Carolyn Kaatz
Carolyn Kaatz, CPA
Carolyn Kaatz
,
CPA
Carolyn Kaatz, CPA
How Do You Know If You Owe Sales Tax?

How Do You Know If You Owe Sales Tax?

If you have a business that sells goods or services, you need to be aware of your potential sales tax requirements. They may be more complicated than you think. Sales tax should be collected from the buyers during the sale and then remitted to the state. Sales tax reports will later need to be filed with the state to balance what you should have collected and what you actually collected. The process can be tedious but is not especially difficult. The true challenge is figuring out how much sales taxes need to be collected for which states.

Under the old laws, the process of determining what states a business need to pay sales tax to was much simpler. It was called the physical presence test. A business was not required to withhold sales tax for a state that the business was not physically located in. While this made trade shows more difficult, overall, it was simpler for businesses. However, this rule was changed in 2018 after the determination of South Dakota v. Wayfair. Online retailers were able to sell significant amounts of goods without charging sales tax since they were not present in the state. The courts determined that this was an unfair advantage. The new law stated that a business had to charge sales tax for South Dakota if the business made 200 separate transactions or sold more than $100,000 in sales of goods. Many states created similar restrictions, but the limits are set by each state individually. This means that a business would need to research the limit of each state they sell to in order to see if they meet the requirements for charging sales tax.

Unfortunately, it does not get any easier from there. Some locations charge a local sales tax as well as a state sales tax. The rate of sales tax charged can be set at the state level or at the local level. The rate can be based on the buyer’s location or the seller’s location if they have physical presence in the state. According to a survey by Accounting Today completed in 2021, midsized businesses typically spend 163 hours per month on sales tax compliance. It can be very time consuming to remain compliant and many businesses are choosing to seek expert help to assist them. If this is something you are interested in, give us a call at (210) 829-1300 to learn more about your options.


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