In the realm of direct sales, maintaining adherence to sales tax rules is paramount for the prosperity and expansion of your business. As a diligent business owner or manager, your primary objectives revolve around boosting sales, optimizing profits, and delivering exceptional products or services to your valued customers. And so, grappling with the intricacies of sales tax can prove to be a formidable task.
In this article, we’re going to explore some handy strategies for calculating and collecting sales tax accurately in direct sales. We’ll dive into the common challenges and pain points that many business owners or accounting professionals like you often come across.
So, let’s get started and make this sales tax thing a little less daunting!
Understanding Sales Tax for Direct Sales
Sales tax plays a crucial role in direct sales and should not be overlooked. It is a type of consumption tax that is imposed on the sale of goods or services, typically collected by the seller and then remitted to the relevant tax authorities. To ensure compliance and accuracy, it is important to have a clear understanding of the different sales tax rates and how they apply to direct sales.
Sales tax rates can vary depending on the jurisdiction and can be influenced by factors such as the location of the sale, and the type of product or service being sold. Each jurisdiction may have its own tax rates, which could include state, county, and city taxes. It is crucial to be aware of the specific tax rates that apply to your business operations.
Calculating Sales Tax for Direct Sales
Accurate calculation of sales tax is crucial to ensure compliance with tax regulations. Here is a step-by-step guide to help you calculate sales tax correctly:
As the big day approaches, you may be finalizing your grocery list for your delicious Thanksgiving feast. While many items you purchase for Thanksgiving dinner will be sales tax free, there are a few key things to be aware of. In this blog post, we break down the sales tax implications of your big turkey dinner. Stay informed and have a happy Thanksgiving!
Turkey Dinner Sales Tax Obligations
First, we look at the most essential part of Thanksgiving — the food! Currently, you will only be taxed on groceries in 11 states, and many of these 11 have either reduced or paused that charge as inflation rates soar.
Maybe you decide to bypass the stress of cooking and choose to eat out at a restaurant or order takeout. If you do eat at a restaurant, you will be charged sales tax in most states. Check out this comprehensive guide to see what you may be charged on top of your base meal price. If you would rather eat from the comfort of your home and decide on takeout, this guide lists your state’s sales tax prices for prepared foods consumed at home.
In this article, we share why understanding specific details related to NFTs is so important for ensuring sales tax compliance.
As NFTs, or non-fungible tokens, have gained popularity worldwide, we are beginning to see sales tax questions arise about these products. As with other digital products, the details are vital to understanding your sales tax obligations.
When Are NFTs Subject To State Sales Tax?
Very few states have issued specific guidance on whether the sale of an NFT is subject to sales tax. So how do NFT sellers know if they should collect and remit sales tax in each state they have NFT sales in? First, we can look at a state’s legislation regarding digital products. Traditionally, only tangible personal property was eligible for sales tax, but when digital products gained traction, some states began to implement taxes on them. The devil is in the details, however, because the definition of a ‘digital product’ varies by state. Some states say that if a digital product is taxable in its tangible form, then it is taxable in its intangible form. Some states actually treat intangible goods as tangible personal property (TPP) because they can be seen and experienced, and some don’t tax digital products at all because they are intangible.
As the 2021/2022 fiscal year ended on June 30, many states implemented sales tax legislation reforms. In this blog article, we share a few standout updates you should know about.
Washington State Department of Revenue & NFT Sales Tax
NFTs, or non-fungible tokens, have been around since 2014, but started gaining momentum in 2021 and have only risen in popularity since. As you can imagine, this has created some sales tax confusion.
Washington state is one of the few states to tackle the taxiblity of NFTs, and on July 1, 2022, the Washington State Department of Revenue published an interim statement on how sales tax applies to NFTs. The statement is “intended to provide general information related to the taxability of certain transactions involving NFTs and does not intend to address any exemptions, exclusions, deductions, credits or other incentives that may apply.” The interim statement functionally defines NFTs as a digital code.
Non-Fungible Tokens, or NFTs, have been around since 2014, but only obtained mainstream use in 2021. According to the Economic Times, NFTs have only gained momentum since. This is due to a variety of reasons including the connection with the metaverse and celebrities jumping on the NFT bandwagon. As a result, NFT sales have soared, with some bringing in millions of dollars. With the popularity of NFTs rising, what are the sales tax ramifications? In this blog article, we explore this new and multifaceted area of taxes.
What Is An NFT?
