As a business owner, taxes can be confusing. Unfortunately, for nearly all businesses, taxes are a year-round activity - usually when it comes to sales and use tax.
At CSI Accounting & Payroll, we’ve worked with small business taxes since the 1960s. Since then, we’ve heard a lot of questions about sales and use tax from small business owners, including:
- What is sales tax? What is use tax?
- Does sales or use tax apply to my business?
- How do I do my own sales and use tax?
- Should I outsource my sales and use tax?
What Is Sales and Use Tax?
While sales tax and use tax are different, they’re often discussed together.
What Is Sales Tax?
Sales tax is defined as a transactional tax charged by the seller (like your business) on the retail sale of taxable services and tangible personal property sold in a state.
That means it should be charged on the retail sale of most goods and some services - not for goods that will be resold by a retailer.
What Is Use Tax?
Use tax is defined as the purchase of goods that are used in your business (not for resale) but no sales tax is charged or paid.
This can include things like:
- Online purchases with no sales tax
- Items purchased using a resale certificate but then used internally, not sold
- Fixed assets with no sales tax (ex. office furniture)
- Items you purchased out of state and used in your state
- Building materials
Does Sales and Use Tax Apply to Me?
According to the definitions above, it depends on your situation whether you will be subject to sales and use tax.
Do I Pay Sales Tax?
You will usually be responsible for collecting and remitting sales tax if you offer services or retail sell any goods. Most businesses think that if sales tax is not charged, then they don't need to pay it. However, it’s both the retailer’s and the end user’s responsibility to pay sales tax.
Do I Pay Use Tax?
On the other hand, use tax affects nearly every business, especially if you make out-of-state purchases or purchases from sellers who don’t collect sales tax. Plus, if you don’t charge sales tax, then you may be responsible for paying use tax instead.
How Do I Handle My Sales and Use Tax Myself?
You can do your own sales and use tax without working with a professional, although it can quickly become difficult and time-consuming.
You will manage your sales and use tax through your state’s Department of Revenue website.
You’ll do them at the same frequency - so anywhere from monthly to annually. It depends on the average amount of sales tax you owe monthly:
- Less than $100 per month = Annually
- Less than $500 per month = Quarterly
- More than $500 per month = Monthly
We recommend doing them each month since most businesses don’t plan for the whole quarter. It also assists with cash flow and creates a habit so filing dates aren’t easily missed.
There are penalties, interest, and a higher audit chance if you miss sales tax filings. Sales tax is audited more than any other tax, and the audits are long and taxing - so it’s best to avoid them if possible.
Sales tax rates vary by location. If you sell in more than one location, sell goods online, or deliver goods, you may have to charge different sales tax rates to different customers. It depends on where the goods are sold or delivered.
CSI Accounting & Payroll serves businesses across the U.S., but because we have offices in Minnesota and Maryland, we’re going to use those states as examples.
Minnesota has an extensive list of fact sheets (85 of them!) to help retailers determine what goods and services are taxable. We have very complicated laws about where these taxes apply. Luckily, Maryland is simpler. Read about Maryland’s sales and use tax here.
Should I Outsource My Sales and Use Tax?
It depends. For most people, sales tax is not hard to file if you have the right information. However, if you have multiple locations, sell online, or do deliveries, it can become difficult fast. This is especially true if you operate in Minnesota, as it’s one of the most complicated states for sales tax.
Some businesses may choose to partner with a monthly accounting service to have them handle their sales tax. If you operate in the United States, CSI Accounting & Payroll is a great option.
We do sales tax for clients who opt-in by taking the sales tax that they’ve already calculated (or that their system has automatically calculated) and pulling their sales tax records. We use this information to file and remit the payment.
We also inform the client if something seems wrong, which is a valuable, proactive approach to sales tax. We also advise on sales tax issues that are specific to their industry.
Simplify Your Sales and Use Taxes
Tax season is stressful enough, so handling various taxes year-round on your own should be made as easy as possible.
Now that you know more about what sales and use tax is, how it applies to you, and how you can handle it yourself or outsource it to a monthly accounting firm, you should feel more comfortable.
If a monthly accounting firm interests you, why not consider CSI Accounting & Payroll? We’ve worked with small business taxes for over 50 years. For a free consultation to see if we can be a good fit for your business, please click the button below:
Not ready to talk? That’s okay! First, learn more about the different types of advice a monthly accountant can provide by clicking the image below:
