Reopening for business: Don’t forget sales tax
As businesses reopen with a post-pandemic future in mind, a lot of sales tax issues can come up.
However, they may not obviously look like sales tax issues. If they don’t your company could miss some important points.
Goods and services
Many companies have shifted from goods delivered in person to services delivered online. The clothing store is offering a monthly rental subscription to curated clothing. Fishing gear has been replaced by online fishing classes, with appropriate gear included in the tuition. Virtual cooking classes have replaced part of a restaurant’s revenue.
A digital pivot can keep your business alive during the pandemic. But do you even know whether your new services are taxable?
In most states, some services are taxable. These might include repair services, entertainment, personal services like manicures, or business services.
In Illinois, none of these services are taxable.
In California, if a shopper buys a garment and takes it right away to a tailor to be altered, the tailor charges sales tax on his services. If the customer wears the garment first, it comes used clothing. Tailoring of used clothing is not taxable.
You might have almost accidentally expanded your business with e-commerce during the pandemic. Once you sold and shipped things, you might not really have noticed how many states you shipped things to.
However, if you hit the threshold on goods and services you sold in another state, you may have met the requirements for economic nexus. Nexus used to be about having a physical presence in a state. If you had a warehouse there or direct marketing affiliates in the state, you would have to collect sales tax. If not — then not.
Now, many states require remote sellers to collect sales tax if they establish economic nexus by making a certain number of sales or collecting a certain amount of revenue.
You don’t get a notice alerting you to these new responsibilities.
Arkansas’s tax website explains, “Nothing in Arkansas law requires an Arkansas seller to collect sales and use taxes for another state.” This is true. It is the laws of the other states that require an Arkansas seller to collect sales and use tax for other states.
This is just one example of how tricky sales tax requirements can be. You can’t just check your own state’s rules and feel confident.
For many companies, it is more cost-effective to prepare to file in every state than to hope you notice when you establish nexus in another state.
Adding new platforms
Did you add Amazon sales during the pandemic? Is Etsy going to be part of your reopening strategy to clean up inventory? Platforms like these has special, complicated arrangements for sales tax. You need to make sure you’re not surprised by the costs.
Automating your sales tax compliance is the right solution as we head back to normal — whatever normal turns out to be.
SalesTaxDataLINK has the level of accuracy you need, at a predictable, affordable price. If you’ve arranged for automatic sales tax calculation software but you get too many errors, pricing surprises, and inadequate customer service, you need to talk with us and see how we can help.
We can also take on the whole sales tax compliance process for you. Call 479-715-4275 to discuss your needs.
a Understanding Exemption Certificates Say your company manufactures parts needed for the Boy Scouts' Pinewood Derby and you sell a bunch of these parts to your local Boy Scouts chapter. You include sales tax in the invoice, and they respond with, "Hey,...
a Discovering that your business has over or underreported sales tax can be a nightmare. In the past, self-auditing was an impossible task. Today, there are automated tools that make this process simple, fast, and effective. There’s no reason not to...
a Sales tax is complicated, and one area in which it has gotten more complicated is in sales on Native American tribal lands. Of course, the specifics depend on the jurisdiction. One of the reasons sales tax is so complicated in the United States is...