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Introduction to Sales Tax

 

Most states impose a tax on the production, use, or consumption of goods and services. AK, DE, MT, NH, and OR are the only states without a sales tax filing requirement. A sales tax can be imposed on the seller or the purchaser but is usually collected by the seller from the purchaser, and remitted to the state. Sales tax can be imposed both on the sales of goods and services and vary from state to state. Service sales are generally nontaxable unless otherwise stated. Tangible property sales are generally taxable unless an exemption is specified. For example, sales made to non-profit organizations or governments and sales of raw materials or machinery/equipment used in manufacturing are exempt from sales tax.

Once you have determined that your business sales are subject to sales tax then you need to determine whether you have a strong enough connection to a state, triggering a requirement to collect and remit sales tax to this state. This link or connection is called Nexus. Nexus is created if you maintain a temporary or permanent presence in the state, including employees visiting that state for business purposes, trade shows, or consigned inventory. What constitutes Nexus in a particular state is broadening now after the Supreme Court decision in June 2018 overturned the rule requiring a physical presence in a state before a sales tax requirement can be imposed. Companies with online sales may now have a filing requirement in multiple states.

The initial step is to register for a sales tax permit with the state(s) through the Department of Revenue. Most states allow you to register and file sales tax forms online. You will need your EIN and info about your business and its owners. Once you have determined you have Nexus within a state you’ll want to make sure you calculate the correct sales tax for each respective state. Fortunately, many POS systems can keep track and report the necessary information you will need for filing.  You should show the tax amount separately on receipts/invoices so customers are notified of the sales tax amount.

The difficulty of complying with sales tax requirements is increasing with the changing sales tax rules. Selling into new states, over the internet or selling new products or services can mean a new filing requirement. You should review where you currently have nexus and identify applicable state law changes. Determine whether your business may have unknowingly created nexus by engaging contract labor, attending trade shows or other nexus-creating activities. Make sure your business is registered in the states where it is required to do so.

 

Yolanda Rego, CPA, is a Tax Supervisor at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.

 
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Katz Nannis + Solomon PC
Katz Nannis + Solomon PC
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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