Sales Taxes 101: A Quick Guide For Small Businesses

The idea of becoming your own boss and turning your passion into a successful business is exciting. However, this involves collecting, calculating, and paying sales taxes, which can be confusing. This will be even more of a pain with local and state taxing authorities having their own laws, tax rates, and exemptions.


Since it can be too complicated to handle, questions about sales tax are among the most frequent inquiries to the Small Business Administration (SBA). Thankfully, this guide can give you the basics of what you need to know when handling sales tax.


What Is a Sales Tax?


A sales tax is paid by your consumers who buy taxed goods and services from you within the borders of the taxing authority, which can refer to a county or city. It is added to the price of the item or service they purchased and included in their total cost.


Your customers pay sales taxes, but it is your responsibility as the seller to collect those taxes and hand them over to the state as well as the municipality or the county, if applicable. Sales taxes are required on all cash transactions, installment sales, credit sales, layaway sales, and sales involving exchanges of property or trade-ins.


What Are the Taxable Goods and Services?


There are common categories of goods and services that can be assumed to be taxed unless there is an exemption indicated. Here are some of them:


Taxable Goods:


  • Books

  • Electronics

  • Furniture

  • Computers

  • Motor vehicles

  • Home appliances

  • Toys

  • Raw materials 

  • Gardening items

  • Rental properties


Taxable Services:


  • Personal property services 

    • Installation

    • Inspection 

    • Maintenance 

    • Repair

  • Real property maintenance services on properties

    • Lawn mowing

    • Landscaping

    • Snow removal 

    • Utility repair

  • Business services 

    • Advertising

    • Consulting

    • Marketing

    • Public relations 

    • Human resources

  • Personal services 

    • Beauty care

    • Pet grooming

    • Dry cleaning

    • Tour guide


What Are the Sales Tax Exemptions?


While there is a seemingly endless list of taxable goods and services, there are rules for exemptions from sales tax in every state. For this reason, you have to be aware of which exemptions apply to specific state and local tax rules.


Check your local state rules to seek which services and transactions are under sales tax exemptions. Some exemptions are considered universal based on the type of goods, services, or property being sold. Even if a certain good is categorized for sales tax exemption, it’s the buyers' responsibility to prove eligibility for tax exemptions and waiving sales tax payments by presenting their valid certificates.


How Do You Collect Sales Taxes?


As a business owner, you have to figure out how to collect state and local sales taxes. This involves getting a tax permit, staying on top of the tax rate, and filing tax returns. 


If you sell taxable goods and services, you need a sales tax permit or certificate from your state’s revenue department. To do this, you must prepare your Employer Identification Number and other important information about your business for a smooth application process.


To determine the sales tax rate you should charge, check with your state’s revenue agency and municipality. It’s also vital to document taxes you collect to make your tax reporting and paying process official. Don’t forget to learn more about the state and local requirements for reporting, the schedule for reporting the sales tax, and how the reporting must be done.


Besides the proper format and accounting of your taxes, remember to submit them on time. You may pay sales taxes quarterly or monthly, depending on your small business’s volume. 


Conclusion


Understanding your tax obligations is vital when running a small business. Otherwise, you could face serious problems, including hefty fines. Because of this, make tax collection and payments part of your business plan. If you find the entire process too complicated to handle alone, reach out to a professional and seek small business bookkeeping services.


At Totally Booked, we offer sales tax filing, payroll, budgeting, bookkeeping services, and more. We offer different plans that suit your needs and budget. Contact us to book a 20-minute consultation!

Kelly Gonsalves