We put together this guide to sales tax for sellers who need a better way to manage the hassles of sales tax in their Pixafy stores.
After reading this guide, you’ll understand the basics of sales tax for online sellers, and we’ll present you with the solution for all of your sales tax troubles.
If you already now the basics and just want to cut to the chase, we hear you. Skip down to part 2 where we solve all of our sales tax problems with TaxJar!
As an online seller, you want to understand every nuance of your business. Some aspects – like sales tax – can get overwhelming quickly.
If you fall into this camp, then this quick guide is for you. The goal is to explain the basics of sales tax for new eCommerce sellers (or seasoned eCommerce sellers who have questions.)
As a Pixafy seller, you must also understand how to configure your Pixafy store to collect sales tax, all the while staying compliant with tax codes and giving your customers the fast, efficient checkout experience they’ve come to expect. TaxJar has your back on all of this.
Let’s get started:
Forty-five states in the United States levy a sales tax. Merchants in these states are required to charge sales tax to buyers.
Sales tax is considered a “pass-through” tax, because the merchant is only holding the taxes collected before remitting it to state and local taxing authorities at a set time (usually either monthly, quarterly or annually.)
State and sales tax funds are used to fund state projects and initiatives, including schools, roads, public safety departments, etc.
In the U.S., states have quite a bit of leeway with sales tax administration. Because of this, all 45 states that levy a sales tax have different rules and laws when it comes to sales tax. Sales tax rates can vary by state and locality, too.
One example of how state sales tax rules vary is that some states require you to charge sales tax on shipping charges, while others do not. Another example: some states might require you to renew your sales tax permit periodically, while others do not.
Even more confusing - some local areas may levy sales tax even in states with no statewide sales tax (such as in Alaska.)
It’s important to get in touch with your state’s taxing authority or an experienced accounting professional should you have questions about sales tax. Here’s a map with plenty of info about how to contact each state’s taxing authority.
Online sellers must collect sales tax in states or localities where they have “sales tax nexus.”
While all states have a slightly different definition of this term, sales tax nexus is generally defined as “presence” in a state. This presence must be significant enough so that a business has to comply with the state’s sales tax law
Presence can include – but is not limited to – an office, an employee or a warehouse.
If you have sales tax nexus in a state that requires sales tax collection, then you are If you have sales tax nexus in a state that requires sales tax collection, then you’re required to collect sales tax from all buyers in that state regardless of where the item is shipped from.
If you do not have sales tax nexus in a state, then you’re not required to collect sales tax when you sell online to buyers in that state (regardless from where the item is shipped).
3 Common Examples of Sales Tax nexus
Example #3 can be especially cumbersome for 3rd party sellers, whose inventory may be stored in states other than their home state. Third-party selling, and the associated sales tax registration and filings required, can create a huge administrative burden on unsuspecting eCommerce merchants.
Once you’ve determined where you have sales tax nexus, you’re required to do two things:
Every eCommerce business owner wants their business to grow and thrive. Growth can’t be achieved if you have to manually calculate how much sales tax to collect every time you make a sale. That’s why most online sales platforms must include a sales tax component. One of Pixafy’s sales tax components is a plugin powered by TaxJar. We’ll get to that in part 2.
A note on sales tax rates: States set a rate, and then localities can add a percentage on top of those rates. For example, in the 90210 zip code, the tax rate is the 6.5% California statewide rate, a 1% Los Angeles County rate, and an additional 1.5% local rate, for a total of 9.0% sales tax rate.
Do you sell on other platforms, too? Along with this guide to Pixafy that you’re reading now, we’ve put together several channel-specific guides to collecting sales tax. Visit TaxJar’s education center for more information.
Why did we have to put these guides together? Because, unfortunately, collecting sales tax via various online platforms is rarely simple. This is especially true if you collect sales tax at multiple rates, such as is the case for sellers in destination-based states. This is why TaxJar for Pixafy sellers is so useful. Click here for more about how we can help.
We always caution that you check and double check the sales tax rates that you are charging your customers
Origin-Based Sales Tax States and Destination-Based Sales Tax States
When it comes to determining tax rates, most states fall into one of two major buckets: “origin-based” sales tax states and “destination-based” sales tax states.
In layperson’s terms, this means that some states require you to collect sales tax at the rate effective at the point of “origin” (i.e. your office or warehouse) while most states require you to collect sales tax at the rate of the “destination” (your buyer’s address.)
