6.04 – Taking Care of Your Sales Tax Obligations
Managing sales taxes can be even more complex than handling income taxes due to varying local and state tax rates. Each county, and even city, can have different rates, making it crucial to stay updated and organized. Here’s how to manage your sales tax obligations effectively:
Understanding Sales Tax Rates
Sales tax rates differ across locations, and if you sell products in multiple areas, you need to:
- Collect Appropriate Taxes: Gather the correct tax amount for each location.
- Track Collections: Keep detailed records of all taxes collected.
- Pay Collected Taxes: Remit the collected taxes to the appropriate government entities on time.
Multi-Location Sales
Selling products in different locations complicates tax collection. For each location, ensure you:
- Collect Local and State Taxes: Some states require both local and state tax collections.
- Track Separately: Maintain separate records for each location to avoid confusion and ensure accurate reporting.
Resources for Tax Information
The Federation of Tax Administrators is an excellent resource for state and local tax information. This website provides links to tax requirements for every state, helping you stay informed about your obligations.
Pre-Business Steps
Before starting your business operations in a new state:
- File an Application: Register to collect and report taxes with the state’s department of revenue.
- Understand Requirements: Contact the departments of revenue in the states where you plan to operate to ensure compliance with local laws.
Managing Collected Sales Taxes
All sales taxes collected from customers must be paid when you file your Sales and Use Tax Return. To ensure you have the necessary funds available:
- Accrued Sales Taxes Account: Keep the collected sales taxes in a specific account called Accrued Sales Taxes. This is a liability account on your balance sheet, representing money owed to a governmental entity.
Additional Tips for Managing Sales Taxes
Automate Where Possible
Using sales tax software can help automate the process of calculating, collecting, and remitting sales taxes. This reduces the risk of errors and saves time.
Regularly Review Tax Rates
Tax rates can change, so regularly review the rates for all locations where you operate. Staying updated ensures you collect the correct amount from customers.
Stay Organized
Maintain clear and organized records of all transactions and tax collections. This helps during tax filing and if you are ever audited.
Conclusion
Managing sales taxes requires careful attention to detail and staying informed about varying tax rates. By understanding your obligations, using available resources, and keeping organized records, you can efficiently manage your sales tax obligations and ensure compliance with local and state laws.
