Running into a tax regulation you don’t understand could cost you your entire business, so do not even think about doing this without professional advice.
To get started, there is no way around understanding nexus thresholds. You also need to be certain that you can register sales tax permits and keep up with tax treaties. Staying informed and compliant is difficult because the regulations change all the time, so make sure you are working with someone who knows what they are doing.
Understand Economic Nexus Thresholds
Sticking to sales tax laws can be a full-time job for ecommerce entrepreneurs. With more businesses relying on online commerce every day, it’s understandable why many states are running out of patience.
This is why they have been enforcing economic nexus laws that target remote sellers. If enforced on you, these laws will require minimum revenue or transaction thresholds by which point remote sellers must collect and remit taxes in their home states.
Although every state has different rules regarding thresholds, most use $100,000 in sales or 200 transactions as a measure to establish economic nexus. If your business gets to that point in most places, then you will also need to register with your local sales tax authority – if not then penalties might be the least of your worries.
Register for Sales Tax Permits
Can I just say how much worse this would have been if I didn’t tell you?
No matter how big your e-commerce operation becomes; please always prioritize sales tax compliance. The rules around selling taxable products keep changing all the time and it would save everyone a lot of trouble if we all stayed on top of those changes together.
It should go without saying that each jurisdiction has its own requirements when it comes to registration details (I’m sorry but I had nothing else), but New York requires sellers who regularly sell taxable products into or deliver services within their state to acquire a sales tax permit. The emergency regulation also mandates online sellers to collect and remit sales taxes owed from customers in New York if their sales or transaction volume meets certain thresholds. Many states are working on marketplace facilitator laws that will drop transaction thresholds, so it’s essential for your success that you keep track of these changes.
Automate Sales Tax Collection
There will be times where you are not sure which rate to charge.
For example, if you use multiple supply chain mechanisms, then finding the proper tax rate could be beyond challenging. Automated systems do not have this problem because they take all the complexities and changes into account – ensuring 100% compliance with state and local sales tax regulations.
Manual labor tends to lead to financial penalties and customer dissatisfaction (I’m sorry but this is just a fact), so by automating things here you are saving yourself time and expenses down the line.
Set Up Accurate Reporting and Remittance Systems
Keeping up with state sales tax laws can be overwhelming for startups. To avoid noncompliance and reduce penalties and interest, startups should implement accurate automated systems to register in each state where they have economic nexus as soon as they establish economic nexus and collect and remit sales taxes in an automated fashion. Doing this protects them against non-compliance and potentially expensive penalties and interest fees.
A good system can also help meet reporting requirements by ensuring sales tax returns and payments are on time while helping to uncover any potential issues such as missed revenue or overselling that might exist within your business.
It is also important for businesses to adopt a good strategy for sales tax compliance if they want to stick to economic nexus thresholds in 2024. Creative Advising’s expert guidance will help you navigate the tough world of sales tax regulations so that you can optimize your market presence, grow faster, and stay competitive in today’s ecommerce environment.
