Amy Talks About Cross-Border: A Guide to Sales Tax for U.S. Cross-Border E-Commerce Sellers (Part 2)

Amy Talks About Cross-Border: A Guide to Sales Tax for U.S. Cross-Border E-Commerce Sellers (Part 2)

Immediately following the previous issue (Amy Talking About Cross-Border: A Guide to Sales Tax for U.S. Cross-Border E-Commerce Sellers (Part 1)), we continue to talk about the 6 steps to complying with sales tax

3. Register for a sales tax license

Now that you've determined that you have a sales tax relationship in a state and that the products you sell are taxable in that state, your next step is to legally collect sales tax by registering a state sales tax license.

Each state's taxing authority—often referred to as the State Tax Office—is responsible for processing the registration of sales tax. You can register for a sales tax license yourself, but due to the complexity of the process, it is recommended that you find a professional team like our SandStar Cross Border to register a state sales tax license for you.

When applying online, you sometimes receive your sales tax license number immediately, at least within 10 working days. If you register with paper documents, it may take 2-4 weeks to receive your sales tax license.

Don't skip this step! Without a valid sales tax license, it is illegal to charge sales tax to the buyer. While collecting sales tax without a valid license may be an inadvertent mistake for sellers, some states view this as tax fraud and take it very seriously.

When registering for a sales tax license, please have this information ready:

➢ Your personal contact information

➢ Your business contact information

The Social Insurance Number (SSN) or Federal Employer Identification Number (FEIN), also known as the Employer Identification Number (EIN).

➢ Corporate entity (sole proprietorship, limited liability company, etc.).

➢ Your NAICS code (hint: the NAICS code for e-commerce is 454110).

Some states may request additional information.

Sales tax cut-off date

When they issue your sales tax license, the state will also assign you a sales tax filing frequency and deadline.

These filing frequencies are generally monthly, quarterly, or annual. Note that some states have different reporting frequencies, such as semi-annually, or even twice a month for very large retailers. (States reserve the right to change this frequency, so be sure to file and pay according to the deadlines specified by each state.) )

In general, the more sales tax a seller collects in a state, the more often that state wants sellers to file sales tax. Remember, they use that money to pay for budget items like schools and roads. Therefore, they want to pocket the sales tax collected by the seller as soon as possible!

Depending on the state, the deadline will be set at a different date. In most states, sales tax should be paid by the 20th day of the month following the taxable period.

For example. Colorado's monthly taxable period is from January 1 to January 31. Your Colorado January sales tax filing will be completed by February 20.

However, states reserve the right to set their own deadlines. Sometimes, sales tax should be paid on the 15th of each month, the last day of each month, the 25th of each month, or even other dates. Sellers of large volumes may also be assigned a different sales tax filing deadline.

Here's an example of an e-commerce seller's sales tax filing:

Jo has sales tax relationships in 3 states. Jo Georgia, California and Maine.

Her sales tax filing in Jogia state is completed by the 20th of each month.

➢ Her sales tax filing in California is on the last day of each quarter.

➢ Maine sales tax declarations are due on the 15th of each year.

As you can see, when filing sales tax, it's hard to get into a rhythm when the deadline and the frequency of filings are different.

Pro Tip: Some sellers have successfully asked state governments to allow them to reduce the number of times they file sales taxes. You can call the state's tax authorities and give it a try. Find the best phone number to contact each state's sales tax department. To avoid long waits, we recommend calling in non-quarterly months.

Draw the point

➢ Be sure to register for a sales tax license before you start collecting sales tax

➢ The frequency and deadline for sales tax filing varies from state to state. Some states may have multiple filing frequencies and deadlines depending on the volume of sales

➢ Follow up on your sales tax filing frequency and deadlines. These will be assigned to you by the state government

4. Set up sales tax collection at your store

Once you have a valid sales tax license, your next step is to start charging sales tax to your buyers.

Each marketplace allows you to set up sales tax collection.

It's important to note that if your business has a sales tax relationship in a state, then you must collect sales tax on all sales channels from all buyers in that state.

Sales tax based on origin and destination

Countries often require e-commerce sellers to levy sales tax in one of two ways:

➢ Sales tax based on origin

➢ Destination-based sales tax collection

This concept is also commonly referred to as a "sales tax source".

Sales tax based on origin

E-commerce sellers based in states based on origin-based sales tax sources are required to collect sales tax at the seller's place of business.

If your business is based in an origin-based state like Texas, you'll determine the sales tax rate based on your home, warehouse, store, or other physical address. Then, charge that single sales tax rate to all your buyers in Texas.

This type of sales tax collection is simple. You just need to know and charge a single sales tax rate to all buyers in the state.

Destination-based sales tax is levied

E-commerce sellers in states based on destination-based sales tax sources are required to collect the sales tax rate at the buyer's "shipping" address.

As a seller, you need to calculate and collect sales tax rates from the buyer's state, county, city, and elsewhere. Most states have destination-based sales tax levies.

Important: The above example only applies to selling to buyers in the state where your business is located. If you have a relationship in a state for other reasons — such as having employees there or attending an exhibition — then collecting sales tax is different.

In most cases, with the exception of California, Arizona, and New Mexico, if you sell to a buyer outside of your business's state, you'll charge that buyer the sales tax rate for their "shipped to" location.

