensure all certificates are still valid and up-to-date with current tax laws. If a certificate is expiring and the customer is still active, you should request a new certificate prior to the expiration.
States’ laws surrounding exemptions also change, so staying up-to-date with legislation and process changes is also advised.
Finally, if your customer’s information changes – for example, their business address or ownership changes, or their charitable organization status is revoked – a new certificate may be needed, or the exemption may no longer apply.
Here are some of the most common mistakes made by businesses, which can cost significant money in fees, penalties, and interest, especially during a sales tax audit:
Accepting Outdated or Incomplete Certificates: Always check the date and ensure all required fields are completed.
Not Verifying Buyer’s Eligibility: Ensure the buyer is eligible for the exemption they are claiming.
Failing to Update Records: Regularly review and update your exemption certificates as laws and customer statuses can change.
For businesses operating in multiple states, it’s important to understand that each state may have its own forms and requirements for sales tax exemption certificates. Therefore, it’s essential to familiarize yourself with the regulations in each state where you conduct business.
Effective management of sales tax exemption certificates is essential for maintaining compliance and avoiding penalties. By addressing common challenges with proactive strategies and solutions, businesses can streamline their processes, reduce risks, and focus more on their core operations. Remember, while technology can provide significant assistance, the ultimate responsibility lies with the business to ensure all sales tax exemption certificates are properly collected, validated, and managed.
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]]>The post Affiliate Marketing Sales Tax Laws in 2023 appeared first on AccurateTax.
]]>One of the reasons sales tax for affiliates remains so tricky is that the relationship between affiliates and the online retailers they support is unconventional, especially in the context of modern tax laws. Affiliates are not strictly selling anything, but they do receive commissions for each sale made on behalf of the retailers they partner with. So who is taxed, for how much, and when? Not to mention the fact that affiliates are rarely in the same state as the warehouse of the goods they helped sell, so for instances where sales tax is applicable, when is nexus established?
As a result of this complex relationship, affiliate nexus sales tax laws have shifted consistently, even following the Wayfair ruling by the Supreme Court, holding that physical nexus was no longer required for sales tax to be collected. The question remains—how are affiliates defined, and when do they need to collect and remit sales tax?
The first thing to consider is whether a business is, in fact, defined as an affiliate. Because all 46 states that collect sales tax have passed remote nexus laws that require out-of-state sellers to collect and remit sales tax on sales to that state’s residents, there is very little ambiguity about when and where to collect sales tax. If a business sells goods in a state that collects sales tax and reaches the threshold for collecting sales tax (typically $100,000 in annual sales or 200+ transactions per year, though it varies by state), they are required to register with that state.
But affiliates are defined differently in some states. Marketplace facilitator laws, for example, exist in many of the states that now have economic nexus laws. These laws require larger businesses (like Amazon and eBay) to collect and remit sales tax on behalf of smaller vendors who operate on their platforms, capturing a large percentage of remote sales. Because of these laws, several existing affiliate nexus laws have been appealed. For example, Arkansas, California, and Colorado all appealed their affiliate nexus laws in 2019, shortly following the passage of economic nexus legislation. Others have revised and rewritten their affiliate nexus laws to accommodate modern affiliate programs and loopholes created by the new online approach to sales tax.
There are currently 24 states in which affiliate nexus laws remain. Many of these states have on the books the same affiliate nexus and click-through nexus laws they did in the late 00s and early ’10s. The result is that there is some confusion about what affiliates are required to do in these instances. Connecticut’s affiliate nexus law, for example, was passed in 2011 and broadens the definition of “retailer” to include anyone employed as an independent contractor who lives in the state of Connecticut. The enactment of remote seller nexus laws, however, raised the reporting and collection threshold from $2,000 to $100,000 in 2019. Affiliate nexus remains, however.
Other states have fully repealed their individual click-through nexus and affiliate nexus laws, encompassing all online business activities in economic nexus laws. These states include:
In these states, affiliates should evaluate economic nexus laws to determine what responsibilities they have for collecting and remitting sales tax. All of these states have marketplace facilitator laws on the books as well that, in some cases, encompass affiliate activities.
Most state affiliate nexus laws apply to those affiliates operating within that state, but it’s important to check if economic nexus also applies as it broadly applies to those who operate in other states.
The broader benefit, however, of the advent of economic nexus laws is that the Supreme Court, in the Wayfair decision, emphasized the importance of new laws not being burdensome and onerous to small businesses. As a result, most economic nexus thresholds are quite high, ensuring only moderately sized businesses (typically doing $100,000 or more in business within a state each year, though it varies by state) will need to collect and remit sales tax. Because many affiliate nexus laws had much smaller thresholds, this actually reduces the tax collection requirements for businesses operating affiliate programs.
