Sales tax, particularly in the wake of the Supreme Court’s recent decision in the case of South Dakota v. Wayfair Inc. can be a very confusing subject. While it may be some time before that decision has an impact, understanding its potential effects could be useful for almost any business owner. Until the full implications of the new ruling become apparent, a simple understanding of why sales tax is required and how it works can also be very helpful.
What is sales tax?
Sales tax is a retail point of purchase tax imposed by many states and cities and paid by a purchaser when a sale is made. Some states and cities do not have a sales tax. Most do. Business owners, by law, are required to collect the sales tax and remit it to the proper organizations within the states and cities in which they are required to collect the tax.
How do you know if you’re required to collect sales tax in a particular state?
Currently, businesses are required to collect sales tax on all orders coming from states where they have a physical presence, an office, a factory etc. For EnMart, for instance, that means we are currently required to charge sales tax in Michigan, Georgia, Nevada, California, Illinois and New Jersey. With the advent of South Dakota v. Wayfair Inc. this requirement may change or expand.
What do you do with the tax once it’s collected?
Those requirements will vary by state. Some states require submission of sales tax payments every month. Others may require a quarterly submission. Check with your state and local tax collection authorities to find the schedules and forms for the states in which you have to pay tax.
Is there any way to be made exempt from paying sales tax?
The methods of sales tax exemption will vary by state. Many states offer the option of a sales tax exemption form or certificate which must be completed by the purchaser and submitted to each company from which they purchase. Companies must have the completed form for each customer who is not being charged sales tax on file in order for the exemption to be legal. Links to the sales tax exemption forms for the six states in which EnMart charges sales tax are on our Policies page.
What if I send resale certificate or other tax paperwork?
In order to make a purchaser exempt, the seller must have the completed sales tax exemption form designated by the collecting state on file. In the event of an audit, those specific forms would need to be produced, so no other forms will do.
So, once the completed form is on file, I’m exempt?
Most e-commerce software programs now have an option to set customer account status to exempt them from sales tax. So, in general, yes, once the completed form is on file, your account should then be set to exempt status and no sales tax will be charged.