When you think “tax day” your mind may automatically leap to April 15th. But the first big tax day of the year actually rolls up much sooner – in January. January is what we like to call a “Sales Tax Perfect Storm” because nearly every online brand and retailer – no matter how large or tiny – will have a sales tax filing due date.
Why? First, you need to know a little background on sales tax.
Why do most product sellers file sales tax returns in January?
There’s no national sales tax in the U.S. Instead, every state is allowed to decide whether or not they want to require merchants to collect sales tax, and forty-five states and D.C. do.
However states, are allowed to set their own sales tax laws and regulations, including sales tax rates, what items are and are not taxable, and sales tax due dates and filing frequencies.
As an online brand or retailer, your sales tax filing frequency is generally based on your sales volume in a state. If you’re a mega-high-volume seller, you may be required to pay monthly. If you’re new, or a hobbyist, you may only be required to file and pay annually.
And that annual filing due date falls in – you guessed it – January! Hence the “Sales Tax Perfect Storm.”
Sales tax can get a bit complex, so check out the 5 Basics of Sales Tax Retailers Need to Know if you’re just starting out.
Tips to Conquer Your January Sales Tax Filing
- Know Your Sales Tax Due Dates – Like I mentioned above, every state is different. So your first step is to make sure you know when your sales tax filing is due. These dates generally fall between the 15th and the last day of the month. You can see a list of January 2017 sales tax filing due dates here
- Automate Your Sales Tax Reporting and Filing – The most time-consuming part of sales tax filing is figuring out how much to actually put in each box on your state return. The vast majority of states want to know how much you collected from buyers in each county, city and other special taxing district within the state, which can add up to hundreds of districts and hundreds of little boxes to fill in. Use a sales tax automation solution to make this much simpler!
- Automate Your Sales Tax Filing – If you’re far too busy to handle January sales tax returns at all, use a solution like AutoFile to have your sales tax filed for you. All you have to do is enroll and make sure you have enough money in the bank to cover your sales tax bill and you’re all set!
- Always File a Return – Maybe you didn’t make a single sale over the filing period and don’t owe any sales tax. Even if this is the case, file a “zero return” to let the state know you’re still in business. Failing to file this “check in” could result in anything from a fine to having your sales tax permit removed.
- Take Advantage of Discounts – On the brighter side, about half the states with a sales tax realize that asking online brands and retailers and other retailers to act as tax collector is burdensome. So they’ll allow you to keep a very small percentage of the sales tax you collect. While this amount may be only 1-3% of the tax you’ve collected and is usually capped at a certain amount, it’s still free money and you should take advantage of it!
I hope these tips have helped you weather January’s sales tax storm – whether you collect sales tax in one state or twenty! For more about sales tax, check out our Sales Tax 101 for Online Sellers guide or join more than 6k online brands and retailers and accountants in our Sales Tax for eCommerce Sellers Facebook Group.
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