Monika Miles | TaxConnections

24 Jul 2024

Calculating Your Sales Tax Liability In The US: A Step-by-Step Guide For International Businesses

We all know that there will always be one surefire aspect to business – and that’s taxes. But the question then is: are you sure, wherever you operate as a business, that you know your tax liability? It can be a messy matter, especially if you’re an international business operating in the US. And that’s what we’ll be talking about here – this guide is specifically tailored to help foreign businesses understand the essential steps involved in calculating sales tax in the US.

Navigating the US tax system can be particularly challenging for international businesses. The US has a complex and varied approach to sales tax, which differs significantly from the VAT systems common in many other countries. For foreign companies, understanding these nuances is essential to ensure compliance, avoid penalties, and accurately calculate sales tax liabilities. So, whether you’re selling products or services in all, many, or a few states, determining the correct amount of sales tax to collect and remit will ensure you stay on the right side of tax authorities, and compliant as an international business in the US.

Understanding Sales Tax Rates – Explore the variability of sales tax rates across US states and localities with examples.
Finding the Correct Sales Tax Rate – Learn how to determine the correct sales tax rate by identifying the sale location and checking state and local rates.
The Sales Tax Calculation Formula – Discover the formula for calculating sales tax and see a practical example applied step-by-step.
Calculating Sales Price with Tax – Understand the methodology for determining a sales price that includes tax, with a detailed example.
Backward Sales Tax Calculation – Learn how to calculate the pre-tax sales price from a total price that includes sales tax.
State and Local Sales Tax Rates, 2024 – Get a breakdown of state and local tax rates for the year 2024.
Using Sales Tax Calculators – Find out how to leverage automated sales tax calculators for accuracy and compliance, with recommended tools and steps.

1. Understanding Sales Tax Rates
Sales tax rates in the United States vary widely across states and localities. Each state sets its own base sales tax rate, which can be supplemented by local taxes imposed by counties, cities, or special districts. For example, California has a state sales tax rate of 7.25%, but local jurisdictions can add their own rates, resulting in a total rate that can exceed 10% in some areas.

Note: Some states just have a state rate, while others include county or special assessment rates, resulting in a combined overall percentage.

2. Finding the Correct Sales Tax Rate
To determine the correct sales tax rate for your business:

Identify the location of the sale: This includes where the product is delivered or where the service is performed.
Check state and local tax rates: Use resources such as state tax authority websites or online databases to find current rates. Just to make things a little easier though, we’ve compiled the latest rates for you in a table a little further on – keep reading.
Apply the rate to your sale: Ensure that you use the combined state and local rate for the transaction’s location.

3. The Sales Tax Calculation Formula
Calculating sales tax involves a straightforward formula:

Sales Tax=Sales Price×Sales Tax Rate

Step-by-Step Guide
Determine the Sales Price: The price of the product or service before tax.
Identify the Sales Tax Rate: Use the correct combined state and local rate.
Multiply the Sales Price by the Sales Tax Rate: This gives you the amount of sales tax to collect.
Add the Sales Tax to the Sales Price: This gives you the total price that the customer pays.

4. Calculating Sales Price with Tax
Sometimes, you need to determine the sales price inclusive of tax, especially in retail settings where prices are displayed with tax included.

Note: In California, certain disclaimers like ‘we pay your sales tax’ mean the seller is choosing not to collect sales tax at the point of sale, but the tax is still due, representing a liability that needs to be considered.

Methodology
To find the total sales price with tax included:

Total Price=Sales Price×(1+Sales Tax Rate)

Example:

With a sales price of $100 and a tax rate of 8.875%:

Total Price=$100×(1+0.08875)=$100×1.08875=$108.88

5. Backward Sales Tax Calculation
In some scenarios, you might need to work backwards from a total price that includes sales tax to determine the original sales price and the amount of tax included.

To find the pre-tax sales price:

Example
If the total price paid is $108.88 and the sales tax rate is 8.875%:

These formulae and methodologies can be applied universally, regardless of the sales tax rate or the initial sales price, ensuring accurate calculations for both inclusive and exclusive tax scenarios.

6. State and Local Sales Tax Rates, 2024
A breakdown of average state, local and combined tax rates.

Remember, though, these percentages are subject to change on a regular basis. Always be tax-savvy – check these rates regularly to avoid unpleasant surprises at filing time.

Note: City, county and municipal rates vary. Local rates are weighted by population to compute an average local tax rate.
(a) Three states levy mandatory, statewide, local add-on sales taxes at the state level: California (1.25%), Utah (1.25%), and Virginia (1%). We include these in their state sales tax.
(b) The sales taxes in Hawaii, New Mexico, and South Dakota have broad bases that include many business-to-business services.
(c) Special taxes in local resort areas are not counted here.
(d) Salem County, N.J., is not subject to the statewide sales tax rate and collects a local rate of 3.3125%. New Jersey’s local score is represented as a negative.
Sources: Sales Tax Clearinghouse; Tax Foundation calculations; State Revenue Department websites.