Additionally, because some version of economic nexus and marketplace facilitator laws exist in all 46 sales tax collecting states, publishers are less likely to reduce access for affiliates in states like California and New York that had previously targeted affiliates. While there is a much broader, more expansive set of tax laws in place now than 10 years ago, these laws are generally similar to one another, and they are more interested in collecting sales tax from larger entities that have the resources to collect and remit in multiple states at once.
If you run an online business that serves as an affiliate for larger vendors, be sure to evaluate not just whether the states those vendors operate in have affiliate nexus laws, but also if they have economic nexus laws that directly impact the thresholds at which you are required to collect and remit sales tax. While the laws are designed to be friendly to small businesses in most states, it is still your responsibility to check in advance and ensure you are registered for collection when applicable.
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]]>The post Clothing Tax – A State-by-State Guide appeared first on AccurateTax.
]]>For online retailers who sell clothing to different states, it is important to know at what level sales tax on shoes and clothes kick in.
Forty-six states now have some form of economic nexus law requiring out-of-state sellers to collect and remit sales tax on a certain volume of sales. Because sales tax on clothing is a unique situation that does not always match broader sales tax regulations, it’s important to know which states exempt clothing, which do not, and what applies.
Why is clothing different from other Tangible Personal Property (TPP)?
In most states, sales tax rates are determined by the definition of Tangible Personal Property, but clothing is unique. In four states, it is completely tax-exempt and in eight additional states, there is a partial exemption on sales tax on clothes. Adding more variables to the mix, there are several states in which tax holidays change from year to year, often coinciding with back-to-school or end-of-the-year holiday shopping seasons.
So when should you collect sales tax on clothes and shoes? Here’s a breakdown of state tax rates and requirements for clothing:
The only places in the United States, where clothing is completely exempt, are the four states in which there is no sales tax at all: Delaware, Montana, New Hampshire, and Oregon.
In any other state, when you buy clothes, tax may apply. Read on for details.
There are eight states in which only some clothing purchases are exempt from sales tax. These include:
Alaska doesn’t have a statewide sales tax but does have municipal sales taxes in most of its local governments, meaning that in locations with a local sales tax, clothing is subject to normal sales taxes. In locations where there is not a local sales tax, then clothing isn’t taxed either.
The Massachusetts tax on clothing uses a per-item limit. While all forms of athletic apparel and protective gear, and most accessories are taxable, standard clothing and shoes are tax-exempt up to $175 per item. Items that cost more than $175 are subject to tax.
When it comes to Minnesota sale tax, clothing has a blanket exemption, except for accessories, any type of fur clothing, sports apparel and equipment, and protective equipment and clothing. There is no price limit.
The New Jersey tax on clothing is similar to Minnesota in that all items are exempt regardless of cost except for equipment, accessories, any type of fur clothing, and sporting equipment or gear.
With New York sales tax, clothing exceptions are a bit more complicated than the other partially exempt states. Like Massachusetts, New York State and New York City offer exemptions for most clothing items up to $110. Anything above this amount is considered a luxury item.
In addition, however, state sales taxes don’t apply to athletic equipment, any item or apparel used to repair or make apparel that is otherwise exempt, and any costumes or formal wear when rented.
The above exemptions apply to all state sales taxes, but not all local taxes. The following counties do offer local exemptions:
Pennsylvania tax on clothing tax are fairly generous. The state exempts all clothing sales from sales tax except for formal wear, sporting equipment, and anything made with or in imitation of fur.
Rhode Island sales tax on clothing has a similar exemption cap to New York and Massachusetts, though, it is much higher at $250 per item. In addition, Rhode Island’s cap is different in that the tax levied only applies to the total amount paid above the $250 cap per item. So a $500 suit jacket, for example, would be taxed only on the $250 over the $250 cap. Other items that are taxable include protective equipment, sporting equipment and apparel, and costume masks.
Vermont sales tax on clothing has a blanket exemption for all items except sporting equipment and apparel, protective equipment, and accessories.
While no other states offer broad exemptions from sales tax on clothing and footwear, there are 15 states in which sales tax holidays are observed for several weeks each year. Typically this is during back-to-school sales tax holidays. These include:
Sales tax holidays can change from year to year, both in duration and the amount that can be exempted when purchasing clothing. It’s best to check with individual state tax authorities to determine when sales tax holidays apply.
