In June 21, 2018 the Supreme Court ruled against quickbooks regarding internet companies paying state sales tax. This is known as the Wayfair decision. Even more concerning, only 7 in 10 small business owners had known about the Wayfair ruling, leaving 29% clueless to the changes that will likely affect their business. In this case, the Court ruled in favor of a South Dakota law that requires any out-of-state seller that delivers more than $100,000 of goods or services or has 200 or more transactions in South Dakota, on an annual basis, to collect sales tax from purchasers located in the state. This ruling overturned the long-standing physical presence rule set out in Quill Corp. v. North Dakota and set the foundation for all other states to enact similar laws if they don’t already have them.
Intuit and the Sales Tax team at QuickBooks conducted a research study involving 600 small businesses to gauge their level of concern over this ruling and recently published their findings. The study revealed that 1 in 10 small businesses feel that managing sales tax for their business is not at all clear (9.3%), and a whopping 2 in 5 feel that it’s only somewhat clear (43.5%). Additionally, when asked how confident they were with their business’s sales tax calculations, 1 in 10 small business owners reported that they are not at all confident (8.2%), and only 1 in 2 considered themselves very confident (55.83%). At the end of the day, it’s clear that business owners consider sales tax be much more complex than they would like, with 1 in 2 feeling that collecting sales tax is either only somewhat simple, or not simple at all (56.2%).
Sales tax is imposed by a government entity, typically a state, city, county, or district. The tax is calculated based on the location of the sale of goods and services, and retailers have an obligation to collect sales tax from their purchasers and remit that collection the appropriate government entity.
In the US, the majority of states impose sales tax on the sale of goods and certain enumerated services. There are a handful of states that broadly tax all goods and services. In total, there are well over 60,000 sales tax laws to keep straight when determining what goods and services are and are not taxable.
To complicate the matter further, some transactions are exempt from sales tax due to their nature.
Necessity goods: goods, such as food, medicine, and clothing, may be assessed a lower sales tax rate or exempt from sales tax entirely.
Goods purchased for resale: Items carried as inventory and later resold may be exempt from sales tax. Note an important distinction from necessities: when the item carried as inventory is actually sold to a customer, the purchaser pay sales tax. While your business doesn’t pay sales tax in this instance, you must not to forget to collect sales tax from your customer on the final transaction.
Purchasers who are exempt: Sales tax exemptions are provided to purchases by certain enumerated entities, such as government institutions, non-profit organizations, charitable groups, and religious institutions.
If your business sells products and services that do not meet these limited exemptions and you are a remote seller, you may have to charge and collect sales taxes due to a Supreme Court decision that has changed the sales tax landscape.
The QuickBooks Sales Tax Team has developed useful resources for small businesses to help them understand their sales tax liability. The Sales Tax Calculator is an invaluable resource and can accessed here. In addition to the resources from vendors such as Quickbooks, check with a qualified accounting firm.
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