Some Sales Tax Basics

Do you have to collect and pay sales tax? If you offer products for sale, you may have a good idea about when you do or do not need to charge sales tax, but how much do you truly understand about sales tax? It’s not a simple topic anymore. If your company is service-based, you may think sales tax doesn’t apply to services, but there are taxable services, and some of your offerings may be taxable while others are not.

This blog provides some basic information about sales tax, but it does not provide specific tax guidance or advice for your company. It is intended to help you better understand the complexities of the topic. Sales tax is not a simple checklist topic, yet it can have a major impact on your business, and your profitability, as failure to collect and pay sales tax, or file a return on time, is subject to fines and penalties.

Here are a few sales tax facts that show how complex the topic can be:

  • Sales tax rates, payment options, return due dates and taxable items vary by state.
  • You must collect and pay sales tax in any state where you have tax nexus.
  • If you are required to collect sales tax, you are liable for the payment of it even if you don’t collect it.
  • If a buyer purchases a taxable item and the seller fails to collect the tax at the time of purchase, the buyer is responsible for the payment of the tax.
  • If a seller collects a sales tax but does not collect enough, the buyer must pay the difference.
  • Services and even digital goods can be taxable. For example, in New Jersey, the following are all taxable:
    • Janitorial services
    • Automobiles,
    • Furniture is taxable, but interior design services are not
    • Carpeting
    • Meals bought in restaurants
    • Lawn maintenance
    • Snow removal
    • Auto repair
    • Telecommunications services
    • Canned software and customized canned software, but not custom software
  • If your sales are seasonal, or occasional sales at events such as a flea market or craft show, you are still subject to sales tax filings and submissions throughout the year, even if you had no taxable sales in that period.

As I said earlier, sales tax is a complex topic, and every state has its own rules and guidelines. You may even be subject to paying sales tax if the sale is determined to be made in a different state, or the buyer is from a different state. Internet sales are examples of when that may happen. This list is not complete, and it’s not intended as advice. It’s just some information to get you thinking more broadly about your business and its growth.

The business is responsible for determining when you need to collect sales tax and when to submit your returns and payments, but even if you did not realize that an item you sell is subject to sales tax and did not collect the tax from a customer, you are still liable for payment of the tax.

Want more information on how sales tax can affect your business? We can help.