Online Sales Tax: What Is It, & How to Register?

Online Sales Tax – this phrase concerns a convenience store owner more than someone coming to the convenience store.

Small convenience stores or business owners often need clarification to include their tax liabilities in their transactions and comply with different federal and state tax regulations.

When their customers make any purchase, they are liable to include the sales taxes on the transactions made. This becomes even more difficult for eCommerce business owners who are selling to people from different states. The problem arises when they have to deal with different customers from different states that either have a sales tax or do not.

Handling taxes on online purchases is more difficult than it seems. But it does not have to be that difficult. All you need to know is how online sales taxes work and sales taxes in your state. Keep reading this article to clear up your confusion regarding the same.

What Are Sales Taxes?

As a business owner, it is your liability to know what sales taxes are and how they work for different transactions associated with your business. Simply put, sales taxes are tax liabilities for buyers on purchases like grocery shopping.

However, sales taxes differ from one state to the other. There are specific purchases that are subjected to a sales tax, and there are specific ones that are not. Also, some states have sales taxes, and some states do not.

The sales tax gets applied to the final amount of a purchase. Also, for brick-and-mortar businesses, sales taxes are simple to charge to the customers. Sellers can apply sales tax to customers who are coming to their store. But it gets complicated when the sales tax is charged on online purchases. Keep reading to learn how online sales taxes are any different from just sales taxes.

What Is Online Sales Tax?

It is a general conception that people have to pay sales taxes when they are buying something at a convenience store or something. Especially when they live in a state where businesses have to collect sales tax, buyers have to pay a sales tax for their transactions.

However, certain online purchases also involve the payment of sales tax. These taxes are the online sales tax. In simple words, sales taxes charged on the online purchases someone makes are the online sales tax.

If you are doing business online, it is a liability to know when to collect online sales tax and when you should not. It is important to understand the different online sales that require employees to pay sales tax and the ones that do not.

Rules Of Online Sales Tax

All the confusion should be clear once you understand the rules related to sales tax and how they work. Here are different rules that an online business owner needs to know about online sales tax –

Firstly, if the online business has a headquarter or a store in a certain location, then it can charge online sales taxes to the purchasers who live in that state.

Secondly, a business can charge consumers with online sales taxes only if the state they are purchasing has sales taxes. But, if the seller with an eCommerce store has a brick-and-mortar store/headquarters in a state with no sales taxes, then they do not have to worry about charging online sales taxes either.

Here are states that do not have sales taxes –

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

If you are selling online in any of these states, then you need not apply online sales taxes to your B2C transactions. However, if you have a store location outside any of these states, online sales taxes apply to customers purchasing in those states.

Steps To Meet Online Sales Tax Requirements

It is important to know how online sales tax works, when to collect them, and how to collect them and report them to the employer.

Go through the different steps of meeting online sales tax requirements –

Register For an Online Sales Tax Permit

First, you need to register for an online sales tax permit. It is essential to apply for an online sales tax permit in the nexus state or in the state where they have sales tax obligations and also where you have your physical store location.

If the nexus state does not have a sales tax obligation, then there is no need to worry about collecting online sale taxes. Also, it is pretty simple to register for sales tax permits. Here are the steps –

• First, contact the State Department of Revenue.
• Provide them with the necessary information (EIN) related to your business and its activities.
• Look for the “Sales and Use Tax” section on the web.
• Click on the link to register the business.

Also, please know that collecting sales tax without a proper online sales tax permit is illegal. You will also receive state issues filing frequency for the sales tax. This should outline how often you need to file your online sales taxes.

Collect Sales Tax

Now that you have a permit for collecting sales taxes, you are ready to collect sales taxes. You need to set up your carts and the online stores in a way to automatically collect sales taxes on purchases that are eligible for sales taxes. According to the rules, you must also avoid sales that do not come under online sales tax obligations.

Also, the sales tax collection process differs based on the different online sales services you use. Some have a calculator that estimates the amount you need to collect. But some online sales services have limited options for calculation and collection.

Filing Online Sales Taxes

When you have collected the sales taxes, the next part of the process is filing the taxes. Usually, online sales taxes are filed monthly. The frequency of sales tax filing should be noted in your online tax permit.

This is also a more complex part than the previous ones. If your business has multiple nexus states with physical locations, you need to report taxes in each of the states, countries, and cities. There are also additional filing jurisdictions in some states, making the process even more complicated.

Bottom Line

Despite being one of the easiest and most lucrative options, online businesses have some complexities. Online sales taxes is one of them. But it is certainly not something you cannot handle by knowing a little more about it. Once you have given this article a throughout read, you will have a clear understanding of the same.

I hope that this article was helpful. If you have any feedback about the same, you can take it to the comment section.

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