Options for Filing & Automating Sales Tax Returns
This article is based on a guest post from our good friends at MuseMinded.
The blog is the final in our ecommerce sales tax series, as part of the A2X ecommerce accounting hub.
If you’ve been with us from the beginning, you’ll have covered an overview of what sales tax is, why and how it affects ecommerce sellers today, and strategies to deal with sales tax compliance. Next up, we discuss your options for filing.
In this blog, the final part of our Ecommerce Accounting Hub, sales tax series:
Table of Contents
When you register for a sales tax license in a state, you will usually be sent some kind of package with the details of your registration. This is sometimes done electronically, but most states send it via the mail.
This package contains a copy of your sales tax certificate (generally a paper document), and a set of instructions for filing returns. In these instructions, you will find a very important detail - your filing frequency.
Most states require sales tax returns to be filed on a quarterly basis. However, a handful of states work monthly or annually. You may have nexus with multiple states and as such, be required to file for them at different times.
It’s important to note that you need to file tax returns, even if you have no sales to report.
Once you are on their books, state tax departments are very good at making sure that you stay compliant and following up if you forget to file a return.
Tax Filing Options
When it comes time to file a return, you will need to visit the relevant state’s website and set up an online filing account. You can find the state’s official pages via the tables in our dedicated guides below:
Even if you sell on Etsy or Walmart, the tables in these blogs are relevant to you.
Most states have a sales tax permit registration process, and also an online filing portal registration process.
- Sales tax permit registration: This allows you to get the license you need to collect sales tax. It is illegal to collect without one! You’ll need one per state where you have nexus.
- Online filing portal registration: This is where you actually file your taxes ongoing. Again, this will be for each state with which you have nexus, so make sure you’ve got those correct first!
Once you have registered through these portals, there are a few ways that you can go about filing your sales tax returns.
1) Manual filing
The DIY approach.
The cheapest way to manually file returns is to use the tax reports provided by your platform (like Seller Central for Amazon sellers).
With this option, you input your sales data directly to the state via their web portal, using tax reports from your equivalent of Seller Central (if you’re not an Amazon seller).
The reports are usually free but not the most user-friendly, so you might need a trusty spreadsheet to help you calculate your returns if you haven’t used an app like A2X to do that bit for you.
This could work if you only have nexus with a couple of states, but many more and this could get hugely time-consuming; not to mention confusing.
2) Automated filing
The time-saving approach.
Automate your sales tax collection and filing with A2X and tax apps.
A2X tells you exactly how much sales tax was collected per bank deposit. The tax apps, like TaxJar and Taxify, tell you the rates of the states with which you have nexus and can file the tax for you automatically.
The apps all integrate with your accounting software and platform for easy, accurate tax accounting.
3) Outsourced filing service
Companies such as The Tax Butler can manage your sales tax returns, and handle any questions or correspondence from the state on your behalf.
Returns are normally submitted using software just like the automated filing option. As much as we would like sales tax to be a ‘set it and forget it’ type of situation, there will always be oversight needed from time to time.
If there is a calculation error with your software, or a state sends you a notice that needs responding to, this can take time and energy that could be spent elsewhere. Working with a firm to take this responsibility off your hands can be a great way to leverage your time and mental energy to focus on activities that generate income.
If you are looking to outsource this part of your business, take a look at the sales tax accountant directory by TaxJar.
How to Choose Your Filing Method
If you’re on a tight budget and not planning on ramping up your business quickly, the manual filing option should be sufficient to begin with.
At this stage, your sales tax exposure should be relatively small, and it is not likely to be too much of a hassle. By adding A2X into the mix, you can ensure that some of the calculation is done for you and that when it comes time to manually file, you have accurate numbers.
If however, you have the budget to make this process as easy as possible, then an outsourced solution may be the best way to go. You can ensure you remain compliant without spending longer on filing yourself.
If you are only planning to file in your home state, then you might be able to use reports from your platform. However, if you plan to monitor your sales tax exposure across all the states moving forward, then it would be a good idea to use TaxJar’s reporting.
Once you begin filing in multiple states, the need for sales tax software and outside help starts to increase dramatically.
When you get to a point where you are filing returns in most or all of the states, the value of an outsourced service will become much more apparent. By engaging such a service, you will be able to free up your time to focus on activities that generate new business.
Stay on Top of Sales Tax with A2X
When you integrate your ecommerce platform with your accounting software, your transactions become automated. This is great, but some fundamental detail is missing for ecommerce sellers.
Lump sum deposits are sent to your accounting software without a breakdown of what credits or debits were involved in getting to that amount. Figuring out how much sales tax you collected becomes a time-consuming, manual process.
A2X can help make tax time a breeze, ensuring you remit the correct amounts and don’t get slapped with a nasty unexpected cost at the end of the financial year. Everything is broken down for you automatically, saving you time and money.
What Did You Think?
This blog is the final part of our ecommerce sales tax series.
We have many more in-depth platform-specific guides dedicated to sales tax. Head back to the Ecommerce Accounting Hub to read them.
If you’ve been with us throughout this series, we’d love to know what you think. What did you find useful? Did we miss anything?
Feel free to contact us here with feedback. Thank you!