As a small business owner, you are not the only one who has broken glass or a cup over sales taxes. The incredibly confusing and complex nature of filing sales tax means that you are not the only business owner or entrepreneur who has screwed up this aspect of their business.
With ever-changing laws and differences among the states regarding sales taxes, calculating and depositing the same can be a daunting experience. However, failure to comply with the same can also result in heavy penalties and sometimes serious legal issues.
So what are you supposed to do as a business? Shut down shop or choose to work and find a solution to navigating the murky waters of sales taxes. In this article, we will look at how businesses can effectively pay sales taxes.
Where should your Sales Tax Journey start from?
The first thing that every business needs to do is register with the requisite authorities of the state government for getting a sales tax permit. In most cases, you can either physically go to the offices of the Revenue Department or the website of the taxing authority of the state.
You need to register your business entity and request for a Permit. It is this permit, which will allow you to collect and report the sales taxes from your business. It is essential that you get the permit first before starting any business in the concerned state.
The Sales Tax Permit form also has a section where you need to submit the details of FEIN (Federal Employer Identification Number). Make sure to have all these details available before you file for the permit.
Find out about the Rate of Sales Taxes in the Different States
As we have already mentioned before, sales tax rates and slabs differ from state to state. This means that if you have a business presence in ten states, you will need to collect ten different types of sales tax.
However, what is complex is the fact that the individual breakup of sales tax of different products and services also differs from one state to another. This coupled with the earlier differences between states makes the entire process much more confusing.
However, small businesses can calculate state taxes by visiting the state website for the revenue department or the taxation agency. They give you a complete idea regarding the rates, timelines, and individual product breakups and so on.
You also need to figure out whether all the products and services are taxable or not. In other states, while some states may levy sales taxes on some products, other states might not do so. This is why sales tax filing should be left to seasoned professionals and experts.
How to Start Collecting Sales Taxes
Once you are done with the above formalities, you need to start the collection process itself. At this stage, you need to ensure that your POS machine, cash registers and other invoice or billing software and tools are synchronized with the rates of the sales tax.
States have a rule where you need to show the amount of sales tax, which is being collected to the consumer. However, most of the latest POS machines are configured to give out this piece of information in the bill itself.
Many financial experts suggest that all the sales tax collections should be maintained in a separate bank account. This allows for proper collection and deposition of the same with the government authorities. It is also suggested that the business owner control all access to this bank account to prevent theft or fraud.
The Final Word
While sales taxes continue to be a rather confusing area of business, they are nevertheless essential for a business. Without the sales tax, you cannot function or run your business. If you want any more information on sales taxes, let us know in the comments section below.