Before we explore NFT sales tax implications, let’s clarify what an NFT is. An NFT is a digital asset that represents real-world objects like music, art and videos. Just about anything can be an NFT, and this link shares a list of some of the most popular types such as collectables, trading cards, art, memes and more. NFTs are bought and sold online, usually with cryptocurrency, a decentralized digital money based on blockchain technology like Bitcoin. As we mentioned above, NFTs have gained traction in recent years, especially as a way to buy and sell digital artwork. According to Forbes, about $174 million has been spent on NFTs since November 2017. NFTs stand out among most digital creations, because they are generally either very limited, or one of a kind, and have unique identifying codes.
NFTs And Sales Tax
It’s been nearly three years, but the Wayfair decision is still impacting businesses in unexpected ways.
For an in-depth overview of South Dakota v. Wayfair (2018) and its impact on states and retailers alike, please click here.
As a result of the decision in that case, almost every state with a general sales tax has implemented what many in the business refer to as ‘Wayfair laws.’ More specifically, economic nexus and marketplace facilitation legislation.
The speed at which these laws were implemented by states eager for additional sources of tax revenue meant that interactions between Wayfair legislation and other laws may not have been fully considered or understood at the time. Even now, as the last holdout states finally join the rest by implementing their own Wayfair laws, businesses are still feeling the effects in areas other than just online sales tax.
The sales tax, used by almost all states, is a consumption tax. Generally, consumption is what the final consumer does. For example, a company manufactures paper, a greeting card company purchases some of that paper to make greeting cards and sells them to the final consumer or to a distributor who sells them to the final consumer. As the paper or cards move through this supply chain, a sales tax exemption for items purchased for resale prevents sales tax from being charged. The final consumer is the only one who pays sales tax when the card is purchased (reaches the end of the supply chain).
Supply chains and tax systems are not always this “simple” though because not everything a business buys is directly for resale. A recent case in Kansas found that electricity purchased by Southwestern Bell Telephone, Co. LLC (No. 120,167 (2020)) to help in the delivery of telecommunications services was exempt from sales tax because it was used in this production. A lot of time and effort though went into the determination of whether Southwestern Bell owed sales tax.
3 Sales Tax Predictions For 2020
The world of sales tax has changed a lot in the past year. Following the Supreme Court’s Wayfair decision, 2019 was the year most states began requiring businesses to collect and remit sales tax, and then began making marketplace facilitators (such as Amazon or eBay) responsible for collecting and remitting the taxes on sales that came through their marketplaces.
What changes can we expect to see this year? Keep reading for three predictions we believe are just around the corner.
1. Smaller Retailers Will Depend On Marketplaces
As Greg Chapman, SVP of business development at Avalara explains, “We should expect traditional ecommerce providers to start working closely with marketplaces or offering more ‘Amazon-like’ experiences to stay relevant.”
The increase in online shopping coupled with confusing economic nexus laws make it even more appealing for very small businesses up to mid-sized companies to work with online marketplaces. In addition to facilitating sales in a process that’s more streamlined for customers, a lot of states have placed the burden of sales tax collection on the marketplace rather than the seller. This can greatly reduce the cost and risk of doing business online for companies struggling to navigate tricky taxability questions.
Here we are, about 18 months after one of the biggest jolts to the sales tax landscape. On June 21, 2018, state sales tax completely changed when the U.S. Supreme Court established precedent for economic nexus through South Dakota v. Wayfair, Inc.
In the highly anticipated ruling, the Court ruled 5-4 in favor of overturning its 1992 Quill decision, which required sellers to have substantial physical presence before a state could enforce the sales tax collection responsibilities.
Writing for the Court’s majority, Justice Anthony Kennedy indicated, “The Court concludes that the physical presence rule of Quill is unsound and incorrect. The Court’s decisions in Quill Corp v. North Dakota, 504 U.S. 298 (1992) and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), should be, and now are, overruled.”
As States become more aggressive in the collection of sales tax, cases are making their way to the United States Supreme Court. In the 1960s the U.S. Supreme Court limited states sales tax collection power to individuals and businesses with a physical presence, either themselves or property, in the state. This was reaffirmed in the 1992 Quill decision in Quill Corporation V. North Dakota.
Since the Quill decision, the “physical presence rule” has been challenged in the area of sales tax (31 states now have laws collecting sales tax from internet firms with no physical presence in the state). Horror stories abound including states like Massachusetts and Ohio claiming they can tax any company if their website puts a cookie on an in-state browser.
Sales tax is a major revenue source for many states, including California, which is why its legislature has been looking for additional ways to collect fees under the ‘sales tax’ umbrella.
For years, State Senator Bob Hertzberg has been trying to extend the state’s reach by imposing sales tax on services. Although 2015’s Senate Bill 8 didn’t pass, there’s another bill recently heard in the Senate Governance and Finance Committee: Senate Bill 993 (SB 993).