Sales tax can be challenging for small business owners to stay on top of. Not only do they need to understand where they have nexus, but they also have to register to collect the tax. Only after doing this can they begin collecting it from their customers.
Here’s where the typical tax and accounting professional can get involved. You can help your clients understand the ins and outs of sales tax compliance and registration, including meeting important deadlines.
Remitting taxes and filing sales tax returns can be confusing. It has to be done in each state or sales tax jurisdiction, and each has different requirements and deadlines. Depending on how a client’s sales break down, the business could be required to remit and file monthly in one state, quarterly in another and annually somewhere else.
Washington State is a prime example of how the process works. The Washington Department of Revenue assigns filing dates based on what a business estimates its total state tax liability will be for the year. The return is a “combined excise tax return,” which also includes Business & Occupation tax and others, if they apply to the company in question.
Here are the filing classifications for a business’s estimated tax liability:
More than $4,800 per year: Monthly, completed on the 25th of the month following the close of the filing period.
Between $1,050 and $4,800 per year: Quarterly, completed on the last day of the month following the close of the filing period.
Less than $1,050 per year: Annually, completed on the last day of the month following the close of the filing period.
If the deadline falls on a weekend or holiday, it is shifted to the next business day.
Some states provide a discount if a business files early or on time, but Washington does not. Even if a company has no sales tax liability during a given filing period, as long as it’s registered to collect sales tax, it must file a return according to the assigned schedule.
If a business misses a filing deadline, Washington imposes penalties beginning at 9 percent and increasing to 29 percent, depending on when the return is actually filed. Extensions can be granted if circumstances beyond the company’s control caused the late filing, but evidence may be required.
What about other states? Businesses that sell in multiple ones need to determine their obligations and deadlines for each specific state — and, in some instances, separate jurisdictions within those. You can check with individual states directly to learn more.
Managing sales tax in different states can be confusing, and mistakes can be costly. Bottom line: You can help your clients take control of sales tax instead of letting it control them.
Mike Plaster is a former journalist who now owns and runs a small business. He began a partnership with Avalara in 2018, aiming to shed light on issues important to small business owners and Amazon sellers.