E-Commerce and Understanding Taxes across Different States

A major strength of running an e-commerce shop is that you aren’t limited to a local customer base. People in different states, or even across the globe, can buy your products. You aren’t limited by geography or distance to make a sale, but with people buying around the world does come with extra difficulties. You’ll need to find solutions for a lot of things like shipping and customs, but a major problem many e-commerce owners don’t think about is local and state taxes.

eCommerce taxes
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Every state has its own taxes, customs, and tariffs on products being sold and shipped into their areas. If you are wanting to do business across the nation or world, you will need to know how to be complicit with local tax laws or risk having the IRS come knocking.

Which States Have Sales Tax?

Currently, 45 states and Washington D.C., collect sales tax on products purchased in their borders. The five that don’t are: Alaska, Delaware, Montana, New Hampshire, and Oregon. So, if you plan on doing business in those states, you don’t need to worry about collecting sales taxes (except for Alaska, as some local areas have the right to set their own sales tax ranging from 0 percent to 7.5 percent).

A great first step before you start selling in the rest of the states is to get a collection of all the sales tax rates in the nation. That way, the information is available as a quick reference for you going forward. Not only it can inform you what amount of taxes you need to collect, it can guide you on where you should build your business to. If your plan is to start a business that can sell in all 50 states, you will need to know local sales taxes.

But that isn’t all! Local areas like cities, counties and other areas can add on more sales tax on top of the state sales tax. It’s stuff like this that makes it important that you create an automated system that calculates sales tax on an order for you; that way, your entire day isn’t spending calculating taxes.

When to Collect Sales Tax

While it differs slightly in every state, the basic rules of when you need to collect sales tax are the same across the United States. In a general sense, a business needs to collect sales tax from customers in states that the business has a “nexus” in. A nexus is where some part of your business is physically located.

What qualifies as a nexus typically is a physical part of your business. That can include where you or employees are located, where your inventory is located, or where a company office is. So if your office is physically located in California, but a warehouse with your inventory is in New York, you will need to collect sales tax from customers located in both California and New York when selling to customers.

Keep in mind that every state has slightly different definitions of what counts as a nexus. If a branch of your business produces and supplies its own products in a different state than the main office, some states count that as part of a nexus, while others don’t.

What to Do With the Sales Tax

It is the role of the business to collect, hold, report, and send all sales tax to the correct government. That means it’s your responsibility to make sure you collect the correct amount of sales tax, and then send it to the right state government.

When you first get set up with a state government for paying sales tax, they will determine how often you have to file your sales tax. This can be monthly, quarterly, or yearly. Many states have their deadlines on the 20th of each month, but as always, this differs from state to state. One major benefit, though, is that many states allow online filing, making your life a bit easier.

Staying Compliant With Other State Tax Laws

A large portion of the state tax laws your business will be dealing with concerns sales tax, but there are other ones to be aware of. If you have employees working in a different state, you’ll need to pay income taxes based on the state they are working in, not where you are. If you have several remote workers, this means keeping track of where you need to pay income taxes.

If your business owns property, such as an office or warehouse, you’ll also need to pay property taxes. While this usually isn’t a problem as property taxes are part of the bill if your bought the property with a loan, make sure you have budgeted out the right amount of money to include it.

Finally, keep track of any changes in tax codes year to year and if any special circumstances occur. For example, the IRS is giving victims of Hurricane Irma a special tax break and extension, giving both families and businesses the opportunity to recover. In the future, if some kind of major disaster damages your business, watch for potential breaks on both federal and state taxes.

Keeping It All Straight

Taxes can cause all sorts of headaches, especially for a growing e-commerce business. As you start and grow your business, you’ll find you have more to handle, it might be worth investigating getting software to help keep track of your taxes or working with an accountant. That way, you can focus more on your business and less on keeping all of your businesses compliant.