Managing the finances for your small business requires more than income and expense reporting; sales tax collection and remittance are also huge factors. In the U.S., 45 states have varying statewide sales taxes imposed on goods and services, each with their own tax remittance procedures in place. Without the help of an expert, it can be difficult for small-business owners to navigate the regulations associated with proper licensing, correct reporting procedures, and even interstate sales laws.
To reduce confusion about sales tax remittance, here are six crucial steps that all small-business owners should follow to stay ahead of the curve.
1. Review Your State Requirements
Sales tax requirements vary widely from state to state. For example, Oregon, New Hampshire, Alaska, Montana, and Delaware currently do not impose a statewide sales tax. But in this tech-savvy business climate, even the smallest company can perform interstate transactions and may be liable for separate sales tax remittance despite their tax nexus. A state's treasury, department of taxation, or department of revenue website is a great starting point for reviewing your requirements.
2. Contact an Expert
Most small-business owners should seek out expert help to assist with understanding complicated sales tax remittance procedures. Accountants and tax attorneys should be consulted at an early stage. Online payment services can also help small businesses reduce both confusion and stress surrounding the sales tax process.
3. Register with Your State
Once you have identified your sales tax obligations, your small business is typically required to register as a sales tax vendor with a state taxing authority. In many states, this can be done online and often leads to the issuance of a sales tax license or permit.
4. Collect Sales Tax
The actual sales tax collection process involves adding the designated state percentage to the sales price of your good or service. Having an online accounting system will help itemize and separate tax from income, giving you a more realistic image of the money your company has on-hand. Remember also that some items such as food, periodicals, clothing, medications, and items purchased on tax holidays may be deemed as exempt.
5. Remit Sales Tax
To ensure timely remittance and avoid unwanted fines, obtain the proper remittance forms early on and take advantage of online payment options when available. Your filing period, or the frequency of payments, can also vary and should be confirmed with the state revenue office.
6. Review State Tax Changes
Small businesses need to regularly update sales tax remittance procedures to reflect changes in prevailing laws. With budget shortfalls occurring more frequently at state and local levels, it's not unusual for tax rates to increase periodically. Specific legal requirements can also change if state legislature decides to strengthen sales tax collection efforts.
The process of sales tax remittance for small businesses is often an afterthought and not well-planned. By reviewing procedures and requirements in advance, small businesses can easily avoid the most common sales tax mistakes.