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A Sales Tax Primer

By: Greg Chaffins | Date: October 10, 2019 | Categories: Business

This is a sponsored post. All opinions regarding this sales tax primer are 100% my own.

Anyone that runs a business in today’s world can expect to have taxes as part of their everyday life. You will want to pay taxes as required, and the most common of these is income tax. But what about sales tax? Do you know what it is, and how it should work in your business? Let’s take a look at sales tax.

A Sales Tax Primer

income tax sales tax

What is a Sales Tax?

In most locations, the local government has imposed a sales tax on goods and services purchased by your customers. A sales tax is different from income tax that is levied at the point of sale and collected by the seller of the good or service at hand. The business is to collect these taxes and pass them on to the responsible government entity.

The exact rules and regulations will vary depending on the location of the business transaction since the local government will be the one imposing the sales tax. In general, a business is responsible in a given location if it has a nexus in that location.

What is a Nexus?

The existence of a nexus in a location is the key determining factor if sales tax is due for a given transaction. In the simplest of terms, a business has an applicable nexus if it has a physical location within the legal boundaries of a given area. Typically this means having a physical, or brick and mortar, point of business for the end customer.

But this is a tax issue, so of course, it is not that simple. Often having an employee within a given state can constitute a nexus. This would give leeway to the government of that location to collect sales tax on goods and services sold to residents of that state.

For bloggers, this can become even more complicated. A business that has an affiliate, or other forms of transactional partners, is considered by many states to constitute an applicable nexus.

The Controversy

The definition of a nexus for a given area is one currently subject to debate by different parties, and it has created some controversy. For example, if you are an affiliate for Amazon and attract traffic to your blog for a percentage of sales made through Amazon. (a typical blogger affiliate scenario), local governments will often claim that Amazon owes them sales tax.

This practice, although it involves more online affiliate driven merchants than just Amazon, is often referred to as “Amazon laws.” New York has famously passed such laws, even though Amazon has no physical presence in the state.

It can get complicated, and many businesses look to a sales tax filing service for help. Such sales tax solutions can be very handy for a small or independent business.

Everybody Gets a Cut

When it comes to sales tax, sometimes referred to as Excise Tax, you will find that everyone has their hand out for a cut.

For example, a given scenario might involve a 5% state tax, a 3% county tax, and a 2% city tax, which means that the business should collect 10% of the cost goods or services sold from the customer in addition to the actual cost.

This money will be distributed to the different parties as stipulated based on their assigned percentage.

As a business owner, whether that is a brick and mortar store location or even a blogger, it is important that you become familiar with the sales and excise tax tules for your area.

Once you get into the habit of collecting and paying these taxes, you’ll find it becomes a habit. But if you fail to do your homework and follow through with it, you may be hit with an unexpected tax bill.

After all, collecting the money from your customer is optional – the taxes are owed, regardless. Consider looking at a sales tax support services if you have questions. Above all else, be sure you know where you stand on the topic of all taxes.

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