Online Entrepreneurs Need to Get Sales Tax Compliant Before 2016 Arrives

The sales tax deadline is in January, so say goodbye to that relaxing start to 2016 you were dreaming of. Every online entrepreneur needs to get sales tax compliant before the deadline hits or they could face huge fines, which are more than capable of bringing down a small business.EntrepreneurPic

The Right State of Mind

Bear in mind that this sales tax has nothing to do with the Federal government or the IRS. It’s levied by individual states. You have a duty to collect sales tax in jurisdictions where you have a Nexus, or a significant business presence.

Calculate the Nexus

If you have:

  • An address.
  • A postal location.
  • A dropship relationship.
  • 3rd party affiliates
  • Temporary business presence

Then any of this means you have a Nexus in that state. In other words, you have to collect and declare any sales tax based on the states you have a Nexus in.

Get a Permit

You must have a permit to collect sales tax. This is to prevent fraud where businesses claiming sales tax are actually placing the tax into their pockets without passing it on. You must register for a sales tax permit in order to legally collect any sales tax.

Create a System

Finally, you have to create a system to collect sales tax. This is not for your sake. It’s designed to show to any inspectors and auditors that you’re doing things by the book. It has to be watertight and everything has to go down on paper.

Are you sales tax compliant yet?

Image credit: Brian Wilkins

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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