Are you doing your sales tax right? What kinds of taxes do you need to pay?
When you are new to online selling, taxes are usually the last thing on your mind. But when tax time does crop up, suddenly you begin to have a lot of questions in mind.
So here are some basic information about sales tax when you are selling online:
Taxes You Need To Collect And Pay
- Sales tax in the USA, sales tax is collected by individual states, and NOT the federal government. You will usually pay a state tax + a local district tax + in some cases, a special tax.
- Income tax to your local governing body (if you live in Australia, you’d pay it to the Australian government, if you live in the USA you’d pay it within the USA etc).
Furthermore, some states are origin based (you pay the sales tax rate based on where the item is being shipped from) and some are destination based (you pay the rate based on where the customer is based).
Destination based is tougher because the rate you collect/pay is always changing.
You will need to file a report with each state and outline how much money goes to each district, city etc. Because of all of the different district/special taxes this is a lot of paperwork.
Sales Tax Exemption
Question: How do I get sales tax waived?
If you’re eligible to have sales tax waived you’ll need to get a resale certificate/license to prove that you’re buying the items for the purposes of resale.
At the time of payment when making a purchase, the cardholder must present the card to the vendor in person. The vendor may verify the card’s validity online or by calling OFM during business hours. The vendor should retain a copy of the front and back of the card for accounting and reporting purposes.
Check this guide to see if you are eligible for sales tax exemption.
Easy Sales Tax Collection
So what is an easy way to collect sales tax? I recommend that you use an automated program like Craft Maker Pro.
For some online marketplace like Woocommerce, they have a free plugin which when connected sets up your sales tax settings for you.
For Amazon.com it connects to your account to easily create reports that makes submitting your returns easy.
If you are selling at Handmade at Amazon, I suggest that you set up their Amazon Tax Service. Here is how you do it:
- Login to your seller account.
- Click on settings and click “Tax Settings.”
- Click “View/Edit your Tax Collection and Shipping & Handling.”
- Choose how to manage your Product Tax Codes. To make it easy, you can select “Use Default Product Tax Code.”
- Specify your Tax Collection Obligations.
Drop Shipping Sales Tax
If you are selling craft supplies and other materials, you might be wondering who has to pay sales tax when drop shipping – you, the dropshipper, or both?
First, determine whether you or your drop shipper has nexus in a state. Nexus is a legal term which means that your business has a sufficient physical presence in a state that means you need to collect and pay sales tax within it.
Based on this, you’ll fit into one of 5 scenarios:
- Your customer is based in Delaware, Montana, New Hampshire or Oregon. Good news! These are some of the states that don’t have sales tax so neither you nor your supplier have any obligations to collect/pay sales tax for these customers.
- Neither you nor your supplier have nexus in your customer’s state. Neither you nor your supplier need to collect/pay sales tax on these orders.
- Your drop shipper has nexus in your customer’s state, but you don’t. Some states will require that they collect sales tax. But, if you provide them with a resale certificate/license, this sales tax can usually be waived.
- You have nexus in your customer’s state, but your drop shipper does not. You need to collect/pay sales tax on the orders, not your supplier.
- Both you and your drops hipper have nexus in your customer’s state. You’ll need to provide your supplier with a resale certificate/license. It means they can waive the sales tax on the order between the two of you, and then you’ll be required to collect it from the customer.
Check this video by Sarah, learn how to pay sales tax and how to easily collect sales tax:
So how do you find managing your sales tax? Is it easy to manage ang Etsy sales tax? If you have questions and tips regarding sales tax management, please let us know in the comments.