Sales Tax: Common Mistakes By Small Business Owners

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One of the major accounting functions a small business owner has to fulfill is turning in their sales tax. Though there are some states in America that don't have any sales tax, the majority either have sales tax or a similar general excise tax. A failure to report sales tax correctly could lead to substantial fines and penalties.

Taxing the Wrong Items

Some states tax products and other states tax both products and services. And this can change, if the sales tax department decides to begin taxing different things. Products can also occasionally be taxed at different rates. The most common example of this is alcohol and cigarettes. The correct tax needs to be collected from the consumer and also reported to the sales tax department.

Not Taxing Online Sales

Online sales are complicated for a small business. Online sales do need to be taxed, but generally only if an established presence has been made in the state that the consumer is purchasing from. As an example, if a company is in New York and selling to a consumer in New York, they usually need to pay sales tax. But if the company is in New York and selling to a consumer in California, they may not.

Paying Taxes Late

Sales tax has to be paid at scheduled times based on the amount that the company is making. A company that is making $100,000 a month may need to file their taxes monthly; a company that is making $100,000 a year may need to file quarterly. The specifics depend on the state that the company is in and should be looked up to avoid any penalties.

Accepting Adjustments Without Audits

Occasionally, sales tax forms will be manually adjusted and the sales tax department will request more by way of taxes. But these adjustments shouldn't be accepted without a thorough audit because they are based on the forms that the company submitted. In other words, the gross amount of product sold could be inaccurate rather than the amount the company paid.

Many advanced accounting suites can provide sales tax calculations themselves -- but they still need to be given the right information to begin with. A sales tax seminar may be ideal for business owners who are just starting out and want to make sure that their bases are covered. If sales tax is filed incorrectly, working closely with the state tax department will usually resolve the situation.