4 Factors to Keep in Mind About Internet Sales Tax
E-commerce can boil all the hustle, bustle and stress that accompanies an in-store shopping experience down to a few clicks or taps. For retailers, e-commerce is a chance to simplify the customer journey and stand out as a convenient and user-friendly shopping resource.
While it’s wonderful, it’s not without its complications. Like traditional commerce, internet businesses must apply sales tax to all of their transactions, a task that becomes infinitely more complex when people from all over the country can buy from your company. By getting a sense of the numerous intricacies involved, any internet retailer can get its compliance affairs in order and be ready to thrive in the digital business landscape.
The Ins and Outs of Internet Sales Tax
Are you still trying to wrap your head around administering sales tax to internet purchases? It can be a tough juggling act for retailers serving customers from several different locations. Still, the difference between brick-and-mortar and internet sales tax is the “point of sale” or “nexus contingency.”
Stores levy sales tax based on location. Even if it’s part of a larger chain, purchases at physical stores are taxed based on state and local protocols. E-commerce uses the same principles, but assesses taxes based on the locations of customers. Suppose two customers buy the same pair of shoes from the same online retailer; if one hails from Chicago and one lives in Boston, they’ll pay different taxes based on each city’s specifications.
Making these distinctions can be critical for several reasons. Without understanding your online customers’ tax specifics, you could either charge them too much or too little at checkout. Plus, businesses that don’t pay careful attention to their taxes can quickly find themselves in the IRS’s crosshairs — and companies found guilty of tax evasion can open themselves up to a possible $500,000 penalty.
E-commerce is still a relatively new concept for some companies, and it’s best not to leave too much to chance. If you want to build a digital commerce platform that endures, you’ll need to get a handle on online sales tax.
Keep Online Sales Tax Above Board
Whether your company is pouring more resources into e-commerce or exploring it for the first time, establishing tax consistency needs to be a top priority. Here are some strategies that can help you:
1. Identify the states in which you have nexus.
With so much internet sales tax depending on where customers live when they purchase, nexus points can slip through the cracks. Get a comprehensive list of states where you have nexus to clear up any confusion.
Nexus surfaces when a sales or transaction benchmark is met if that state subscribes to the Wayfair decision. Most states use the threshold of $100,000 in sales or 200 purchases during the current or previous year. Examine which states you do business in that check those boxes, and adjust your tax standards accordingly.
2. Know your sales tax due date.
Sales tax deadlines vary from state to state. Because there’s no such thing as federal tax, your business is the first line of defense to ensure everything is paid promptly.
Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) don’t charge sales tax. For the remaining 45, study their deadlines to make sure you pay on time.
3. Hire a professional.
Sometimes, unexpected tax issues arise that require an expert’s opinion. When those occasions occur, look to a certified public accountant to guide you through potentially tricky scenarios.
As your online store grows, it’s a great idea to consult with tax specialists to forecast any potential surprises. A CPA stays updated on new compliance issues and can help you maintain an accurate and sufficient tax bottom line.
4. Conduct regular internal audits.
With so much variance among your customers, scheduling regular check-ins can allow you to steer clear of online sales tax obstacles. It’s a viable way to keep your e-commerce business accountable while being a good steward to its customers.
Look at your Shopify storefront to make sure it complies with local internet sales standards. While you’re at it, make sure your exemptions, online seller’s permits, and other compliance issues are current. Conduct these audits weekly, biweekly, or monthly, and nothing will surprise you.
As online stores become more prominent, they deserve just as much attention as you might give to a brick-and-mortar location. Keep an eye on e-commerce sales tax to keep your store compliant and your business on track.
Jan Bednar is the CEO and founder of ShipMonk, a technology company reimagining third-party shipping logistics.
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Jan Bednar is the CEO and founder of ShipMonk, a technology company reimagining third-party shipping logistics. Bednar, a native of the Czech Republic, moved to America to attend Florida Atlantic University, where his entrepreneurial interests piqued enough to start BedaBox, a shipping startup that became the ShipMonk’s predecessor. Bednar lives in Deerfield Beach, Florida.