January 29, 2013

What Online Sellers Need to Know about Sales Tax

This post is brought to you by Outright.com, the alternative to Mint for business. Sign up today and let us make your tax time less taxing!

There are some concepts that make sense when you start up an online business, like the products you’re making or the service you’re providing. You understand the process of crafting a piece of jewelry or buying antiques to resell just fine.

Some things with your business, though, probably seem easy before you actually try them. For instance, sales tax seems like something that would be simple to figure out, but may be totally baffling when you sit down to actually collect and remit it. As a result, you may give up on it entirely – something you definitely shouldn’t do.

Sales Tax 101

What’s up with sales tax anyway? It’s money collected by your state and/or locality on every sale so they can pay for things like roads, schools, and public safety. Sometimes the percentage collected goes up, sometimes it goes down – but it’s almost always there.

Etsy sellers have to collect sales tax when making a sale in a state where they have “nexus.” Nexus is a fancy term for “physical presence.” So if you work solely out of New York state, then you only have to collect sales tax from buyers who are also in New York state. But if you have a contractor or employee who lives in another state, or drop ship out of a warehouse in another state, then you also have nexus in that state and have to collect sales tax from buyers in that state, too.

Sales tax  rules vary widely state by state, so check out Outright’s Sales Tax Resources for Online Sellers in Every State for information about collecting sales tax in your state.

What To Do

One of the first things you should do with your online business is to actually register it as a business! Even if you don’t think your business is actually that, if you think it qualifies more as a hobby, you should still take the time to register. Your state/county/city etc. may not consider your “hobby” as such when they hear about it!  New York state sellers must register with the Department of Taxation and Finance. (If you’re in another state, check here for how to register for a sales tax license.)

Next, and this might seem unrelated, you should open a business checking account. Many business owners try to operate their business from their personal checking account as they don’t want the hassle of separate accounts. However, this can lead to a huge issue, especially if your little “hobby” takes off and you suddenly have a ton of money to deal with.

Now that you’re all set to collect, you have to know your local governments’ laws. City, state, county – they all have different percentages they’ll want you to pay in, and you have to know them all. Here’s a guide to setting up sales tax collection on Etsy.

As for keeping track and remitting sales tax to the state, if you didn’t hire an accountant, you’ll have to fill out your state’s tax form to send it in. You’ll just make a simple payment either monthly, quarterly, or annually, depending on what your state allows.

One tip: grab a free Outright account and let us track your sales tax for you! Outright Plus accounts come with a sales tax calculator. If you have your Etsy or other marketplace accounts integrated with Outright, the program’s Taxes tab will show you just how much sales tax you’ve collected and how much you need to remit to the state.

Sales tax is one of the many small administrative hassles involved in selling on Etsy, but the more sales tax you’re remitting, the more you’re selling. So try to keep the bright side in mind the next time you tear tour hair out over filing a sales tax form!

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