As more and more businesses go digital, with their customer accessing their service and products online, the need to understand how to manage online sales tax becomes increasingly important. This ultimate guide to online sales tax in 2023 can help your business to manage online sales in a compliant and efficient way.
What is Online Sales Tax?
Online sales tax is the tax charged by a state on products and services purchased online. It is generally considered part of the state sales and use taxes, and is collected in addition to any other taxes and fees the buyer may owe.
What Are the Rules for Collecting Online Sales Tax?
The rules for collecting online sales tax are dependent on the state of the seller, the buyer, and the product or service sold. Here are some general rules that should be followed:
- Sellers must register and file taxes in states where they have “nexus,” or a presence. In other words, if your business has an office, warehouse, or other physical presence in a state, you must register to collect taxes in that state.
- Each state has different sales tax rates. This means that the rate of sales tax you collect may vary depending on where the buyer lives.
- The buyer is still responsible for sales tax on orders. Even if the seller does not collect sales tax on a purchase, the buyer is still responsible for self-assessing the tax and remitting it to the appropriate state.
How Can You Collect Sales Tax Online?
Collecting sales tax online is an important part of any successful ecommerce business. Here are some steps you can take to make sure you’re compliant:
- Identify which states you have nexus in and register for a permit or license. This is the first step in setting up compliant sales tax collection. Your business will have different requirements depending on which states you have nexus in.
- Collect sales taxes on all applicable transactions. Once you’ve registered, collect sales taxes on all transactions where they are due.
- Remit taxes to the appropriate states. It’s not just enough to collect taxes, you must also remit the taxes to the appropriate state. The frequency and due dates for remitting taxes will vary from state to state.
Online sales tax is an important part of any ecommerce business and can be complicated to manage. By understanding the basics of online sales tax and following the appropriate steps, your business can ensure compliant sales and make sure you are collecting and remitting the right amount of sales tax online.