Sales tax compliance is trickier than it sounds, but it doesn’t have to be.
It’s just a fact—every business has to pay taxes. Retailers are responsible for collecting, tracking, and remitting sales tax to their local tax authority. If you’re an online retailer, you generally must charge sales tax on purchases by customers who live in any state where you have a physical presence. But how do you know the appropriate sales tax rates for your business?
Below we outline some ways to figure it out. Much of it depends on whether you have a single tax rate or a variable tax rate.
If you only have one tax rate
If you’re using QuickBooks as your accounting software, keep in mind that QuickBooks is designed for businesses that have a standard tax rate. If you’re charging all your customers the same tax rate—for example, if your business is located in a state which has a single tax rate, like New Jersey, and you only conduct business in that state—you’re in luck, because you can find the information you need within QuickBooks. If not, don’t worry, we’ll cover that in the next section.How to track your #ecommerce sales tax. From your friends at @Avalara + @Webgility #Unify Click To Tweet
In each transaction, you’ll see the tax field at the bottom. If you’re using ecommerce integration software like Webgility Unify, you can configure it to record taxes in the tax field.
If you have variable tax rates
Many ecommerce businesses use variable tax rates, meaning they calculate sales tax based on the customer’s location. Some states require this—and big states like California can have over 100 sales tax jurisdictions.
If your shopping cart is calculating variable sales tax, or you’re using sales tax automation software like Avalara AvaTax, you won’t need the QuickBooks tax field, because it’s designed for a static tax rate. If this is your situation, you can still easily get a tax report. You’ll just have to pull a fast one on QuickBooks by making it think you aren’t collecting taxes at all, and then use the software that’s calculating the taxes to run your report.
First, you’ll need to set the QuickBooks default tax field to 0.0%. Next, when you set up ecommerce accounting automation software like Webgility Unify to record your transactions in QuickBooks, configure it to record tax as a line item instead of in the tax field.
When an order is synced in QuickBooks, your transaction detail will appear with the correct sales tax as a line item and the “tax” field as $0.00.
Running a report for variable tax rates
As mentioned above, you can’t use the QuickBooks Sales Tax Liability report if QuickBooks thinks there is $0 sales tax collected. So how do you now calculate your sales tax liability? You can run a QuickReport in QuickBooks to give you a snapshot of how much you’ve collected in taxes, but it won’t tell you how much you owe to each tax district. To get this information, you’ll have go straight to the source. You need to run a sales tax report in the program that initially calculated your sales tax—your shopping cart, marketplace, tax calculation software, etc.
So now that you’ve collected sales tax from your customers and you know how much you owe to each tax authority, all that’s left to do is file your returns and remit those payments so you can get back to focusing on your business—and sleep well at night knowing that you’re in full compliance.ON DEMAND WEBINAR: ASK A QUICKBOOKS PRO