Source: Tax Foundation

7. Using Sales Tax Calculators
Automated tools can significantly simplify the task of calculating sales tax, especially for businesses operating in multiple jurisdictions. These tools ensure compliance with varying tax rates and regulations across different locations. (We’ve been around long enough that some of our clients have done calculations manually…but those days are pretty far behind us!)

While automated sales tax calculators, such as those provided by Avalara, QuickBooks, and TaxJar, and through sales portals like Shopify offer robust solutions, human oversight is essential for accuracy. This is necessary to account for potential changes in tax laws and local regulations that automated systems might not immediately reflect. The human touch is vital, and that’s where Miles Consulting can help.

How to Use Sales Tax Calculators
Choose a Reliable Calculator:
Look for calculators provided by reputable sources such as tax authority websites, accounting software, and well-known online resources. It’s important to choose tools that are regularly updated to reflect the latest tax rates and rules.
Example calculators include those offered by state departments of revenue, accounting software like QuickBooks, and dedicated tax services like Avalara and TaxJar.
Input Sales Data:
Enter the sales price of the product or service.
Provide the necessary location details where the sale occurs (i.e.; if brick and mortar – then at the store; if in e-commerce, the “ship to” address). This includes the state, county, and city, as local tax rates can vary significantly.
Verify the Results:
After entering the data, review the results to ensure the calculator has applied the correct combined state and local tax rates.
Cross-reference with official tax rate information from state or local tax authority websites to confirm accuracy.
By leveraging these tools, businesses can streamline their sales tax calculation processes, reduce errors, and ensure compliance with tax regulations across multiple jurisdictions. However, always remember to periodically verify the accuracy of these tools and stay informed about changes in tax laws that may affect your business.

And we’ve said it before, but we’ll say it again, it’s always better to first consult with a human. Come to Miles Consulting Group – book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.

Written by Monika Miles | Posted in Sales Tax Liability

23 Jul 2024

Vermont Is The Latest State To Administer The Taxability Of SaaS

If you’re a frequent reader of our blogs, you know that we regularly report on the taxability of Software-as-a service (SaaS). Today, we report that Vermont has joined the ranks of states that do require sales tax collection on revenue from SaaS. In a recently updated previous blog (What To Know About The Taxability Of SaaS In 18 Key States – Multi State Tax Solutions | Miles Consulting Group), we discuss where SaaS is taxable in 20 states (and also certain local jurisdictions). As of July 1, 2024, we can now add Vermont to that list of taxable states.

Effective July 1, 2024, a new law in Vermont repeals its sales and use tax exemption on prewritten computer software accessed remotely (i.e., cloud software), thus subjecting items like software as a service to Vermont’s sales and use tax rate of 6%.

The amendment reads that “Tangible Personal Property” means personal property that may be seen, weighed, measured, felt, touched, or in any other manner perceived by the senses. “Tangible personal property” includes electricity, water, gas, steam, and prewritten computer software regardless of the method in which the prewritten computer software is paid for, delivered, or accessed.

If your company is doing business in Vermont and is selling the SaaS product in Vermont too, Miles Consulting Group can assist with any questions that you may have.

Book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.

Written by Monika Miles | Posted in TaxConnections

19 Jun 2024

Navigating Restaurant Sales Tax With The 80/80 Rule And Automation

Running a restaurant comes with its fair share of challenges, and one of the often-overlooked complexities is sales tax. Failure to navigate the intricacies of sales tax regulations can lead to costly fines and penalties. California Regulation 1603 and its 80/80 rule stands out as a key determinant in sales tax application for food establishments.

In this article, we’ll unpack the 80/80 rule when applied to sales tax, explain how it works, and how you can ensure all your bases are covered, with regard to your business’s compliance. Here’s what you can learn:

Understanding the 80/80 Rule: Explains the 80/80 rule in restaurant sales tax, determining tax application for food sales.
The Nuance of Restaurant Taxes: Discusses the complexities of restaurant tax compliance, considering factors like food temperature and sales method.
The Role of Automation in Tax Compliance: Highlights the use of automation solutions, like Avalara, to manage sales tax compliance efficiently in restaurants.

Written by Monika Miles | Posted in 80/80 Rule And Automation • Sales Tax

14 Jun 2024

Which Activities Create State Tax Issues?

Multi-State Tax Consulting

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

Where do you have nexus creating activities?
What are the rules? What are next steps?
When was nexus created? When should you begin filing?
How much retroactive exposure has been created? Can we help you reduce it?

