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March 2023 Client Profile

Elena sells her knitted scarves and blankets online through third-party sites like Etsy and eBay. She is considering launching her own website to sell directly to the consumer. She’s wondering if she needs to collect sales tax from her customers.

She won’t need to worry about collecting and paying sales tax on marketplaces like Etsy and eBay because these sites generally handle sales tax for all orders and will collect and pay the tax to each state on her behalf.

However, when Elena begins selling on her website, she’ll be responsible for all sales tax matters. Sales tax laws vary from state to state and city to city. She may want to become familiar with the economic nexus rules. But these rules can be confusing.

Speaking with her tax professional and using e-commerce software tools like Shopify will be necessary to help ensure she doesn’t miss anything.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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Sales Tax Basics for Small Businesses

Sales tax can be intimidating for entrepreneurs. Rules differ in each state, county and city, but some basics are universal.

WHAT’S TAXABLE

Generally, if you sell a tangible product, you’ll be required to collect sales tax from buyers. But some states also impose sales tax on services.

PERMIT REQUIRED

If you’re required to collect sales tax in your state, you’ll need a sales tax permit. Once you receive the permit, the state will assign to you a filing due date and frequency, which is generally determined by your annual revenue and can be monthly, quarterly, or annually. Keep in mind if your company operates in more than one state, you may need to apply for multiple state sales tax permits.

COLLECTION

Be sure to collect tax on all sales, regardless of the source. You’ll need to collect tax on sales in brick-and-mortar stores, online, or through Amazon’s marketplace. And in most states, even if you had no sales for a period, you’ll still need to file a sales tax report for the period or risk paying a fine or having your sales tax permit revoked.