Managing Sales Tax Rates

Here's something many small businesses forget about in their early days—sales tax! In fact, the whole issue of sales tax is rather confusing, so here's a quick summary of your obligations.

In the U.S., local government has the right to collect sales tax on products sold within their borders, and most do; the state, city, and county can all collect tax. In some cases there are even special-district taxes; several cities may get together and start a new tax to fund, for instance, a rapid-transit system throughout the region.

The situation is further complicated by the fact that different products—and, in some states, services—have different tax rates. And some products are exempt from all sales tax, or exempt from state sales tax but not from local tax, and so on. In fact, the U.S. probably has the world's most complicated sales-tax system. Unlike European nations, that generally have a single sales-tax rate, every order your deliver potentially has a different tax rate.

This situation could change; but, quite frankly, it's not likely to change any time soon. There is no current legislative process working to change it.

However, at the current time there is one thing that makes things simpler for you. In most cases, you don't have to collect sales tax for every location to which you deliver! It all depends on what's known as nexus. If you have a nexus in a state, you must collect sales tax in that state. What, then, is a nexus? In general, nexus is a physical presence. What' that mean? Well, that depends on which state you're talking about! Different states define a nexus differently. However, in general, a nexus exists for you in a state if

• You have a store in that state.
• You have employees working in that state.
• You have some kind of office location or other property in that state.
• At some point during the year, you employ someone, in some capacity, working within that state to solicit sales—such as setting up a booth at a convention.
• You, an employee, or an agent, at some point during the year, visit a customer in that state.

If your business fits some of these conditions, you may have a nexus. If you have a store in a state, there's no need to wonder; yes, you have a nexus. But if your business occasionally visits a convention in a state... well, maybe, maybe not. In Florida, no; in California, possibly, depending on the number of days in total you have a "presence" in the state.

So how do you handle sales taxes? Here are some points to consider:

• If you think it's possible that you may have a nexus in a state, contact the state and find out if you actually do. (Contact the state's Department of Revenue or similar.)
• If you discover you do have a nexus in the state, you're going to have to find out what the sales tax rates are.
• Find out how you have to collect and remit the taxes.
• Register with the state and get a sales tax license.
• Get all the numbers, then read on and find out how to set it all up in Yahoo!.

Here's a good place to start on your hunt for state tax authorities, the Federation of Tax Administrators: http://www.taxadmin.org/fta/link/.

	Managing Sales Tax Rates This article is excerpted from How to Make Money Online with eBay, Yahoo!, and Google by Peter Kent and Jill K. Finlayson (McGraw-Hill, 2006). Used by arrangement with McGraw-Hill. Buy the book

Back to Top Email Printer Friendly View

RATE THIS ARTICLE
Rate it:

Overall Rating: Very Good