Origin vs. Destination-Based Sales Tax Examples
Let’s say you live in (or have a warehouse or office in) Irving, Texas, but sell to someone in Archer City. Texas is an origin-based sales tax state, so you would charge any buyer in the state of Texas your home rate of 8.25%. (That’s Texas’s statewide 6.25% rate plus Irvin County’s 1.0% plus a local Dallas MTA rate of 1.00%.) You don’t need to take your buyer’s address in Archer City into account.
But if you live in Stamford, New York the rules are different. Since New York is a destination-based sales tax state, you’re required to collect sales tax at the effective rate at your buyer’s address. So if you operate your business in Stamford and sell to a buyer in Buffalo, then you are required to charge the seller 8.75% sales tax – the total sales tax rate at their locality in Buffalo. (That’s a New York state base rate of 4.0% plus the Erie County rate of 4.75%]
For more information, see this map of Origin vs. Destination Sales Tax Collection in the United States.
We know that some online sellers also sell offline at brick and mortar stores, trade shows, craft fairs, etc. If you find yourself in a situation where you need to lookup a local sales tax rate, check out TaxJar’s Sales Tax Calculator as a quick reference.
Once you have determined your sales tax rate and collected sales tax from buyers, you then have to remit the funds you collected to your state(s). (Remember, sale tax is a passthrough tax and you don’t get to keep it!)
If you’re concerned that you haven’t collected the right amount of sales tax from buyers, TaxJar has a “Detailed Sales Tax Analysis” report that will help. We’ll search your channels and make sure you collected every penny of sales tax you were supposed to collect.
Why is this so important? Sometimes your state can decide to perform a sales tax audit on your business. We’ve heard from many sellers that these audits are more arduous than IRS audits. This is just another reason why it’s so important to get a handle on sales tax early – before the state gets a handle on you!
A state’s taxing authority is generally called the “[State] Department of Revenue” though it can go by other names. (For example, California’s taxing authority is the “California Board of Equalization.”)
When you apply for your sales tax permit with your state’s taxing authority, they will assign you a frequency at which to file and remit sales tax. This is generally monthly, quarterly or annually, and often depends on your sales volume or the volume of sales tax you collect
Most states require that you file a sales tax report even if you do not owe sales tax. If you do not file, you could be subject to penalties. Pay close attention to instructions you receive your sales tax permit.
Sales Tax Filing Due Dates
Be warned that while many states set their sales tax due date as the 20th of the month, states can vary wildly in their sales tax due dates. If you are a quarterly payer, be sure you are aware of which date your state considers a “quarterly” due date. Sales tax filing due dates can vary to a surprising degree.
How to File Sales Tax Returns
As with sales tax rules, every state has slightly different requirements for filing sales tax returns. For more details on how to file in each state refer to state sales tax info.
Most states allow you to file and pay online, and some even require it.
Be warned that some states are harsh taskmasters (usually ones that are destination-based for tax collection like Washington), and require you to report how much sales tax you collected in every single sales tax district. Some states have hundreds of sales tax districts, so this can easily turn into a nightmare – especially if you’re filing in multiple states at a time.
TaxJar has you covered here, too. After you connect your eCommerce accounts to TaxJar, we’ll subtotal your sales and sales tax collected by state, and country, city and special tax when it’s required. With TaxJar, you don’t have to deal with spreadsheets or sales tax tables to try and determine how much sales tax you collected from each zip code.
TaxJar makes filing sales tax in destination-based states like Washington dead simple.
To be sales tax compliant as an online seller you must:
Now for the nuts and bolts. How can you manage the hassle of sales tax in your Pixafy store?
Easy! With the TaxJar app for Pixafy.
The TaxJar Sales Tax app for Pixafy features:
How do we do it?
TaxJar takes the following input from your store:
And returns an accurate sales tax rate (including state, county, city, special tax) based on:
Based on that information, TaxJar for Pixafy also automatically determines:
Once your TaxJar for Pixafy app has calculated how much sales tax you should collect from customers and you’ve enabled TaxJar, you can login to your account at TaxJar.com and enjoy all of the reporting features we provide.
Ready to get started?
Sales tax rates change, so we update them monthly!
You can go here to find out more about setting up your sales tax in Pixafy.