Many entrepreneurs and small new businesses must deal with a multitude of challenges and hurdles before they can call their ventures a success. A major part of the business operations and trading revolve around staying on top of tax obligations, whether it be state or federal taxation policies. Each state, district, county, and city can carry its own set of rules and regulations regarding sales tax. Although sales tax is an important element of business tax, one cannot ignore the importance of abiding by federal tax regulations as well. 

Taxes can quickly become an overly complicated system to understand, especially if you do not have the capacity or resources to require additional training or help. We compiled a short and detailed run-down on all the various aspects regarding sales and business taxes.

Sales tax, and how it works

Because each state has its own set of tax levies and regulations, it is important to first make sure what the regulations are in your state. Known as sales tax, or “Sales and Use Tax” it’s an amount levied by three main government institutions – state, counties, and city municipalities.

Sales tax is an amount levied on transactional goods and services, both state and local governments pursue efforts that businesses collect sales tax from their customers. This enables them to require businesses to submit tax payments to both state and federal government agencies.

Some states that are exempt from sales tax on goods and services are Delaware, New Hampshire, Montana, Oregon, and a greater part of Alaska.

Which goods are subject to sales tax?

Some states have gone years without implementing a sales tax on certain items, but still, carry sales tax for more prominent and non-essential goods. The most noticeable of these that are subject to sales tax are personal property and tangible personal goods. Items and products such as books, computers and electronics, raw materials, vehicles, and other home goods.

Other goods and items are in some cases considered as non-essential goods, shedding light on why these items are subject to sales tax. For other ‘necessity’ items, depending on where you reside or trade, typical goods such as groceries, medications, clothing, and gasoline do not have additional sales tax added.

Are some personal services subject to sales tax?

Although it is not quite easy to give a distinct answer, seeing that some services are taxable in all states, while others are not. If your business renders the following services such as services to tangible personal property or real property, advertising, consulting, human resources, beauty, and pet grooming, tour guides, and other personal services, your business will then need to collect sales tax from customers.

In the greater scheme of things, it is noticeable to see that many of these services are more connected to personal and tangible property, with services in education, health care, and other professional services being exempt from sales tax.

How do I know if I have to collect sales tax?

Guidelines regarding which items, goods, and services are subject to sales tax will be available on your state’s Department of Revenue website. This may include a sales tax percentage and obligations and requirements regarding sales tax for businesses.

There are three different sales you need to consider, store sales, in-State sales, and out-of-state sales. These all host a subdivision set of rules, with some states having to ignore district tax or county taxes for certain in-store sales items and goods. You can now also easily calculate your tax online, by using an automated tax calculator making the work seamless and effortless.  

New businesses selling goods or services will need to register their formation and obtain an Employer Identification Number (EIN). There may be additional administration for sales tax registration, but business owners need to abide by regulations set out by their state.

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