If you sell clothing and apparel, make sure you understand how these rules affect you and your customers. If you need consulting help or wish to outsource your tax compliance efforts, you can contact us at 866-400-2444. Our focus on small business, along with our attention to detail and accuracy related to the tax data and services we provide, can help save you money in the long run.
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]]>The post What Is Sales Tax Nexus? appeared first on AccurateTax.
]]>For the better part of 30 years, sales tax nexus was fairly simple. Based on the precedent set in Supreme Court cases in 1967 and 1992, nexus was established by a physical presence. If a business physically existed in a state, that state could collect sales tax on the transactions they performed. If they did not, they could not. When the National Bellas Hess and Quill cases were decided, non-physical nexus was relatively rare, but between 1992 and 2018, commerce was upended by the Internet. As of last year, 19.2% of total retail sales were online, and by the middle of the last decade, states had taken notice of the shift.
Thanks to the 2018 Wayfair decision by the Supreme Court, the retailers involved in the $871 billion in online sales last year must contend with revised sales tax nexus laws in almost every US state.
Sales tax nexus is established when a business has a legally recognizable connection with a state. While the broader definition of what constitutes that connection has changed, it varies from state to state. While physical connection used to be the sole means of establishing nexus in the past, economic nexus is now also a factor in 46 states and an important element to consider in the tax compliance process.
Activities that can currently create sales tax nexus include:
Each state has a different threshold by which nexus is established, and not all of the above criteria are the same from state to state, so it’s important to know how your activities translate to state-specific requirements.
Prior to 2018, several states attempted to implement new nexus tax laws that captured a portion of the sales tax revenue lost to online sales. Click-through nexus laws established nexus when a company based in a state referred a customer to a website outside of state. Specifically developed to address Amazon’s growing influence in large states like New York and California, click-through nexus laws spread to eight states during the 2010s, creating contentious relationships between online retailers and these states. In the lead up to Wayfair, increasingly aggressive laws were passed, including Massachusetts’ Cookie Nexus law.
Finally, in 2017, the Wayfair case was brought by the state of South Dakota against Wayfair and several other online retailers, claiming that their failure to collect and remit sales tax on transactions made with South Dakota residents was costing the state up to $58 million a year in revenue. The Supreme Court agreed that the 1992 Quill precedent was out of date, ruling that states had a legal right to enforce their sales tax rates in a reasonable manner.
South Dakota led the way with a law requiring out-of-state retailers to collect sales tax on sales made to South Dakota residents. Today, most states have passed similar tax laws, many with economic nexus thresholds of $100,000 in sales or 200 or more transactions, but there are a number of variations to these laws from state to state. Oregon, Montana, Delaware, and New Hampshire have no sales tax and therefore do not have economic nexus laws. The other 46 states do.
If you do significant business in any state, you are likely on the hook to collect sales tax and remit to that state’s department of revenue. That means:
While small ecommerce stores may not immediately face these requirements, most will eventually, and it requires careful organization to ensure tax is collected and remitted appropriately. Every state is different, so you must maintain a sales tax calendar, implement software that can dynamically calculate tax rates for every transaction, and file those sales tax returns at the appropriate time for every state in which you do business.
With many states shifting to destination-based sales tax nexus, and forty-six unique laws to contend with, it’s important to not only have a firm grasp of what sales tax nexus means for your business, but a system in place that can support your efforts. Designed to work with most eCommerce platforms, automatically calculating sales tax rates and collecting the necessary data to stay compliant, AccurateTax is an invaluable tool in addressing nexus requirements in every state in which you do business. Learn more and start your free trial here.
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]]>The post How to Calculate Sales Tax appeared first on AccurateTax.
]]>The sales tax rate is established as a percentage of the sale price of an item or service. So the total sales tax paid by the buyer will depend on how much the item or service purchased costs. A $5 children’s toy in a jurisdiction with a 10% sales tax, for example, would actually cost $5.50. Here’s how these calculations are determined:
Sales tax is calculated by multiplying the sales tax rate by the cost of the item being purchased and adding it to the total purchase price. Here’s a step by step walkthrough of what this entails:
Item Price x Sales Tax Rate = Total Sales Tax
Once this has been calculated, add the Total Sales Tax to the Item Price for the final amount paid in the transaction. For example:
Item: New bedsheets
Cost: $50
Tax Rate: 6%
Formula:
Item Price x Sales Tax Rate = Total Sales Tax
$50 x 0.06 = $3
Total Sales Tax + Item Price = Final Amount Paid
$3 + $50 = $53
This formula is automatically applied to almost every purchase made, with some exceptions depending on state and municipality. Let’s take a closer look at these other factors and how to calculate sales tax in ecommerce and other situations.
