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Finance Forward Blog

Understanding Sales Tax for Small Businesses

For a small business, sales tax is an important payment that must be calculated after summing up total revenue. It sounds simple, but calculating and paying sales tax is an accounting task that can quickly get complicated.

If you own a small business, the first question you are likely to ask is whether you need to charge sales tax. With many small businesses across the country dabbling in eCommerce, calculating sales tax has become more complicated.

In this blog, we’ll help you define what sales tax is. Furthermore, we’ll show you whether or not you need to pay sales tax and how our team at J. Hall & Company can come into play.

What Is Sales Tax?

Customers are the ones responsible for paying sales tax. However, for a small business, it is the job of the owner to collect, remit, and report sales tax numbers following revenue calculations.

In essence, you must collect sales tax at the point of purchase. Most businesses do this by factoring it into the total amount the customers have to pay.

Should I Pay Sales Tax?

Depending on the state, as long as you run a small business, you have to pay sales tax. In the USA, about 45 states mandate the payment of sales tax.

If your business deals in the sales of physical goods, you have to charge your customers’ sales tax. Typically, one of the team members at J. Hall & Company can help you with collating and deciding what physical goods you have to pay sales tax on.

In most states, sales tax is charged on the following:

  • Furniture
  • Computers
  • Vehicles
  • Toys
  • Electronics
  • Books
  • Lumber
  • Gardening Items
  • Property

With a quick check at your state department’s website, you may find a list of physical goods that do not need a sales tax. Some standard exceptions include:

  • Prescription Drugs
  • Food Items from Grocery Stores
  • Raw Materials
  • Software

Sales Tax on Services

Compared to physical products, services are less likely to be taxed. However, if your small business performs a service in connection with the purchase of physical properties such as printing and cargo delivery, you may have to pay a sales tax.

Services that can expect an exemption from sales tax include:

  • Dentists
  • Doctors
  • Attorneys
  • Charitable Organization

How Much Should I Collect for Sales Tax?

In most US states, sales tax rates can change often. This is why the experience of accountants at J. Hall & Company is important during the Sales Tax process. They can help you keep tabs on changes in sales tax rates and ensure you are charging your customers for sales tax payments.

Sometimes, sales tax may be a function of the state your customer resides in if economic nexus is met. If your small business makes revenue in the original state of the goods and services, then sales tax rates will be a function of that state.

But, if you ship products to customers in other states, then the accounting department will charge sales tax based on rates in the destination state.

Keeping tab of all of these changes can be tricky. Instead, you can choose to hire a third-party service to handle sales tax calculations and payments for you. Pay your taxes and stay on the right side of the Comptroller.

Don’t hesitate to reach out to the team at J. Hall & Company for help!