Taxation 101: Quick Brief on the E-Commerce Sales Tax
Like any other startup brick-and-mortar firms, online businesses must also answer to the laws mandated by the government- one of which is settling taxes. Managing your e-commerce sales tax means more work and various compliance from different states.
According to a study, e-commerce volume in the US skyrocketed from 2,972 to a whopping 8,324 in 2018, inclusive of both B2B and B2C businesses. There is a recorded $601.75 billion spending with online merchants, showing a fast growth rate of e-commerce businesses. Their rapid growth in the market is also visible with their nexus in other states.
But nevertheless, taxation for digital businesses can be trickier than it seems.
Sales tax refers to the levied tax on items that consumers purchase. This is usually added on the final bill, which puts the seller responsible for collecting, reporting and depositing the tax to the governing agency.
Learning E-Commerce Sales Tax by State
There is no standard sales tax in the US since it is governed by different state rules. 45 states in the US have sales tax, alongside most of them imposing special taxes in different district levels. This makes it harder to deal with online sales taxing: owners then have to stay compliant with several rulings in settling their dues.
To settle your tax properly, you need to narrow down where your online business operates and determine the state’s nexus guidelines. It’s of paramount importance to stick with their compliance laws because if not properly accounted, it can cost you your business.
Managing E-Commerce Sales Tax
After identifying your nexus state and determining if your items are taxable in the area, you need to register your business.
Register for Sales Tax Permit
Go to the State Department Revenue and submit all necessary credentials and information to acquire a permit. Once you start operating and collecting tax without this, you can be charged with tax fraud.
Many states now allow online registration, and readies the permit instantly or within 10 business days.
Collecting Sales Tax
Next thing to do in managing your e-commerce sales tax is to set up your carts and add sales tax in every online checkouts.
Every marketplace has a unique approach in collecting sales tax. For instance, Amazon designed a detailed and sales tax collection engine. eBay, on the other hand, limits to only one tax rate from buyers in each state.
Make sure to tag them as origin-based or destination-based tax rates in accordance with the state laws to ensure you have the right tax rates.
Remit Sales Tax
After collecting all sales tax you have generated, you have to turn them over to the state agency in the frequency that your state assigns you with. Do take note of the deadlines for filing and payment so as to not miss your dues.
Be prepared to break down your tax collection in each taxing jurisdiction as most states prefer filing in this manner. Even if you have no collections, you still have to file ‘zero reports’ since it is an obligatory check-in.
Taxing for online businesses is ever-changing, which is why it’s best to keep a proactive team behind your numbers to keep you on track all the time. Managing e-commerce sales tax can be daunting because of various compliances, but with the right people, you can ensure accurate filing and strict adherence to state tax laws.
If you find it too overwhelming, D&V Philippines is here to help. Get in touch with our tax & accounting experts and we’ll tell you how we handle these financial matters like a pro.