Sales Tax Compliance Overview for Small Business Owners

© AVALARA CONFIDENTIAL & PROPRIETARY

Sales Tax Compliance Overview for Small Business Owners

2 © AVALARA CONFIDENTIAL & PROPRIETARY

Sales Tax Overview


Who is collecting sales tax?

Artist, Crafters, and Hobbyists



Mobile Food Vendors



Online Sellers



Service

Providers


A Pass-through Tax

As a small business owner, your responsibility is to act as an agent of the state collecting sales tax and remitting it to state

and local tax authorities.


The NOMAD States

OregonMontana

New HampshireAlaska

Delaware

The 5 states that do not collect a state level sales tax. Alaska collects local sales tax in some locations.


Origin: Tax rate charged on an item is based on seller’s ship-from location.

Destination: Tax rate charged on an item is based on buyer’s ship-to location.

(All states except California)

State Sourcing: Destination vs Origin


Modified Origin: Tax rate charged on an item is based on seller’s ship-from location for state, county, and city taxes.

For district taxes, however, tax rate is based on buyer’s ship-to location.

(California only)

State Sourcing: Modified Origin


Reasons to Care About Sales Tax


Sales tax compliance is complicated

• Over 10,000 tax jurisdictions in the United States• Every state has different rates, filing deadlines,

exemptions, filing frequencies, etc.• Tax rates change all the time• Exempt products• Exempt individuals• Exempt organizations• Exempt materials• Sales tax vs. use tax


Risk of penalties & interest payments


Risk of penalties & interest payments


Sales tax audits are real…and painful

It’s not uncommon for state Sales and Use Tax Audit Manuals to be hundred of pages long!

Unfortunately, most states offer documentation to help business owners navigate the sales tax audit process...


The internet has expanded nexus concerns

(More to come on this later…)


It’s the law!Email: [email protected]

Phone: 717-783-4649

mailto:[email protected]




Sales Tax Exemptions


GroupsCommonly religious groups, non-profits, and government agencies.

MaterialsRaw materials used in the in the manufacturing process of goods to be sold are frequently tax exempt.

ServicesEvery state has specific rules, but there are many services that are free from sales tax.

GoodsFor resellers, goods may be purchased tax-free as sales tax is only collected at the final point of sale.

Common Sales Tax Exemptions


Nexus


What is Nexus?Nexus is defined as a physical connection to a state or other tax jurisdiction.


Common Nexus Triggers

1. Employees in a state




2. Office in a state





3. Inventory in a state





3. Inventory in a state

4. Travel within the state


Nexus Example: Single State Seller









This business owner is required to collect, file, and remit sales tax in Pennsylvania.


Nexus Example: Multi-State Seller









This business owner is required to collect, file, and remit sales tax in Pennsylvania, Florida, Texas,

and California – but not Colorado.


The Impact of Fulfillment ServicesAll states consider inventory stored in a warehouse in state to be grounds for sales tax nexus.


The Sales Tax Process



Determine nexus



Determine nexus

Collect sales tax



Determine nexus

Collect sales tax

File returns



Determine nexus

Collect sales tax

File returns

Remit sales tax


Making sales tax less taxing.

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Small Business & Entrepreneurship

Sales Tax Compliance Overview for Small Business Owners