Do Sales Taxes for Online Sales Affect You?
By Kristen D. Berdar
MANUFACTURING, RETAIL & DISTRIBUTION
VIRTUAL ACCOUNTING SOLUTIONS
During the Covid-19 pandemic, many businesses began selling online. These businesses need to be aware of the latest sales tax laws, which differ between states.
During the Covid-19 pandemic, many businesses began, or greatly increased, their online sales. Pivoting to online sales kept many small businesses afloat. But it also has created a situation where, for the first time, your business might be facing the complicated sales tax rules that exist for online transactions with customers in other states.
Here’s what you need to know about online sales taxes.
You can’t ignore online sales taxes
Small business owners have to be prepared and knowledgeable about their online sales tax obligations. Mistakes in reporting or remitting sales taxes, or a failure to pay them on time can result in costly penalties or even criminal charges.
Rules and regulations vary
Just a few years ago, sellers only had to remit sales tax if an online purchase was made by a buyer in the same state. But that changed in 2018, when the U.S. Supreme Court ruled that state and local governments could collect sales taxes from online purchases regardless of where the seller is located.
As you’d imagine, that led states and localities to institute their own rules and regulations for collecting online sales taxes. Fast-forward to 2021, and you’ll find different policies in different states, and the laws keep changing. For example, in 2021, Florida became the latest state to require out-of-state online retailers to collect sales taxes on purchases made by Floridians.
Small businesses are not always exempt
If your online sales went up during the pandemic, you need to be especially concerned with sales tax laws.
Many states give a break to businesses with less than $100,000 in sales, or a certain number of transactions, but you’ll need to look into the specific rules in every state where you did business. Some states determine exemptions based on a sales threshold, but that could mean gross sales, gross revenues, retail sales, or taxable sales—it all depends on the state.
As an example of the trouble some businesses are facing, consider a clothing retailer that increased its online sales to over $100,000 to customers in Colorado. If their online ordering system didn’t charge customers Colorado’s sales tax rate for all those transactions, the business could soon face an unwelcome bill.
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BST offers a broad portfolio of accounting and auditing, tax, consulting, and wealth management services, as well as valuation, forensic accounting, and litigation support. Our business tax services include preparing federal and state returns and ensuring full compliance with local and multi-state tax laws.