Taxes, taxes, taxes. I feel like screaming every time I hear the word. As a small business owner, it’s something we deal with on a daily basis, whether in our personal lives or in our businesses. It seems one taxing authority or another always has their hand out for more money and we’re left finding a way to ease the pain associated with collecting and reporting sales taxes appropriately. Pretty sure none of us gave consent for this pain either!
We’re headquartered in Florida and it’s common for counties to have a tax surcharge, which is charged in addition to the state base sales tax rate. Our county is also having fun with future-dating the increases to these surcharges. For example, Duval County imposed a new half-cent sales tax in 2021. We also approved another half-cent increase — but it doesn’t go into effect for a few years. That’s just my county; there are 67 in the state.
Nexus decides whether you pay sales tax in a state.
Even having nexus only in Florida, it’s a lot to keep up with. “Nexus?” you may ask. According to TheBalancesMB.com, a nexus is defined as “a relationship or connection between two or more entities. In tax law, it's a relationship between a taxing authority, such as a state, and a business.”
Nexus decides whether you pay sales tax in a state. Do you have a location or employee within that state? If yes, then you owe sales tax for all sales within the state. If no, most likely you won’t owe taxes. While nexus is typically based on you having a physical presence in the state, if you’re an e-store, there are revenue and transactional thresholds that you’ll need to check to ensure you’re following each state’s guidelines.
In June 2018, the Supreme Court ruled in the case of S. Dakota v. Wayfair that states have a right to require online sellers to charge and collect sales tax from all online buyers, not just those who are physically located in that state. States that charged sales taxes had to set up regulations and procedures to allow for the collection of sales tax on online sales. To prevent smaller sellers from being affected, some states with a set a minimum number of transactions or a minimum annual sales figure below which no sales tax is charged.
The argument continues on whether we will continue paying sales taxes according to nexus or if that model will change and we will owe taxes to all taxing authorities, regardless of how few transactions or dollar amounts you process within a state. This subject always causes heartburn for small businesses. There are 3,006 counties in the U.S. How do you keep up with all the tax rates, ensure the changes are implemented on your website and actually pay the taxes each month? It seems you’ll have to keep a full-time employee to keep up with this task. I have a hard time keeping up with our 67 counties in Florida — I can’t imagine taking on the rest of them.
Recently, we built a new website and found a wonderful tool to assist with this process. I’m sure there are different options for this service, but the one we will utilize going forward is TaxJar. Their team has been amazing and the features they offer are worth far more to my bottom line than the cost of the service. It keeps up with the states where I have nexus, ensures my site charges the correct taxes on each sale based on the street address, maintains my sales tax reporting, and here’s the kicker: they actually pay the sales tax to my state taxing authority. It quickly became one of my favorite perks of our new site. It’s a “set it and forget it” process. No matter whether your site is local, domestic or international, look into an automated tax service. Your future self will thank you. Also, your CPA will thank you (and will probably like you more). They don’t really want to deal with sales taxes.
Cheyenne Williams (she/her) co-owns Kink Crate with her husband Karl. The company is a kink and subscription box company, shipping crates monthly.
