SALT Accounting for E-Commerce Businesses
When it comes to taxes and your e-commerce business, it is best to leave it to the professionals. Which are what State and Local Tax (or “SALT”) accountants are. A SALT accounting expert will offer more support when it comes to State and Local Taxes than a traditional accountant because state and local taxes vary from state to state, and from city to city. SALT accounting experts are well versed in the various laws associated with different jurisdictions. This can be helpful for e-commerce businesses who operate in different states and localities, which most do. A SALT accounting expert can help e-commerce businesses correctly file, collect, and remit their taxes in all of the states where they conduct business. This can be a tricky area for many e-commerce businesses. Here is some SALT accounting advice for e-commerce businesses.
Considerations For State And Local Tax
Dot Your I’s and Cross Your T’s
One of the most important pieces of SALT tax accounting advice for e-commerce businesses is to file accurate tax returns. When it comes to filing your state and local taxes make sure your are filing a complete and correct tax return the first time! This should go without saying, however errors can happen. Which is why it is important to slow down and make sure you determine, calculate, and report your taxes correctly. For e-commerce businesses who conduct business in different jurisdictions it is important to understand:
- When to file. You will have sales tax and income tax deadlines that vary across states depending on where you sell and/or where you have nexus.
- Basic knowledge of the tax laws in each jurisdiction you file. This includes tax rates and specific filing rules. For example some states require specific forms or a specific method of filing.
- How to calculate the tax rate within the city you are conducting business. Make sure you are calculating the correct tax rate by researching the tax rate information for where you sell.
- Know where you have nexus. Nexus means a connection or link. You may have to evaluate if you have presence in other states and whether you will have to file. While there are federal court cases that have dictated what nexus is not, be sure to look into state nexus rulings for the largest states you sell into and operate in. Each state has different rules regarding nexus, so it is important to do some research.
Being consistent with your filling is another basic, but critical piece of SALT tax accounting advice for e-commerce businesses. If you are consistent with your returns then you are less likely to raise a red flag and invite an audit. To prevent inconsistencies, have set practices in place. For example utilize the same software and form good habits on a periodic basis. Keep things consistent among employees. It is easier to identify potential errors if everyone is on the same page.
Manage Use & Sales Tax
Mismanagement of use and sales tax is a common mistake and can prove to be quite costly. Learning how to manage your use and sales tax is a helpful piece of SALT tax accounting advice for e-commerce businesses. A Use tax is the sales tax on goods or items that are purchased in a different state that will be utilized, consumed, or stored in your home state. No sales tax was paid to the originating state on the purchase of these items. Use tax laws vary from state to state. It is important to be educated on the use tax laws in your home state where they are applied. One important take away when it comes to use tax is, if the items were intended for resale, and you didn’t pay sales tax at the time of purchase, then you could be required to pay a use tax upon sale.
Keep Your E-Commerce Business Out of Trouble
Audits are scary things, nobody wants to go through. State audits are particularly difficult. To avoid being a target for an audit, try not to call attention to yourself. Make sure you file your returns on time, and free of any errors. When it comes to selecting e-commerce businesses for an audit there are a couple of triggers. For starters, a sole proprietorship is more likely to be audited than small business partnership or corporation. In addition, having a high amount of exempt sales, could flag you for an audit. Sometime a third party is responsible for an audit. Your vendors have to report sales that are sold to resellers, which could be you if you provided your sellers permit to your vendor. This is the most common way state authorities find an audit target. Also, it isn’t unheard of for a disgruntled customer or employee to notify the tax board of a mishandling.
The best way to keep your e-commerce business out of trouble is to always veer on the side of caution. Hiring a professional SALT tax accounting specialist can help guarantee that your state and local taxes are filed correctly, which is a huge load off your back. Tax codes and regulations can be very confusing for those who don’t deal with them on a regular basis. Which is why leaving it to the professionals is always best. Contact us about our SALT accounting practice!