Your Guide to Tax Compliance During the Holiday Season
The holiday season is famously busy for retailers, bringing both a rush of shoppers and a sales tax compliance headache.
Keep reading to learn about tax compliance and what you should look for when choosing an online sales tax management system. We’ve even included a holiday readiness checklist to keep your business running smoothly when it comes to sales tax compliance.
What is tax compliance?
In the world of retail, tax compliance means paying a percentage of your business earnings to the government, both national and local. These rates are known as a retail sales tax.
Knowing your state and local sales tax rates is important, especially as it relates to price-setting your products. Generally, retailers collect the amount they owe to the government at the time a customer makes a purchase. That way, when it’s time to file, you already have the correct sum.
Now that we’ve defined tax compliance, let’s jump into the qualities that make for a good sales tax strategy:
01. Understand Where You’re Obligated to Collect Sales Tax
Sales tax used to be relatively straightforward. If you had a shop located in Iowa, you’d need to collect Iowa sales taxes at the point of purchase. Now, with online shopping, you can sit in your store in Iowa (or living room) and sell the same items to shoppers across the United States and around the world.
It’s an exciting business opportunity, especially around the holidays, when you can truly harness your global reach to boost sales. Yet a national or international presence can also create tax complications.
Traditional tax laws allow states to collect taxes from businesses that have nexus with (or a physical presence in) the state. New economic nexus sales tax laws enable a state to require a remote seller to register to collect and remit sales tax if the seller meets or exceeds the sales and/or transactions threshold for delivery into the state within a certain time frame. In many states, the collection obligation is enforced when a remote seller has more than $100,000 in sales or at least 200 transactions for delivery into the state in the current or previous calendar year. Like all sales tax laws, economic nexus thresholds vary by state.
Unsure of your obligations? It’s a good idea to consult with a CPA to determine the states with which you have nexus and are required to collect tax.
02. Use a Reliable Tax Compliance Software
As a Wix merchant, the holidays can do wonders for your bottom line. With so many wish lists waiting to be fulfilled—and shoppers eager to take advantage of good sales—this is the time of year when many retailers see their sales peak. While heavy demand is great for business, it also introduces lots of fast-paced, tax rate calculations. Without the right software to manage tax compliance, the possibility for error increases.
During the holidays, get the peace of mind you need when sales roll in quickly, across many locations. Wix Stores partners with Avalara, an online sales tax software that boasts an average sub-second response time. To set up automated tax calculation with Avalara, go to the Store Tax area in your Wix dashboard. Then, add the states and regions in which you’re obligated to collect sales tax. Your customers will get the most up-to-date tax rates, in real-time, during checkout.
03. Get the Most Current Tax Rates
Tax rates aren’t etched in stone. In fact, these numbers are frequently subject to change. These adjustments can happen when there’s a transition in the state or national level of government and new tax policies are enacted. It can also happen when a local government declares a tax holiday. For example, many states have instituted an annual tax-free holiday on one of the last weekends of the summer. In most cases, tax-free designations apply to typical back-to-school purchases, like school supplies and clothing.
The good news? No one’s expecting you to suddenly become an avid follower of tax news. You have a business to run. Avalara’s tax compliance software processes these tax changes for you, so you can stay fully focused on maximizing sales during the holiday season. When you list the regions you need to collect tax in, the software automatically updates with the most current sales tax rates, ensuring your checkout process runs smoothly.
Your personal holiday readiness checklist for tax compliance
Use the following checklist as a guideline. Additionally, we recommend you consult with your CPA and lawyer about matters related to tax compliance for your business—from nexus and home rule, to filing and exemptions.
Do you know where you need to collect sales tax? If yes, continue to the Calculation section. If no, review the items below.
Check if your business activities establish nexus in the state(s).
See if you meet the state’s minimum sales threshold for sales tax registration.
Register to pay sales tax in all states where you’ve established nexus and meet the sales threshold.
Find out the filing schedule required by these states and mark your calendar.
Have you connected Avalara to your online store? If yes, continue to the Filing and Exemptions section. If no, follow the steps below to get automated tax calculation for your Wix online store:
Log in to your Wix.com account.
From your Wix site dashboard, click Settings.
Select Store Tax.
Click Get Automated Tax on the top right.
Click + Add Country to add the regions you sell and ship to worldwide. Avalara will automatically calculate the tax rate for each location you add.
03. Filing and Exemptions
Do you know the filing process for each state where you have nexus? Do you know which exemptions your business qualifies for and how to claim them?
Check the Department of Revenue website for the states where you conduct business. Look for changes in the minimum sales threshold, filing deadlines, changes to exemption certificate rules/regulations and other requirements.
Mark your business calendar with filing deadlines for every applicable state.
Make sure you can export ERP or shopping cart data. You may need this information when filing your return.
Take advantage of tax exemptions. Separate transactions that contain exemptions and include the tax-exempt status.
Review your past returns and calculate the sum you’ve over- or underpaid.
Submit prepayments to states where it’s required.
Review and verify that all transactions include valid exemption certificates.
Get updated certificate information for transactions that had an expired or void exemption certificate.
Contact customers holding soon-to-expire exemption certificates.
In partnership with Avalara.
Source: Tax Compliance for the Holiday Season—2019 Edition by Avalara | Updated 11.01.2019