Sales Tax Compliance Overview for Small Business Owners
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Transcript of Sales Tax Compliance Overview for Small Business Owners
© AVALARA CONFIDENTIAL & PROPRIETARY
Sales Tax Compliance Overview for Small Business Owners
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Sales Tax Overview
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Who is collecting sales tax?
Artist, Crafters, and Hobbyists
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Who is collecting sales tax?
Mobile Food Vendors
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Who is collecting sales tax?
Online Sellers
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Who is collecting sales tax?
Service
Providers
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A Pass-through Tax
As a small business owner, your responsibility is to act as an agent of the state collecting sales tax and remitting it to state
and local tax authorities.
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The NOMAD States
OregonMontana
New HampshireAlaska
Delaware
The 5 states that do not collect a state level sales tax. Alaska collects local sales tax in some locations.
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Origin: Tax rate charged on an item is based on seller’s ship-from location.
Destination: Tax rate charged on an item is based on buyer’s ship-to location.
(All states except California)
State Sourcing: Destination vs Origin
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Modified Origin: Tax rate charged on an item is based on seller’s ship-from location for state, county, and city taxes.
For district taxes, however, tax rate is based on buyer’s ship-to location.
(California only)
State Sourcing: Modified Origin
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Reasons to Care About Sales Tax
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Sales tax compliance is complicated
• Over 10,000 tax jurisdictions in the United States• Every state has different rates, filing deadlines,
exemptions, filing frequencies, etc.• Tax rates change all the time• Exempt products• Exempt individuals• Exempt organizations• Exempt materials• Sales tax vs. use tax
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Risk of penalties & interest payments
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Risk of penalties & interest payments
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Sales tax audits are real…and painful
It’s not uncommon for state Sales and Use Tax Audit Manuals to be hundred of pages long!
Unfortunately, most states offer documentation to help business owners navigate the sales tax audit process...
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The internet has expanded nexus concerns
(More to come on this later…)
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Sales Tax Exemptions
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GroupsCommonly religious groups, non-profits, and government agencies.
MaterialsRaw materials used in the in the manufacturing process of goods to be sold are frequently tax exempt.
ServicesEvery state has specific rules, but there are many services that are free from sales tax.
GoodsFor resellers, goods may be purchased tax-free as sales tax is only collected at the final point of sale.
Common Sales Tax Exemptions
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Nexus
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What is Nexus?Nexus is defined as a physical connection to a state or other tax jurisdiction.
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Common Nexus Triggers
1. Employees in a state
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Common Nexus Triggers
1. Employees in a state
2. Office in a state
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Common Nexus Triggers
1. Employees in a state
2. Office in a state
3. Inventory in a state
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Common Nexus Triggers
1. Employees in a state
2. Office in a state
3. Inventory in a state
4. Travel within the state
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Nexus Example: Single State Seller
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Nexus Example: Single State Seller
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Nexus Example: Single State Seller
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Nexus Example: Single State Seller
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Nexus Example: Single State Seller
This business owner is required to collect, file, and remit sales tax in Pennsylvania.
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Nexus Example: Multi-State Seller
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Nexus Example: Multi-State Seller
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Nexus Example: Multi-State Seller
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Nexus Example: Multi-State Seller
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Nexus Example: Multi-State Seller
This business owner is required to collect, file, and remit sales tax in Pennsylvania, Florida, Texas,
and California – but not Colorado.
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The Impact of Fulfillment ServicesAll states consider inventory stored in a warehouse in state to be grounds for sales tax nexus.
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The Sales Tax Process
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The Sales Tax Process
Determine nexus
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The Sales Tax Process
Determine nexus
Collect sales tax
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The Sales Tax Process
Determine nexus
Collect sales tax
File returns
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The Sales Tax Process
Determine nexus
Collect sales tax
File returns
Remit sales tax
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Making sales tax less taxing.
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