Sales tax rates are impacted by several factors. Consumers rarely need to consider these factors. When purchasing an item, it is the responsibility of the business selling the item to calculate sales tax, collect it, and remit it to the appropriate department of revenue. Here’s what those factors might include:
Businesses are required to calculate and collect sales tax based on these factors, as well as the specific location of an individual. While brick and mortar retailers only need to collect sales tax based on the location of the sale (state and municipal), online retailers need to calculate sales tax rates automatically based on thousands of possible state and municipal sales tax rates.
Because of the need to determine sales tax rates based on nexus, which has been enacted in all forty-six states the collect sales tax (Oregon, Montana, Delaware, and New Hampshire do not), it’s important to have a system in place that can automatically do so.
While the major ecommerce sites have the technology and resources to build proprietary engines that do all these calculations and can update them as laws and rates change, smaller businesses struggle to keep up. That’s why it’s important to have a technology solution in place that can do the heavy lifting. Automatically calculating the location of both the buyer and seller, total sale amount, which items are subject to sales tax, and which tax rates apply allows merchants to focus on what they do best—promoting their online stores and growing their businesses.
To avoid getting bogged down in sales tax intricacies, it’s important to have a system that will manage these calculations, update automatically when there are state or municipal changes, and track where and when sales tax needs to be remitted. AccurateTax can do this and more for your online business. Learn more about our automatic, accurate ecommerce sales tax calculation software and get a risk free trial here:
The post How to Calculate Sales Tax appeared first on AccurateTax.
]]>The post How to Register for a Sales Tax Permit in Every State appeared first on AccurateTax.
]]>Every state has different regulations and requirements, and five (Oregon, Montana, New Hampshire, Delaware, and Alaska) have no sales tax at all, so it can be overwhelming to get started. This guide is designed to help you gather the right information, find the applicable forms, and apply for a sales tax permit wherever needed.
In most states, you will follow very similar steps to register for a sales tax permit. You’ll need your Employee Identification Number (EIN) from the IRS, as well as your primary place of business, business type, and other relevant business information.
From there, you will need to find the applicable web applications or forms for each state in which you do business that collects sales tax on out-of-state sellers. This does not yet apply to all states, so be sure to research thoroughly (and read our post here to see an updated list of current nexus laws) for where you need to follow these steps.
Also note that this process can be simplified, and some of the costs avoided, if you register using the Streamlined Sales Tax (SST) program in participating states. As a Certified Service Provider, we offer no-charge registrations through SST in most cases.
To help with the process, we’ve outlined below each of the 46 states and districts that collect sales tax, along with their Department of Revenue website and the relevant forms and links you’ll need to register. If you’re unsure which states require you to register, read more about the current requirements here, or contact us to discuss your options.
| State | Online Registration | Paper Forms, if available | Cost |
|---|---|---|---|
| Alabama | My Alabama Taxes | Online Only | $0 |
| Arizona | AZ Taxes | JT-1 | $12 per location. Individual cities have additional fees ranging from $1 to $50 |
| Arkansas | Arkansas Taxpayer Access Point | Online Only | $50 |
| California | Tax and Fee Administration | Online Only | $0 |
| Colorado | MyBizColorado | CR 0100AP | $4 - $16 plus a $50 deposit |
| Connecticut | Department of Revenue Services | REG-1 | $100 |
| Florida | Department of Revenue | DR-1 | $5 by mail, or free if completed online |
| Georgia | Georgia Tax Center | Online Only | $0 |
| Hawaii | Hawaii Tax Online | BB-1 | $20 |
| Idaho | Idaho Business Registration | IBR-1 | $0 |
| Illinois | MyTax Illinois | REG-1 | $0 |
| Indiana | InBiz | Online Only | $25 |
| Iowa | Department of Revenue | 78-005 | $0 |
| Kansas | Department of Revenue | CR-16 | $0 |
| Kentucky | Kentucky One Stop Business Portal | 10A100 | $0 |
| Louisiana | GeauxBiz | Online Only | $0 |
| Maine | Maine Revenue Services | Paper Form | $0 |
| Maryland | Interactive Web Services | CRA | $0 |
| Massachusetts | MassTaxConnect | Online Only | $0 |
| Michigan | Michigan.gov | 518 | $0 |
| Minnesota | Department of Revenue | ABR | $0 |
| Mississippi | Department of Revenue | Online Only | $0 but entities without a permanent place of business within the state must pay a sales tax bond |
