Sales Tax: 5 Tips for Staying in Compliance
Sales Tax is one of our client’s top pain points. Learning the sales tax nuances for your state and your industry can be overwhelming. Here are our TOP FIVE things you need to know to Stay Compliance with Sales Tax:
TIP ONE: Know the sales tax laws for your area.
It is your responsibility as a business owner to know the Sales Tax rates and laws in your area. For example, the City of Atlanta is in Fulton County. If you are a Fulton County resident inside the City of Atlanta, your sales tax rate is higher than if you live outside the city limits.
When you take on a new project, you need to look up these nuances and make sure that they collect the correct sales tax rates. We will help our clients catch errors, but it is so much easier to do it right the first time than to correct mistakes after they happen.
We recommend that you look up the sales tax rate every single time you start a new project, even if you think you know the rate. There are a few great tools out there to look up sales tax rates:
Your state’s Department of Revenue may also have a sales tax rate locator or a rate chart. Here are some examples: Texas, Virginia, Georgia.
TIP TWO: Know the economic nexus for any area outside of your state/city where you plan to start a new project.
Before you start a new project out of state or area, know the economic nexus and the sales tax laws and regulations in that area, to help determine if the project is a good fit. This is directly tied with the first point. It may be exciting to think about expanding into a new market, but sometimes the administrative work just around the sales tax laws may impact your decision to take on that project.
These are great resources for learning more about sales tax nexus:
TIP THREE: Know if you are cash or accrual based.
You need to know if the area you are in requires you to file on a cash or accrual basis Even if you file your income tax on a cash basis your state could require your sales tax to be filed on an accrual basis. The difference between a cash-based or accrual-based business impacts your sales tax remittance significantly and it is important to understand what this means and why it matters.
Cash-based businesses remit sales tax in the period (month, quarter, year, etc.) where the invoice is PAID (ie, money is in your bank).
Accrual-based businesses remit sales tax in the period (month, quarter, year, etc.) where the invoice is issued (ie, your client may not have paid your invoice yet).
TIP FOUR: Know if your area is Origin or Destination Based .
You need to know if your area is an origin or destination-based sales tax.
Origin-based sales tax means that you collect sales tax at the rate for your address.
Destination-based sales tax means that you collect sales tax using the rate for your client’s address.
For more information on origin vs. destination based sales tax, click here.
TIP FIVE: Know what is taxable and non-taxable.
Is shipping taxable in your area? Are services taxable in your area? How do you handle sales tax on retail items? These are questions you will need to know the answer to before sending out your first invoice.
These are just a few things you need to think about before invoicing your clients and collecting sales tax. If you ever have questions about sales tax, please reach out to your Account Manager.
