Selling Online: 6 Things You Need to Know About Your Small Business Taxes

Ro Williams
By Ro Williams
backgroundshape

Whether you run an online storefront or you’re a restaurant who started selling your swag online for some extra dough, selling goods online changes the way you pay your business taxes. 

When you start selling products, you’re stepping into the world of sales tax and things can get murky quick. Don’t worry - we’ll walk you through the basics of how those taxes work below.

Sales Taxes

45 states require that you pay sales taxes. This means you may owe taxes if you sell at least 1 product or good. The amount you will owe on these products is dependent on the tax rate for the state you are in. Here’s the thing though - you may also owe sales tax in states you have shipped your products to; and not only that, some cities require you to pay sales taxes to them as well.

Collecting Tax

You should determine how you are going to handle sales tax before you start pricing your products. Some business owners choose to include sales tax in the product price, while others may choose to charge it outside of the item price. If you have a storefront, like Shopify for example, they may have the option for you to charge customers sales tax outside of the price of your product. 

If you include tax in the cost of your products, you pass the tax on to the customer without the customer realizing they are paying sales tax. If you don’t, the tax shows up as an additional line item on the receipt when customers check out. No matter which way you choose, you still need to remit the collected amount to the state department of revenue.

Seller's Permit / Resale Permit

A seller’s permit, sometimes known as a resale permit, can help in decreasing the cost of products you buy in bulk. So instead of paying sales tax up front on bulk wholesale purchases, you pass the responsibility to your customers to pay after the product has sold. You will have to apply through the applicable state’s revenue department in order to receive a sellers permit - only then can you get wholesale prices on bulk goods. 

State Sales Tax Account

The easiest way to pay your sales tax is paying them online, either through your marketplace (like Etsy or Amazon), or through your state tax authority’s website. When you have a sales tax account through your state tax authority, you can track your payments and easily reconcile those payments for your end of year report. You should check with your state to see if you can sign up for a sales tax e file account.

Always file your sales tax return

You should file a sales tax return every month (or quarter/annual depending on frequency), regardless of whether or not you made a sale. If you didn't sell anything during a period, your return will show $0 collected. However, if you don't file a sales tax return, the state will assume that you actually had sales and you just didn’t report them triggering an assessment/audit.

Nexus Sales Tax Threshold

If you sell a product through an online marketplace such as Shopify, Amazon, Etsy, etc., then, as mentioned above, you could be liable for taxes in the states in which you have sold these products. Make sure you know the nexus threshold for each state that you have sold in so that you’ll be aware if you hit sales tax nexus.  

Bottom Line

Make sure to check with the cities and states you sell to regarding their sales tax rules and rates. Also, know if the platform you are using to sell your products will tell you if you have to pay sales tax in another state where you have sold products – this is vital. 

Managing a product-based business can be overwhelming. One thing that helps is having tax management software that reminds you when your sales tax payments are due. Sign up for ComplYant today, and you’ll get access to a custom calendar for your business that will show you important business tax due dates, help you budget for future tax bills, and much more.

Ro Williams
By Ro Williams
Ro Williams is a part of the tax research team at ComplYant. Ro is an experienced professional in the accounting & tax industry and has previously held positions at an International Law firm and Public Accounting firms focusing on complex tax related issues. Ro spent her undergrad at Purdue University and is a devoted Boilermaker fan.

Related posts

5 Essential Tax Tips for Freelancers & Contractors
Strategy

5 Essential Tax Tips for Freelancers & Contractors

For many new freelance business owners, striking out on your own can feel like the start of an exciting adventure. But just like all of those 80’s Indiana Jones flicks, there’s bound to be a few intimidating boulders along the way. Like business tax.
Influencer waves at the camera
Strategy

So, You’re an Influencer. Here’s How to Know if You Can Deduct Business Expenses

Many content creators don’t know they may qualify for tax deductions — but there is a catch. In order to claim expenses on their taxes, they have the right motive for setting up their business. Otherwise, the IRS may decide to audit. 
Small business owner sits at a desk looking nervous
Strategy

4 Common Small Business Tax Issues and How to Avoid Them

Managing business tax can feel like you’re entering a quagmire. If you're a small business owner fretting over tax problems, you're not alone. Learn the four biggest tax issues and how to how to avoid the pitfalls.