| Missouri | MyTax Missouri | 2643 | $0, but a bond may be required |
| Nebraska | Nebraska One-Stop Business | 20 | $0 |
| Nevada | NevadaTax | Business Registration Form | $15 for each in-state location. Out-of-state sellers pay the minimum $15. |
| New Jersey | Division of Revenue | Online Only | $0 |
| New Mexico | Taxpayer Access Point | ACD-31015 | $0 |
| New York | Department of Taxation and Finance | DTF-17 | $0 |
| North Carolina | Department of Revenue | NC-BR | $0 |
| North Dakota | Taxpayer Access Point | Online Only | $0 |
| Ohio | Ohio Business Gateway | ST 1 (in-state), UT-1000 (out-of-state) | $50 in state, $0 for out-of-state sellers |
| Oklahoma | Oklahoma Tax Commission | Online or In Person | $20 + $10 per location |
| Pennsylvania | Department of Revenue | Online Only | $0 |
| Rhode Island | Division of Taxation | BAR | $10 |
| South Carolina | MyDORWAY | Online Only | $50 |
| South Dakota | Department of Revenue | Online | $0 |
| Tennessee | Department of Revenue | Online | $0 |
| Texas | Texas Comptroller | AP-201 | $0, but a security bond may be required |
| Utah | Utah.gov | Online Only | $0 |
| Vermont | Secretary of State Online Services | BR-400 | $0 |
| Virginia | Virginia Tax Online Services for Businesses | R-1 | $0 |
| Washington | Department of Revenue | Business License Application | $50 |
| Washington DC | Office of Tax and Revenue | Online Only | $0 |
| West Virginia | One Stop Business Portal | WV/BUS-APP | $30 |
| Wisconsin | Department of Revenue | BTR-101 | $20 |
| Wyoming | Department of Revenue | Sales and Use Tax License Application | $60 |
Registration is just one of many steps you, as a retailer, will need to take in order to comply with sales tax regulations. For a more comprehensive look, read our Complete Guide to Sales Tax.
Last updated October 22, 2025
The post How to Register for a Sales Tax Permit in Every State appeared first on AccurateTax.
]]>The post How to Avoid Sales Tax Overpayments appeared first on AccurateTax.
]]>A big part of that is calculating and remitting the correct amount of sales tax for sales. With dozens of states now implementing these laws and different tax rates in each state (and many municipalities), it’s more difficult than ever for a small online retailer to keep track of and pay sales tax. There’s a recurring risk that they overpay. To help, here are some best practice tips to keep yourself in compliance without overpaying.
Sales tax exemptions follow similar patterns across different states but do vary in significant ways. For this reason, it’s important to have a process in place for understanding and evaluating exemptions at a high level.
Companies should understand what these exemptions entail, provide the proper exemption certificates to suppliers, and always maintain clear records in case of an audit in the future. The risk for these audits will only increase as more of these laws go into place and states get serious about reclaiming the tax base, they feel they’ve lost to online commerce.
To avoid the temptation to “just charge tax” for something rather than worry about whether it is exempt or in a state that requires collection, the following steps should be considered:
In addition to the above related to how you interact with state revenue agencies, your internal processes should match up. That means a detailed audit of your invoice processes and accounts payable systems to ensure they can properly integrate with and support your new sales tax obligations. Software can be a beneficial resource for this, as can a third-party audit to ensure compliance with all relevant regulations.
Even if you are confident in your company’s accounting capabilities and have good legal counsel on your side, it’s recommended that you consider a third party to help ensure compliance and better prepare for and hopefully avoid future audits related to Wayfair.
The goal is to ensure you are on-time and accurate with all sales tax reporting and your internal records and invoices, but also that you operate as efficiently and profitably as possible. More states will implement laws in the coming months and new efforts to consolidate and work together to improve these processes will be introduced, both at the state level and federally. Your best option to stay ahead of these changes is to spend time reviewing and updating your systems regularly, with the right software and professional support at your side.
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]]>The post How Marketplace Facilitator Laws Impact Online Sellers appeared first on AccurateTax.
]]>In addition to the recent spate of new affiliate nexus laws being implemented following the June 2018 Supreme Court Wayfair decision, marketplace facilitator laws are impacting how and when both large ecommerce sites with marketplaces and smaller, third party companies are expected to collect and remit sales tax. Let’s take a closer look at what these laws do and how they might impact retailers.
