I came across an inquiry about taxes from a reader of mine, and I knew it would be helpful information for other small business owners. Do all small business owners need to pay sales taxes? Yes, the majority of businesses that are sales oriented are required to pay taxes to the home state or other locations where they do business. There are only a handful of states that do not require taxes from businesses - Oregon, Alaska, New Hampshire, Delaware, Hawaii and Montana, for the rest of us, sales taxes are something worth paying close attention to.
What Items Are Exempt from Sales Tax?
There are some types of sales that are sales tax-exempt. Check to make sure yours fall into these categories if you think you don't need to pay sales tax.
- Casual sales. If you hold the occasional garage sale, you don't have to pay sales tax. But once your sales grow to the level of becoming a business (you're selling antiques every weekend at a flea market), it's time to act like a business and pay sales tax.
- Nonprofit businesses are exempt from sales tax.
- In some states, computers and accessories that you use in business operations are tax-exempt. But keep in mind: the computers must be used to manufacture finished goods to qualify. Talk to your accountant to see if yours are tax-exempt.
- Manufacturing sales. If you process a product and resell it in a different form, you're considered a manufacturer, and anything you use in the manufacturing process is tax-exempt in most states. For example: if you manufacture DVDs, the blank DVDs, labels, ink, and shrink wrap used to produce the DVDs are tax-exempt, while the packaging materials you use to ship the final products are not.
- Some services. Every state has different tax code around services, and some are not taxed. Check with your accountant to see if yours is exempt.
When is Sales Tax Due?
Most states offer you the option to pay either monthly or quarterly. Sometimes it's nicer to pay monthly so you don't have time to forget what that money sitting in your bank account is for and spend it (then you've got a bigger tax bill to pay every three months). Check with your state to see what date each month your sales tax is due. Missing that deadline could cost you a fine.
I Sell Online. Do I Pay Sales Tax?
Yes, but maybe not on all transactions. The tax laws for ecommerce are still a bit confusing, but the bottom line is: you charge sales tax for customers located in states where you have a presence. So let's say you operate out of New Jersey only. You sell your product to customers in all 50 states, but you only collect and pay sales tax for customers located in New Jersey. However, if you have your headquarters in New Jersey, a warehouse in Texas, and a call center in Arizona, then you pay sales tax on any transactions originating from any of those three states.
My Accounting Software Figures Out My Sales Tax. Isn't That Enough?
You may have tools in your toolbox as far as accounting software, to calculate your sales taxes, however it's up to you as a business owner to keep track as well. Entering something wrong could mean you will not collect enough tax from your customers, but you still need to pay your state. I would not trust wholeheartedly in technology to do the job for you, so make sure you're keeping track of the numbers yourself to avoid mistakes.
Melinda F. Emerson, SmallBizLady is America's #1 small business expert. She is an author, speaker and small business coach whose areas of expertise include small business start-up, business development and social media marketing. She writes a weekly column for the New York Times, publishes a resource blog, www.succeedasyourownboss.com which is syndicated through The Huffington Post. She also hosts a weekly talk show on Twitter called #SmallBizChat for small business owners. As a brand, she reaches 1.5 million entrepreneurs a week on the internet. As CEO of Quintessence Multimedia, Melinda develops audio, video and written content to fulfill her mission to end small business failure. Forbes Magazine named Melinda Emerson one of the #1 Woman for Entrepreneurs to follow on Twitter. Melinda has been featured on MSNBC, Fox News, NBC Nightly News, and in Fortune, The Washington Post, USA Today, Wall Street Journal and Black Enterprise. She is the bestselling author of "Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works," and the ebook How to Become a Social Media Ninja; 101 Ways to Dominate Your Competition Online.