In order to run a successful online business you’ll need to ensure that you’re following your states guidelines. This includes doing your taxes efficiently, but most importantly accurately. However, we understand that taxes can be a challenge to handle.
That’s why we’ve done all the research for you and compiled it into an easy to understand guide. Keep reading to learn what eCommerce sales tax is and how to make sure you’re getting it right.
eCommerce Sales Tax 2021
Like normal sales tax, eCommerce sales tax is simply a percentage of money that is added to the price of an online purchase. The only items that sales tax is added to are items that are considered taxable.
As an online retailer you are not exempt from charging your customers taxes. Although how much you tax will be different depending on the state you live in. Some states even allow cities to have their own sales tax too. But how do you know when you need to collect sales tax from your customers?
Well, here’s a basic rule of thumb:
- Collect sales tax when your product is taxable and has a nexus in that state.
Let’s explain the term nexus in more detail. A sales tax nexus is just a fancy word for a retailer having “significant connection” to a state. To have “nexus” means that your state will allow you to charge a sales tax to your customers.
When operating an eCommerce business in your home state you will always have a tax nexus. Although, you can create a nexus in other states too. Here’s how to do it:
- Have a physical business location operating in another state
- Store your inventory in the state you want to have nexus in
- Create a drop-ship relationship. Dropshipping is a form of business where sellers accept customer orders without having an inventory of the product in stock. Instead, items are purchased from third-party suppliers who will ship the product to the customer. So, the seller never handles the items. This can help create nexus.
- You can create economic nexus if your business exceeds a certain amount of sales in your state.
Please consult your state's website to learn more about the conditions for a nexus relationship in your state.
eCommerce Sales Tax By State
The sales tax your customers are required to pay will vary depending on the state you live in. Some states have higher tax rates than others. In addition, ecommerce sales tax rates will change on a monthly basis. The average tax percentage ranges from 0-7.2%, with California having the highest. Oregon, Alaska, Delaware, Montana, New Hampshire, and Guam do not have sales tax.
Knowing this, make sure that when you're budgeting for your business try to utilize prices with taxes included. To learn what the sales tax percentage is in your state you can conduct a quick Google search and find everything you need to know.
eCommerce Sales Tax Solutions
Did you know that there is a simple way to manage your sales tax issues? By using eCommerce sales tax tools you’ll eliminate the frustration of calculating your sales tax percentage. There are so many different tools out there for you to choose from.
Meaning that instead of spending time doing math, you can get back to focusing on what matters most for your business. These tools can help make filing yearly returns that much easier. In addition, you’ll be able to breathe better knowing your business is always audit-ready.
To make things easier, I’ve compiled a list of the best eCommerce sales tax software for you to choose from.
eCommerce Sales Tax Calculator Software
- Alvara: Alvara is one of the most popular tax software apps for a reason. It offers users a simple and clean interface with up-to-date tax rules and rates. More than this, it has over 700 integrations so that you’re able to manage data across multiple applications. Finally, Alvara has affordable rates starting as low as $25 per month.
- TaxJar: For companies looking for auto-filing features, TaxJar is your guy. It allows users to organize their data and gather return-ready reports. TaxJar also works seamlessly with any eCommerce platform. Pricing starts at $19 per month and plans are customizable.
- Vertex: Own a small business? Vertex is a good option for you then. It is very user-friendly and easy to navigate. Moreover, it keeps track of the latest tax trends, activity, and regulations and sends you alerts. This platform is highly accurate and centralizes all your data in one place. For questions about pricing you’ll need to contact Vertex directly.
- DAVO: Finally, there’s DAVO. The best option for traditional brick and mortar businesses. DAVO software collects sales data from your POS systems and tallies the daily collected sales tax. It also has auto-fill functionality and integrates with popular platforms like Quickbooks, Square, and revel. Their pricing is a bit steeper compared to others. Prices start at $39.99 per month, but they offer a free trial so you’re able to see if it’s the right fit for you first.
Regardless of what software you choose to work with you’ll find comfort in knowing your sales tax rates will always be correct. If you’d like to learn more about what goes into running a successful eCommerce business check out our blog. We also recommend that you research the best SEO tools for eCommerce businesses.
By using the tools above and having a competitive and strong business plan, success will come easy to you.