A marketplace facilitator is a company that operates a marketplace on a platform much larger than third party vendors would be able to build on their own. Those third-party sellers are then able to sell goods and services through that platform, reaching a much larger audience than they otherwise could. Amazon is the world’s largest marketplace facilitator, home to hundreds of thousands of third-party vendors who use Amazon’s technology to list products, collect payments, and in certain cases, ship products from Amazon’s fulfillment centers.
Marketplace facilitator laws have been implemented in several states, including Connecticut, Minnesota, Oklahoma, Washington, Pennsylvania, Iowa, and Alabama. These laws require that the marketplace facilitator take over the role of collecting and remitting sales tax on behalf of these third-party vendors. For the states, the law is a way to streamline and simplify the process of collecting sales tax. Instead of processing returns from tens of thousands of sellers from around the country, they interact with only a handful of these larger facilitators (who facilitate a minimum of $250,000 in retail sales per year). It’s a lot easier to deal with a multi-million-dollar Amazon sales tax return than 15,000 small returns from vendors scattered across the country.
On their face, these laws seem like a good thing for retailers. Now on the hook for collecting sales tax in more than 30 states, it’s becoming increasingly complex to manage these processes.
These new laws offer significant benefits to states that worry about compliance with all of these complicated laws. It basically ensures compliance throughout the state and increases the overall tax revenue collected. For retailers, while collecting that sales tax may not be required in these states, there are still responsibilities. It’s generally agreed upon that these vendors should maintain their sales tax permits in each state, and in most cases are required to file a zero return if they only sell in that state through the marketplace facilitator. If they do physical business or have their own online store in that state, they will still need to file for those other sales.
In terms of which types of sales this impacts, for most states, these laws have just recently gone into effect or will be going into effect in 2019 and largely affect those who sell on Amazon and eBay – the largest marketplace facilitators in the US and the only two that consistently breach the thresholds set by these states. Other marketplaces covered by the laws in some states (but not all with marketplace facilitator laws), include Etsy and Walmart.
Each of these states has its own reporting requirements for the third-party seller, so it’s important to research their laws and understand when and at what thresholds you need to acquire a permit and file sales tax returns in those states, even if you sell exclusively through these marketplaces.
While there are currently only a handful of states with marketplace facilitator laws, it is expected that more will follow as the benefits of simplifying the tax collection process and vastly improving upon compliance rates are seen in other states, especially those that are passing their own affiliate nexus laws.
Whether you sell into one of these states or not, be aware of the impact that your operations on any third-party marketplace might have on your sales tax collection processes. Laws are changing quickly, and requirements are rarely consistent across state lines. As state governments acclimate to the new law of the land, it’s important to be vigilant and ready for whatever changes might come.
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]]>The post Common Sales Tax Exemptions and When They Apply appeared first on AccurateTax.
]]>If you do enough business across state lines online – either in dollar amount (typically $100,000 or more) or transactions (200 or more) – this applies to you and will likely be a major factor in how you choose software and structure your transaction processing in the years ahead. On top of that, there are many common sales tax exemptions, and they vary across state lines. To help start understanding what you should look at more carefully and when it might be an issue, here is a list of the most common sales tax exemptions in the United States and what they typically entail.
The first type of sales tax exemption relates to the type of goods being purchased. Several states have sales tax exemptions on a range of different types of goods. The most common goods that enjoy exemptions include:
By default, most services are exempt from sales tax in most states. There are exceptions to this rule, however, for specific types of services that certain states have decided to tax. Some examples of services that are taxed include:
This is the area in which there is likely to be most divergence on a state by state basis, so be sure to research carefully which states tax services you offer, and which do not.
How the goods are used may also result in an exemption from sales tax collection. This can happen in one of a couple of ways:
For the most part, if the buyer of the goods in question is the Federal Government, sales tax may not apply. Additionally, some state and local governments offer the same exemptions for local government purchases. Nonprofits, religious organizations, charities, and other tax-exempt groups with proper documentation are also often not subject to sales tax collection.
Because of the impact of Wayfair on online sellers, it is increasingly important to fully understand when an exemption may apply, how it must be documented, and in which states it is in effect. Doing this manually, on top of tracking all of the different tax rates for both state and local municipalities where your goods may be purchased can be incredibly challenging, so it is important to have the right systems and professional support in place to help and avoid future issues that might impact your business.
The post Common Sales Tax Exemptions and When They Apply appeared first on AccurateTax.
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