It is not easy to run a small business. Sales tax is one of the most difficult parts because there are so many changing parts.
A CPA in Sarasota, FL, can help you a lot if you need professional advice. A lot of small businesses pay too much in sales tax without meaning to. The first step to fixing this is to figure out why it is happening.
Understand sales tax rules.
There are different sales tax rules in each state and even in each city. What is taxed and what is not is different in each state.
Some states do not tax things that people need, like food or clothes. Some people charge just about everything. It is even harder if your business is in more than one state or online. Overpayment can happen if you do not understand these rules.
Nexus and tax obligations.
The idea of “nexus” is at the heart of sales tax. Nexus means having a place or link in a state where you have to collect and pay sales tax. Nexus can be real, like having an office, warehouse, or store in the state.
It could also be economic, which means that your business has to make a certain amount of sales in a state even though it does not have a real base there.
Since the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states can tax online stores that do not have a real location if they make a certain amount of money.
A lot of companies do not know where their nexus is, so they pay more tax than they need to or risk getting fined for not paying enough.
Incorrect product and service classification.
Some goods and services are charged more than others. Some things are not taxed at all, but in different states, others may be taxed at different rates.
For example, physical goods like books might be taxed, but digital goods like eBooks might not be, or they might be charged less.
In the same way, bundling things and services can make it harder to figure out taxes. When you misclassify the things you sell, you usually end up paying too much sales tax.
Poor management of exemption certificates.
Some customers do not have to pay sales tax, like government or charity groups. These groups give out exemption papers that show they are not subject to taxes.
You might charge sales tax when you should not if your company does not collect and store these licenses properly. In the long run, this can lead to big overpayments.
Filing frequency and deadlines.
Each state has its own rules about how to file sales tax reports. Some need to be filed every month, while others want them to be filed every three months or once a year.
If your company does not file on time, you could end up paying too much or getting fined for filing late. Too many filings can also make things harder for administrators, which can lead to mistakes or higher costs for compliance.
Missing refund opportunities.
You do not have to always pay too much sales tax. In many states, businesses can ask for refunds when they have been overpaid. But the process of getting a return can be long.
It needs correct records, thorough paperwork, and compensation requests that are filed on time. A lot of small businesses do not even know they can get returns. Others think the process is too hard to understand, so they do not claim their returns.
Get professional help if you need it.
Small companies often pay too much in sales tax because rules are misunderstood, businesses are put into the wrong category, and records are not kept well.
Businesses should know the sales tax rules, keep track of their link responsibilities, handle their exemption certificates, and use automatic tools to avoid overpaying.
Businesses can use their savings to make investments when they understand this, which is important for growth and long-term success.