As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

We are often asked these three questions:

Why Is A Nexus Review Important?
Which Activities Cause State Tax Issues?
Multi-State Tax Consulting

Written by Monika Miles | Posted in State Nexus • TaxConnections

28 May 2024

How Is Software As A Service(SaaS) Treated Under State Tax Law?

A very important and often misunderstood area in the sales tax arena is the taxability of cloud-computing, cloud-based services, etc., collectively often referred to as Software-as-a-Service (or SaaS). The moniker alone is enough to start the state tax conversation down an interesting path.

The Basics

When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Has nexus has been created?
This includes looking at both the physical presence as well as an economic presence. Following the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, many states enacted economic nexus statutes which require sellers to collect and remit sales tax in those states based on sales or transactional thresholds. In this process we also look at when nexus was created based on physical presence or economic nexus.

Is the product taxable?
Once nexus is established, the sale of tangible personal property by a retailer to a customer in a given state is generally taxable. We start there, and then review the transaction to see if there are any exemptions that would cause the sale of the property to not be taxable.

Written by Monika Miles | Posted in Software As A Service

17 May 2024

Explaining Nexus Threshold By State

Understanding the intricate web of sales tax nexus thresholds is key for businesses navigating the complexities of state taxation laws. As the digital age continues to reshape traditional business models, the concept of nexus—the connection between a business and a taxing jurisdiction—has become a focal point in determining tax obligations. Nexus can be created by physical presence (i.e.; employees or contractors in a state, an office, or inventory) or economic .

The table below aims to shed light on the diverse nexus thresholds established by individual states across the United States when determining economic nexus for sales tax. Each state presents its own set of criteria that trigger nexus for sales, income, and other tax purposes. By delineating these thresholds, businesses can proactively strategize their operations to ensure compliance and mitigate potential liabilities.

As a business operating in one, or many, of these states, its truly vital that you have clear knowledge of their tax regulations and nexus thresholds.

Things can get a little messy in these matters, so consult the below table, consider your individual fact pattern and then come to Miles Consulting – we’ll help you understand your unique tax challenges, whatever state you’re in. Our professionals can help with sales tax compliance (filing returns when and where you need to), retroactive remediation, merger and acquisition due diligence, and audit support, among others.

We start most conversations with clients by talking about nexus because that determination is the starting point of a relationship with a state and its taxing authority. Once nexus is established, a company has an obligation to then determine if its products and services sold to customers in that state are subject to sales tax, whether there are relevant exemptions, and then their requirements to file sales tax returns. Nexus is just the first step in the process of becoming compliant.

Written by Monika Miles | Posted in State Nexus

08 May 2024

Preparing For A Sales Tax Audit: Tips And Best Practices For Middle Market Owners

Navigating a Sales Tax Audit: A Comprehensive Guide to Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place – we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition of a Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business’s sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

Understanding Sales Tax Audits

Triggers for a Sales Tax Audit
Types of Sales Tax Audits
Common Misconceptions about Sales Tax Audits

Written by Monika Miles | Posted in Sales Tax Audits

30 Apr 2024

How Can A Nexus Review Provide Peace Of Mind?

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We help companies answer questions on multi-state tax compliance:

Where do you have nexus creating activities?
What are the rules? What are next steps?
When was nexus created? When should you begin filing?
How much retroactive exposure has been created? Can we help you reduce it?
As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

We are often asked these three questions:
1. Why Is A Nexus Review Important?
2. Which Activities Cause State Tax Issues?
3. Are We Out of Compliance or Being Audited?
  
  Why Is A Nexus Review Important?
  
  Read More

Written by Monika Miles | Posted in Nexus

18 Apr 2024

Navigating A Sales Tax Audit: A Comprehensive Guide To Protecting Your Business

So, what exactly is a sales tax audit? And what can you expect?

Definition Of A Sales Tax Audit

Here’s what you can discover:

Understanding Sales Tax Audits

Triggers for a Sales Tax Audit
Types of Sales Tax Audits
Common Misconceptions about Sales Tax Audits

Responding to Audit Findings

The Audit Process: From Notification to Resolution: Gain insights into the audit process, from receiving a notification to resolving discrepancies and finalizing outcomes.
How to Handle Audit Findings: Explore strategies for addressing audit findings effectively, including reviewing and collaborating with tax professionals.
Read More

Written by Monika Miles | Posted in Sales Tax Audit

09 Apr 2024

How Is Software As A Service (SaaS) Treated Under State Tax Laws?

The Basics

When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Written by Monika Miles | Posted in Software As A Service

05 Apr 2024

Indiana Economic Nexus Threshold Amended

On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.

Background Of Economic Nexus

In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:

https://milesconsultinggroup.com/blog/2023/06/13/on-the-5th-anniversary-of-the-wayfair-decision-the-impact-of-economic-nexus-on-small-and-mid-sized-businesses/

Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:

In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled as they passed their own economic nexus legislations.

Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.