We consulted with Javier Ramirez from AgileCFOs to learn more about sales taxes.
What Are Sales Taxes?
Sales taxes are charged to consumers as a percentage of the product or service price. Every state has different sales taxes, and there may even be local taxes. Each of the taxes will have due dates, so you need to find the right partner to ensure you pay them correctly.
How to Calculate Sales Taxes
Each state has a taxation authority, often called the Department of Revenue. Check their website to see if they have a sales tax and how much it is. Some states like Delaware, Montana, New Hampshire, and Oregon do not have a state sales tax.
How to Pay Sales Taxes
You will need to register with each state in order to charge sales taxes. The registration process can be long and complex, but there are professionals that can help you, like Javier and his team at AgileCFOs. They recommend setting up a withholding account so you can separate your taxes from your profits.
E-commerce businesses may have to account for sales taxes in multiple states, depending on the states they interact with.
How Many States Will I Have to Pay State Taxes To?
You need to pay taxes to every state you have a “connection” with. The correct term is nexus, and there are two kinds of nexuses: a physical nexus or economic nexus.
An economic nexus is triggered by hitting certain financial milestones, such as the number of products sold or revenue. Each state will have a different threshold, so ensure you check each state’s details.
A physical nexus is triggered by having your business operations, employees, or product in the physical location. If you run a dropshipping business, this may even be triggered if your supplier stores your products in a warehouse in a state. If you do a certain number of transactions with customers in one state, this may also count as a physical nexus.
Each state that charges a sales tax will have a threshold for both economic and physical nexuses, and once you hit that threshold, you will have to charge customers a sales tax. You only have to reach one threshold to start paying sales tax.
What About Local Sales Tax?
Some states will have local sales taxes too that are paid to the county. These are calculated on top of state sales taxes.
These states have no local sales taxes: Columbia, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, and Rhode Island.
Who Are AgileCFOs?
Agile CFOs’ passion is supporting and influencing growing companies by removing administrative tasks, implementing sales tax controls, and easing decision-making through the use of KPIs.
They help businesses with bookkeeping and CFO services. If a business needs help registering to pay sales taxes, they can assist. They will also help businesses to improve their valuation before selling.
They help traditional and e-commerce businesses of all sizes to improve and manage their finances. To contact Javier and his team, visit www.agilecfos.com for more information or download the Sales Taxes Checklist today.