Chapter 14: Seller's Permits
Collecting and paying sales tax can be an extremely annoying process, especially if you’re liable to do so for multiple different states. Most payment processors have a built-in option to charge sales tax directly to the customer at checkout based on their shipping address - this is the easy part (you will need a seller’s permit in a state before you can start collecting sales tax). Once collected, it is HIGHLY recommended that you set aside any collected sales tax into a separate account. One of the worst things you can do is forget you collected sales tax, spend that money on inventory or salaries, and be faced with a huge bill come filing time.
When going to file sales tax, most states these days have fairly decent online portals to fill in all the necessary information, but be aware - this can get super convoluted. If you’re hitting nexus thresholds in multiple states, put some of that revenue towards a CPA and save yourself the headache. However, if you’re just starting out and need to file in your home state, it’s doable, just tedious.
The first thing to look out for is the filing deadlines in your state. Some states have quarterly filing requirements, some yearly, and some monthly. These returns need to be filed even if you didn’t have any sales for that period. If you don’t file $0 sales returns for a given period, the state can assign “estimates” to your account. This is basically the equivalent of the state guessing how much sales tax you might owe based on previous filings (or literally nothing) and then saying you owe that amount, even if you didn’t have any sales in that state during that period. So check out the deadlines, and make sure you file, even if the return is all zeroes.
When filing, things start to get annoying. Sales tax is often charged at the state level, AND county level, and sometimes even the City level (ahem, California). This means that you’ll need to input your total sales for that period by county, sometimes by city. If you’re using Shopify, an easy way to segment out your sales data in this way is using the Report Pundit app (link), which we’ll go over later in the “Using Shopify for your Business” section. You can also parse this data directly from a transaction export for a given time period, and use pivot tables to pull out the total revenue by state and county.
Fill out the sales by county data in the online portal, pay what’s due, and you should be good for the quarter (or month…).