At HOST, we get it. There’s nothing fun about sales tax. Humans like good news and rewards. Handling sales tax provides none of that, except maybe the rewarding feeling of checking another dreaded task off your administrative to-do list.
But what if you could know that sales tax is finally handled? That peace of mind is worth quite a lot. And our 10 sales tax New Year’s resolutions will help you achieve just that. Then you can get back to the fun stuff, like depositing all your worry-free (because no state department of revenue is after them!) profits in the bank.
Resolution #1: Evaluate Economic Nexus
One of your first sales tax related tasks of every new year should be checking if your business has economic nexus in any new states. In general, if you’re newly made $100,000 in sales or had more than 200 transactions in a state, you should have a close look at that state’s economic nexus threshold and see if you’ve exceeded it.
If you have nexus in a new state, don’t delay in registering for a sales tax permit in that state and, as soon as you’ve received your permit, setting up sales tax collection on your shopping carts and other sales channels.
Resolution #2: Review the Taxability of your SKUs
The new year is also the perfect time to ensure that your product’s taxability hasn’t changed. What do we mean by that? Some items, like groceries, are non-taxable or taxed at a reduced rate in many states. Others, like textbooks, clothing or digital goods (e-books, downloaded movies, etc.) are non-taxable in some states.
As political winds change, sometimes product taxability does, too. For example, digital goods will be taxable in Georgia beginning on January 1, 2024.
Sometimes items, especially groceries, are taxed at a reduced rate, or non-taxable at the state rate but taxable at the local rate. Double check that no sales tax rates have changed on your products that are taxed differently.
Last but not least, ensure that your products still meet the criteria to be sold tax free or taxed at a reduced rate. For example, software-as-a-service (SaaS) products are taxable in Maryland if they are for personal use, but non-taxable if they are for “commercial” use. Ohio does the exact opposite.
As your business grows and changes, so, often, do your SKUS. Ensure you’re still collecting the right amount of sales tax.
Need help figuring out what is taxable and what isn’t? Contact HOST for a custom tax matrix for all your SKUs and never worry whether you’re charging, or not charging, sales tax correctly on your products.
Resolution #3: Double Check Your Shopping Cart Sales Tax Settings
Speaking of shopping carts, the beginning of the year is also a good time to double check your sales tax settings. These days, many online shopping carts and payment processors make it easy to set up sales tax collection. However, some require that you choose your own settings, and those can change.
We recommend checking that:
- You’re collecting sales tax through every sales channel in every nexus states
- You’ve double checked changin sales tax rates and updated any manual sales tax rates you’ve set
- You’re still collecting, or not collecting, sales tax on products that aren’t taxed in every state (i.e. groceries, clothing, etc.)
- You’re collecting sales tax on shipping charges in states that require it
- You’re NOT collecting sales tax in states where you do not have nexus. Unfortunately, some new sellers tend to think they’re required to collect sales tax in every state, which can create a huge hassle (not to mention, bring on serious fines and penalties) at tax time. Learn more about sales tax nexus here.
Resolution #4: Implement Recent Sales Tax Law Changes
Sales tax rules and laws are forever changing. For example, Rhode Island just abolished their requirement for an annual reconciliation return. Kansas, beginning January 1, 2024, lowered their grocery sales tax rate at the state level to 2%.
Sales tax laws and administration rules often change in January, so now is the perfect time to ensure that you are still in compliance. If you are already registered for a sales tax permit with a state, keep an eye out for a notice from your state’s taxing authority (usually the “Department of Revenue”) for changes you need to know about.
Resolution #5: Ensure You are Following Sales Tax Filing Best Practices
One vital thing to do is ensure that you are filing and remitting sales tax the way that the state wants to see it. Doing things like repeatedly filing sales tax late, not filling out the filing forms correctly, or paying via paper check when the state requires electronic funds transfer (EFT) is a quick way to raise a red flag to an auditor, even if you do everything else by the book.
Take the time to really read sales tax filings. Ensure you are filing and paying the way a business of your size is required. (Requirements can be different depending on the amount of sales tax you owe.) And especially ensure that you are breaking down sales tax collected by not just the state, but my county, city and other special taxing districts. This is how funds are allocated to local areas, and failing to do that can lead to sales tax disaster.
No time to file sales tax returns? HOST is here to help. Contact us today to find out how we can take sales tax filing off your plate.
Resolution #6: Wrangle your Resale Certificates
Selling items to another retailer for resale seems so simple. You’re not even required to charge sales tax! However, this is also how retailers get into trouble.
This new year, set up a system for handling resale certificates. And while you’re at it, ensure that your resale certificates for your regular buyers are up to date. That can be as simple as, the next time they make an order, double checking that they still have the same tax ID number, name, address, and other identifying business information required by your state’s taxing authority.
Also get into the habit of verifying resale certificates. Though it doesn’t seem fair, if you accept an expired or false resale certificate, you, the seller, are often the one responsible for paying the sales tax you should have collected back to the state.
For all those reasons, it’s a good idea to pay close attention to resale certificates.
Resolution #7: Consider a Voluntary Disclosure Agreement (VDA)
We have this conversation at least once a week. A retailer realizes they have sales tax nexus in a state. In fact, they may have had nexus there for quite a while.
If this sounds like you, it can be very easy to bury your head in the sand and hope that the state never finds you. Of course, that’s only delaying the inevitable.
The good news is that there are solutions, even if you think you owe the state quite a bit of uncollected sales tax. With a voluntary disclosure agreement (VDA), a sales tax expert can present your case to the state anonymously and negotiate reduced penalties in exchange for you registering for a sales tax permit and becoming sales tax compliant going forward.
If one state’s potential sales tax consequences are looming on the horizon, consider a VDA to take that worry away. Contact HOST to help.
Resolution #8: Ask to File Sales Tax Less Often
Every time a retailer files a sales tax return, the state has a certain amount of administrative hassle on their side to ensure everything is processed correctly. That’s why the fewer sales you make in a state the less often you are required to file.
But a few states start you off filing monthly or quarterly no matter what. If you have a low amount of sales in one of your nexus states, we recommend contacting the state’s taxing authority (usually the “Department of Revenue”) and asking them if you can file less often. The worst they can say is no, and often they actually change your filing frequency. It’s less hassle for them, and for you!
Resolution #9: Get a Sales Tax Education
Knowledge vanquishes uncertainty. Here at HOST we regularly publish educational articles about sales tax. Check our blog for up-to-date sales tax news and our resource center for the sales tax ABCs.
Maybe it’s because we’ve been in business handling sales tax for companies large and small for 25 years now, but we dare to say that sales tax can actually be interesting!
Resolution #10: Partner with a Sales Tax Expert
If you are a retailer, it’s always important to have a sales tax partner in the loop should a sales tax problem ever arise. Receive the dreaded audit letter? Or a penalty from the state? Unsure whether you should be collecting sales tax on a certain SKU? Or from buyers in a certain state?
The experts at HOST have been helping retailers answer these questions for 25 years.
Contact us to finally take sales tax off your plate!