Sales tax can be confusing. And for many good reasons! At TaxJar we live and breathe sales tax, and today – in advance of July’s “sales tax perfect storm” we wanted to take a few minutes and debunk some of the most common myths that swirl around sales tax. Let’s take a look:
Myth #1: Online Sales Aren’t Taxable
We see many versions of this myth, including “I sell from my garage, so I shouldn’t have to charge sales tax.” In reality, online sales are treated just like any other retail sale. The only difference is that they are made through an online medium and shipped to the customer rather than purchased at a brick and mortar store. If you live in (or have sales tax nexus in) a state that has a sales tax and you sell taxable products, then the law requires that you register for a sales tax permit in that state and charge sales tax to your online buyers in that state.
Myth #2: I Don’t Have to Collect Until There’s a Federal Sales Tax
This myth goes hand-in-hand with myth #1. Many new sellers read in the news that the federal “internet sales tax” issues is undecided, and think this means that they don’t yet have to collect sales tax. But the truth is that sales tax is governed at the state level. Forty-five states and D.C. all have a sales tax, and they are each in charge of making all the rules and laws regarding sales tax in their state. You can read what each state has to say about sales tax here.
Myth #3: I Paid Sales Tax When I Bought an Item, so I Don’t Need to Charge Sales Tax when I Sell that Item
This myth is based on the fallacy that sales tax only needs to be paid on an item once. In fact, sales tax is charged on the “sale” not the particular item. So every time an item is sold at retail, the seller is on the hook to charge sales tax.
Now that said, if you are a seller and you are sourcing items for resale, you can avoid paying sales tax by using a resale certificate when making a purchase of an item you intend to resale. Even in cases where the retailer won’t accept your resale certificate, you can often apply for a sales tax refund from the state taxing authority. Just don’t fail to charge sales tax on the item because you paid sales tax when you bought it!
Myth #4: I Didn’t Collect any Sales Tax this Period, So I Don’t Need to Bother to File a Sales Tax Return
This is one of those myths that get busted the hard way. If you are registered for a sales tax permit in a state, you should always file a sales tax return in that state when your due date rolls around, even if you didn’t collect any sales tax. Failing to file this “zero return” can result in everything from a fine (of up to $50!) to having your sales tax permit revoked.
Always file a sales tax return, even if you have nothing to report. Think of it as a “check in” with the state to avoid problems.
Myth #5: Dealing with Sales Tax is Incredibly Hard
After reading the rest of this post, you may be thinking “Are you sure that’s a myth? This stuff is complicated!” But really, just like any other business administrative task – like accounting or doing inventory – sales tax gets easier once you learn it. It may seem a little daunting at first, but with a bit of education, it becomes just another checkmark on your to do list. To demystify sales tax, we recommend checking out our free Sales Tax 101 for Online Sellers guide.
Do you have questions or comments about sales tax myths? How about a myth of your own to share? (Or bust?) Start the conversation in the comments!