Generally speaking, sales tax is a tax paid by the consumer to the seller, then paid by the seller to the government in the form of collected funds. There are many instances when certain goods and services are excluded from sales or use tax, for example; food, education, or machines.
So, if you sell taxable goods or provide such services that permit you to collect sales tax from consumers. Additionally, you are required to pay taxes to the government too, since some states require taxes for services as well.
Entrepreneurs and small business owners can have a hard time understanding sales tax, as depending on the state laws differ considerably from one another and are rife with exceptions. Typically, most confusion comes from trying to figure out whether you need to collect sales tax and how much you should charge.
Sales Tax basics you should know
Filling out a sales tax return properly can be more challenging than it may seem at first. In order to collect and pay sales tax, a few factors must be understood first. The factors include the following:
- There are varying sales taxes from state to state as each sets its own. There are some states where local sales tax rates are even higher than state sales tax rates. Therefore, understanding and knowing local sales taxes is the best course of action.
- Sales tax can be collected only if a business has a nexus with the state or if it is permitted to do so. You must register for a sales tax license with the revenue department of your state in order to collect sales tax from your customers.
- It is mandatory to collect retail tax through all channels for all customers in your area since Sales Tax Nexus does not respect channel or platform boundaries.
- Your sales tax collection amount depends on whether the tax is the origin or destination-based. According to the former, a business’s tax is determined by its location, while the latter determines the tax based on the seller’s location.
- Your tax filing frequency is determined by the sales volume you generate overall. It can be submitted monthly, quarterly, semi-annually, or annually in some states. Even the due dates vary with varying states.
- Whether or not your business collects sales tax, filing it will still be necessary after a taxable period.
Now let’s talk about how to prepare for sales tax filing.
Getting ready for Sales Tax Filing
Sales Tax Filing is a bit trickier than it may seem. And to get the job done, take a look at the following steps:
- The first step is to understand & choose the right form, as different states have different Performa.
- Entering data in the form will also include reporting gross sales, which will be determined by the state and data you have.
- You should file tax returns timely after you are registered to collect sales & use taxes in a jurisdiction.
- Many states still file sales & use tax returns on paper, however, some now use electronic filing. Most taxpayers accept the former for low tax liabilities and taxable sales.
Prepare and file returns are the key components of sales tax compliance. Thus, you must follow the appropriate process. It is something you & your company will have to deal with regularly. Even a slight misunderstanding, or error in data entry, or oversight can cause headaches. Therefore, professional help should be sought.
From registering to paying taxes on time, we will take care of everything at TAXCONNEX. However, for more expert advice on VDA check out TaxConnex.com, you will be assisted by the most professional help available.