In e-commerce, the point of sale is usually the buyer's address. Always follow the sales tax rules and laws of your buyer's state. Never charge customers sales tax from other states. For example, a seller has a relationship with Florida and Texas. The seller will never charge customers in Florida the Texas sales tax rate.

Shipping taxability

Are you charging your customers for shipping? Shipping costs are considered a necessary part of e-commerce transactions in some states that require you to levy sales tax on the amount of shipping you charge. In other states, shipping is considered a separate expense and is not considered taxable. Each state has slightly different rules for freight taxes.

Example of freight taxation: Jo sells a coffee cup for $10 and charges $5 for shipping. Product prices and shipping costs total $15. Since shipping costs are taxed in the state where Jo ships the product, she charges a 5% sales tax on the $15 total. That is, the tax is $0.75. Therefore, the total price paid by the customer will be $15.75.

However, now Jo sells the same goods at the same price, but she doesn't need to charge sales tax on shipping costs. She only charges a 5 percent sales tax on the $10 price of a mug. So the total price of the mug is $10.50 ($10 + 5% sales tax), and then she adds $5 for shipping. The total amount paid by the customer is 15.50 USD.

Fortunately, when you set up sales tax collection on your sales channel, most channels allow you to indicate whether you want to charge sales tax on shipping.

Do you offer gift wrapping? In some states, gift wrapping is also considered taxable. Platforms such as Amazon FBA allow you to choose whether to tax gift wrap.

Delivery shipping and sales tax

Dropshipping — where you let your suppliers ship directly to your customers — can be a lucrative business model. However, when it comes to collecting sales tax, it can create complex issues.

You sell phone cases on your website, but use a third-party printing company to print your designs on the phone cases and ship them to your customers.

In this example, there are three important facts:

1. Your customer has purchased an item from you.

2. You purchase the item from your supplier.

3. Your supplier ships the item to your customer.

In this case, if your supplier has a relationship in your state, they will be required to charge sales tax on your purchase... Unless you show them a resale certificate stating that the item you purchased from them was for resale. If your customer is in a state with which you are related, then you will be required to charge your customer sales tax.

It depends on where the three parties — you, your suppliers, and your customers — are located and whether there is a sales tax relationship. You may be required to charge sales tax to your customers, and your suppliers may charge you sales tax.

➢ Set up sales tax collection on all your marketplaces

➢ While some states have "origin-based" sales tax, in most cases you will be taxed at the rate of the buyer's address

➢ eBay and PayPal only allow online sellers to charge one sales tax rate per state

➢ Shipping costs are taxable in some states. When you set up sales tax collection, be sure to explain whether you want to charge sales tax on shipping costs

➢ Delivery relationships are the most complex part of sales tax. You'll need to work with your dropshipping supplier to determine who is responsible for collecting sales tax

5. Report how much sales tax you have collected

Soon, the sales tax filing date will arrive. When preparing to file state sales taxes, you need to determine how much sales tax you collect from buyers not only throughout the state, but also in each county, city, and other special tax areas.

Why? The state government relies on sales taxes to pay for infrastructure, public safety, and other budget items. But they don't know which city to allocate the money to unless you carefully report your transactions for them.

In a few states, such as those based on origin or those with a single statewide sales tax rate, it is not very difficult to declare sales tax. However, in most cases, manually breaking down all your transactions is a time-consuming chore, especially if you're a bulk seller or you're selling across multiple channels.

➢ In a few states, such as those based on origin and a flat tax rate, the sales tax filing process is relatively simple

➢ Most states require you to classify sales tax by county, city, and other special tax areas

6. File your sales tax return

Your next step is to file your sales tax return with the state government.

Most states allow you to file sales taxes online. If you wish to file a manual filing, please log in to your state's Tax Office website to file it.

For example, while Florida's sales tax cut-off date is prescribed as the 20th of the month after the taxable period, Florida requires sellers to pay by electronic funds transfer (EFT) and call his payment to their bank account by that date. Therefore, to declare "on time" in Florida, the seller needs to know how much money he owes and transfer his funds to the Florida Revenue Department a few days before the stipulated deadline.

In Florida, failure to file on time will result in a $50 fine, as well as interest on the amount of sales tax owed. Other states have similar fines and require sellers to pay interest on late filings.

Late filing? If you know you need to file a late filing, some states allow you to apply for a deferred filing at the last minute. But keep in mind that in most cases it won't extend the amount of time you pay sales tax. Even if an extension is granted, sellers may eventually be fined and fined.

If a seller accidentally delays filing and receives a fine, the seller can usually contact the state's tax authority to request an exemption from the fine. This is generally only valid when the seller first overdues. However, the result may even depend on the mood of the customer service staff on the day, so the seller should still pay attention to the declaration on time!

Key points to keep in mind when filing sales tax

1. Submit a "zero declaration". Even if you don't have any sales tax levied during the tax period, file sales tax each time you should file a claim. States consider your sales tax return to be a "check-in." If the seller does not declare, the state government may charge a fine or even revoke the seller's sales tax license. Be prepared to file your sales tax return before the deadline each time.

2. Pay attention to whether there is a sales tax discount. About half of states with sales tax allow people who file sales tax on time to keep a small portion of the sales tax they collect (usually 1-2 percent). While this amount may be small, it's free money!

➢ Always keep zero filings – Failure to do so will result in fines and even loss of sales tax licenses

➢ Determine if your state offers sales tax discounts. It's free money!