Sales tax remittance is the process of submitting the sales tax collected from business sales to the appropriate tax authority.
As a business owner with a physical or economic presence in a jurisdiction, you may have to collect and remit sales tax. Sales tax laws, rates, and regulations vary by state—failing to file and pay them correctly may lead to costly and more time-consuming issues down the road.
This guide goes over the sales tax remittance process, from understanding your obligations to filing your sales tax return, as well as tips on how to streamline your sales tax process to stay compliant.
The first step to filing sales taxes is to understand your tax obligations. Sales tax laws and rates will vary depending on the state you do business in or whether you have sales tax nexus with a state that collects sales taxes. The sales tax nexus is a connection you have with that state, which can be physical or economic, such as a physical location or selling to customers in a state that collects sales tax.
Review the sales tax laws in the area where you establish a physical presence and the economic nexus laws to establish if you have a connection with that state. Many states have an economic threshold of revenue or transactions in that state.
Additionally, when applying economic thresholds, keep in mind that the definition of “sales” in each state’s law can vary between gross, retail, or taxable sales.
Once you understand your sales tax obligations, you should obtain a sales tax permit if you haven’t already. A sales tax license is a document that lets you collect sales taxes on taxable goods or services.
You should apply for a sales tax license if your business has a connection with a state with sales tax and if you sell taxable goods or services. You can apply for a sales tax license by contacting the state agency responsible for issuing these permits. However, each state may have a different application process.
The application process usually involves providing information about your business, such as name, business structure, address, and contact information.
Next, you need to start collecting sales tax on taxable goods and services. Some states don’t charge sales tax, but if you sell goods in one of the 45 states that do, you’re responsible for collecting it.
The amount of sales taxes you have to collect will vary depending on the state and area of your business. Sales tax rates can fluctuate monthly and can vary from 0% to 12.75% depending on your location.
To determine how much sales tax to collect, keep up with tax regulations, use a sales tax calculator or turn to a point-of-sale system that automatically calculates sales taxes on each purchase.
When you register your business to collect and report sales and use tax, the tax authority provides a notice to the business of the filing frequency per tax type, which may change depending on location.
The filing frequency defines when you must report and pay the tax authority. This frequency is usually based on revenue and often set to monthly, with tax due on or before the 20th of the month following the period reported.
For example, an October monthly return may be due on or before November 20. Some states have worked to unify their filing rules under the Streamlined Sales Tax (SST) and require monthly filing, but those filing rules only apply to certain sellers using automated calculation and filing software.
Some states, however, differentiate tax administration by tax types:
Jurisdictions that make tax type distinctions typically require separate registration and reporting per tax type. Reporting for the correct tax types helps small businesses minimize out-of-pocket tax expenses.
When it’s time to remit sales taxes, you can file it by mail or electronically, depending on the state. Check with your state’s revenue department to understand the sales tax remittance process, and whether you can schedule payments before the deadline.
If filing by mail, understand if your state treats the return and payment timely if postmarked on or before the due date or if they measure timeliness based on the receipt date. It is also important to pay attention to Agency Notices and stay aware of any changes to filing frequency or reporting and payment rules.
Remember that states can make mistakes or have technical “glitches.” Save your online confirmations, as well as proofs of mailing and canceled checks related to paper submissions, so that if there is a mistake, you can use that proof to eliminate the penalty or interest assessed for late submissions.
Remitting sales taxes varies by state, with some states requiring electronic tax returns and payments, while others only accept you to mail documents. Use this chart to understand how to file sales tax returns in your state:
Filing and remitting sales tax is crucial to maintain compliance and avoid penalties. Here are some tips for filing sales tax:
Many states offer a collection allowance or timely-file discount, regardless of whether filing returns electronically or by paper. When claiming discounts, ensure you’re recording them under the correct tax type because not all jurisdictions allow a discount for every tax type.
As your business grows, understanding the sales tax remittance process can help you stay compliant with laws and regulations, whether you have a physical store or an e-commerce business.
Fortunately, software with sales tax functionality, like QuickBooks, helps you keep up with changing sales and use tax rates and conveniently accounts for sales tax nuances in every state, including those on clothing, food, medical items, services, and software.
Disclaimers:
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