Small businesses must collect, calculate, record, and pay sales tax on time. The already complex process has become more complicated due to the sudden bump in online sales. Local and state tax departments follow their tax regulations, rates, schedules, and exemptions. Keeping up with them is always challenging. The Small Business Administration receives most inquiries around sales tax from small companies in different counties. Do you struggle to pay sales tax on time? A business owner doesn’t pay this tax from his pocket. However, it’s his responsibility to collect and remit it to the respective government authorities.
Things to do to pay sales tax
Companies charge and collect sales tax from customers on the sale of products or services. This process needs a diligent approach to comply with the sales tax laws. One must know their tax collection duties, secure a relevant state permit, ascertain an appropriate sales tax rate, collect the amount from customers during the sale, record it in the accounting books, and report and pay the tax to their state on time. Almost all online and brick-and-mortar stores must navigate this time-consuming path without leaving scope for errors. Otherwise, interest and penalties are charged. You can avoid these risks and save time by assigning this task to a reputable bookkeeping service provider. They can handle your company’s sales tax payment responsibility hassle-free. Check Soundadvicebookkeeping.com once.
However, it will help to know what each step entails for a clear understanding. Here is a brief account of this.
Sales tax collection duty
Tax collection and remittance can be manageable if you know your state’s sales tax rules, the relevance of sales tax nexus, and products and services that involve sales tax. Many American states like Oregon, Montana, and others don’t have any sales tax laws. Alaska has only local sales tax regulations. Businesses with a sales tax nexus in a specific location must also collect sales tax. Interestingly, not all products or services require sales tax from their customers to be charged. Those doing resale may also be exempt from this.
Sales tax permit
Businesses need to get a sales tax permit before selling anything. You can obtain this permit through email or online. Keep your seller permit number safe, as you need it during sales tax reporting and remittance.
Sales tax rate
Rates can vary from one state to another. Sales tax collectors must know what amount they can charge from their customers in a particular state or county. You can check official state websites for knowledge regarding this. Some products or services don’t fall under the sales tax rules. Please check them, too.
Tax collection from customers during a sale
Calculate the tax amount a customer should pay when purchasing a taxable item. You can determine the figure by multiplying the taxable item’s price by the sales tax rate. Mention the amount on the invoice or receipt separately.
Sales tax record
The collected sales tax amount should be kept aside until the remittance date. You can control this by maintaining a proper record. Create different rows, such as date, account, notes, debit, and credit. Under account, you can mention cash, sales revenue, and sales tax payable. Sales tax payable refers to the collected amount that is to be paid.
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Finally, a small business pays the sales tax to the state or local government through credit card, debit card, or online. Not filing or paying sales tax on time can result in 1% – 30% of penalties.
