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Complying With Sales Tax Rules

Last updated: April 7th, 2020

With more than 12,000 taxing jurisdictions in the U.S. and varying rates throughout the year depending on product or service sold, sales tax rules have never been more complex. Managing state and local sales taxes is challenging for even the most savvy companies, especially with the new “economic nexus” policies adopted by 40+ states in the last two years.  

This will affect all retailers transitioning to ecommerce, whether you intend to ship your products or set up a curbside pickup system.  

Ecommerce Taxes & QuickBooks Point of Sale

There are new tax elements to consider as you expand from a brick-and-mortar store into an online presence with QuickBooks Point of Sale. 

When you check out customers in your brick-and-mortar store, you generally collect tax at one rate and maybe change it to reflect changes once or twice per year. With ecommerce sales, it gets more complex. 

In 2018, ecommerce tax laws were changed with the South Dakota vs Wayfair Supreme Court ruling. Due to the ruling, sales across state lines could now be taxed based on the recipient state tax laws. As of Jan 2020, nearly all states have applied some threshold for ecommerce sellers to remit sales tax when selling across state lines. 

Note: See South Dakota v. Wayfair, Inc. for more information.

Economic Nexus In The Sunshine State

  • Proposed bill sitting with Florida Legislature would set state’s economic nexus threshold at 200 transactions of tangible personal property OR retail sales exceeding $100,000 in the previous calendar year
  • If passed, economic nexus would take effect on July 1, 2020
  • Bill would require marketplace facilitators to collect and remit sales tax on third-party sales
  • Would take effect October 1, 2020
    • This is the second economic nexus bill to be filed in Florida

Missouri’s Economic Nexus

  • Missouri has one of the most complex sales and use tax systems
    • ~2,200 local jurisdictions – some have multiple local rates that don’t always match
    • Special rates for food, domestic utilities, etc.
    • Missouri Legislature required the DOR to make it easier to find local sales and use tax rates in 2018
  • Missouri will likely need to address these complexities before it can require remote sellers to collect sales tax
    • Economic nexus bill did not pass the Legislature in May 2019
    • Simplified Remote Sales Tax Remittance Program has been proposed, similar to Alabama and Texas

Other Noteworthy Economic Nexus Highlights

  • Texas created an optional single local use tax rate for out-of-state sellers
  • Louisiana will enforce economic nexus by July 1, 2020
    • 200 transactions or $100,000 in sales
  • Georgia lowered its remote seller sales threshold by $250,000 to $100,000, effective January 1, 2020

Once past the threshold, you will need to remit taxes to the state where the products were sold. Some marketplaces like Amazon and eBay take care of the remittance for you. Check with your tax expert to help determine if you meet any of these thresholds.

Note: For reference, see Avalara’s state-by-state guide on taxes.

Tracking Ecommerce Taxes With QuickBooks Point of Sale

You will need to set up tax locations in QuickBooks Point of Sale if your online store ever charges taxes. You likely have a tax location already created in your QuickBooks Point of Sale to calculate tax within your brick-and-mortar store. In addition to that location, you will need a specific tax location to calculate taxes for purchases not made in your location or state. This is the reason why specific tax locations should be created for online orders. 

Creating tax locations in QuickBooks Point of Sale

  1. In QuickBooks Point of Sale, go to File -> Preferences -> Company and select the Sales Tax menu area. 
  1. Add a tax location specifically for online store orders.
  1. Create the tax location in QuickBooks Point of Sale
    1. Below is an example of the tax name
  1. Tax code that appears on the sales receipt
  1. Single-rate tax which is for the online orders tax. This will always be a single-rate tax. 
  1. Set the tax rate percentage
    Note: This is the tax rate that is currently being calculated in your online store at the time of sale. This online store tax location rate in QuickBooks Point of Sale must match the tax percentage you have created in your online store. Check your online store if you are unsure what this is. 
  1. Click on Finish, and your new tax location will appear in the tax location area in QuickBooks Point of Sale.  

Note: This is also the same procedure for creating specific out-of-state tax locations in QuickBooks Point of Sale if you are using QuickBooks to calculate the tax.  

What happens in QuickBooks Point of Sale

When QuickBooks calculates the tax of an online store order, it appears in the tax field of a sales order.

Supplementing Tax Tracking With Webgility Desktop

To assist with tracking and collecting taxes when using QuickBooks Point of Sale, the Webgility Desktop software has three potential configurations. Deciding on the best one depends on the size and complexity of the tax nexus you need to track.

Using QuickBooks Point of Sale to calculate taxes

This option should be used in 2 situations:

  1. You do not anticipate having to collect sales taxes at a different rate than what is collected in your brick-and-mortar store. If you do not hit any threshold for cross-state tax nexus remittance and you have a single tax rate across your state, this is the best option. 
  2. You have built out a tax nexus of Tax Locations in QuickBooks Point of Sale. In this case, you need a separate Tax Location. When you do this, you need to map the individual Tax Jurisdictions you care about collecting for remittance and map them (either by state, county or zip code) within Webgility Desktop.
    Note: This option can be very time consuming to set up and maintain, as you may need to remit to hundreds of tax jurisdictions. In addition to the number, local taxes change regularly and the tax locations in QuickBooks Point of Sale would have to be regularly adjusted to match. 

Using the Online Store to Calculate Taxes

This option removes QuickBooks POS from using its native tax functionality, instead opting to have them appear as a line item on the receipt. This requires setting up a new Tax Location and tax item to record into QuickBooks Point of Sale 

  1. This option should be used if you need to collect a variable tax rate for your state but do not anticipate collecting for other states. 
    1. For example: In California, if a product is sold from San Francisco and bought by a customer in Fresno, the order should be taxed at the local rate for Fresno. But since the remittance goes to the same collection agency, using a single line item to track the tax allows for the variable rate and easy tracking of what is owed. 
  2. This option can also be used as a ‘quick fix” to record the taxes collected accurately but cannot create or maintain the Nexus of Tax Locations.
    1. This works, but, since it records the total on taxes collected to a single item, it makes splitting apart to what is owed to each state difficult. 

Using a Third-Party Application to Calculate Taxes

This option should be used if you have to collect for many different Tax Jurisdictions and do not have the ability to create and maintain a lot of Tax Locations within QuickBooks Point of Sale. These services will generally connect to the ecommerce store directly. 

When a customer checks out, the application calculates the appropriate tax to be charged and collects it on the order. More advanced applications like Avalara will even document how much tax liability is owed to each tax collection agency and help you accurately file with each state. If you are using an application like this to calculate taxes, you will want to use the option that the online store calculates tax. 

Sales Tax Obligations For Online Sellers

More than 36 states have adopted marketplace facilitator laws, requiring marketplace facilitators (Amazon, Etsy, etc.) to collect and remit sales tax on behalf of third-party sellers. The law reduces the burden on sellers who only sell on marketplaces, but some marketplace facilitators are fighting back. 

Therefore, the landscape will likely get more complex with time. By the end of 2020, every state could have an economic nexus law and a marketplace facilitator law. With the confusion, we recommend automating sales tax calculations and returns to ensure compliance with all the changes as well as free up your resources.

Why should you automate sales tax management and accounting/bookkeeping?

Several reasons:

  • Accuracy – Automation eliminates human error
  • Efficiency – You can reduce costs and time spent managing non-revenue-generating activities
  • Risk management – With accurate results, you’ll decrease your company’s risk
  • Customer satisfaction – Accurate and speedy transactions will ensure customers are not over- or under-charged
  • Business growth – Resources previously used to manage the financial processes will be freed up to focus on more high-value projects