Is your business among the businesses taking advantage of the evolving technology to sell products and services via the Internet? Despite the publicity around Internet commerce, tax is overlooked. Paying tax is an essential requirement in every state, including California. There is a tax exemption for tangible products sold online (Internet sales).
Therefore, if you reside in California, resident tax requirements for eCommerce have to be adopted. If you sell tangible products via the Internet, you will need a permit for the online business. In California, any company or individual making more online sales over 12 months is required to get a seller’s access from the California Department of Tax and Fee Administration (CDTFA).
This article is intended to help you understand the tax requirement for eCommerce sellers in the State of California.
Online Business laws
Online business laws are legal rules meant to shield customers and safeguard them from data breaches and deceitful marketing practices.
However, the laws regarding your e-commerce business vary from one state to another. There are more international laws and national regulations. The rules are intended to cover everything from privacy to taxes. Further, due to constant advancements in technology, e-commerce laws are a work in progress.
Note that: Ecommerce business laws oversee how you conduct business over the Internet. The rules incorporate taxes, marketing, security, and the change often as the technology evolves.
The tax requirements for eCommerce sellers in California
These guides help you keep your business on top of the developing law requirements and manage online store sales taxes accurately.
Determine where you have sales tax nexus
Determining your sales tax nexus is the first step for the tax requirements for eCommerce that online sellers in California should understand how they work in businesses. Forty-five states impose online sales taxes. Some conditions that lack sales tax are Montana, Alaska, New Hampshire, Delaware, and Oregon.
Check the affiliate policies
If you choose to sell via a marketplace facilitator, Etsy or Amazon, they help you handle your online sales tax collection and remittance. Therefore, when you work with third parties, you should consider these tips:
Understand the law.
Despite working with established third-party marketplaces, it is essential to familiarise yourself with their laws and regulations in the state you are selling from.
Ask questions
Ask the marketplace facilitators to clarify the compliance efforts and policies. It would be best if you didn’t assume they will handle all the stuff on your behalf.
Verify accuracy
The tax requirements for eCommerce need you to periodically do an audit for your transactions and confirm that the sales you make are taxed accurately. You can use a tax accountant for this or a California Project Management Company for this.
Obtain a permit
A seller’s permit presents both a right and an obligation. For tax requirements for eCommerce in California, an online retailer can remit online sales tax to the government.
If you have a permit, you are obligated to collect taxes from California customers to offset your cost. To comply with laws and regulations, you need access, and then you can offer sales tax on all products. You can now report the collected taxes to the state Board of Equalization.
Even with a business license, a seller should have an online business permit. The business permit will allow you to collect online sales from California, while the business license will enable you to do business in California.
This permit law is imperative whether you do e-commerce via your online store or a third-party site like Etsy or Amazon or an online sale platform like uBid or eBay. The tax requirements for eCommerce in California will need to permit you to sell goods via internet classified ads like Craigslist.
In most states, collecting tax without a business permit is illegal. Behind this, the point of view is that if you collect the sales taxes without the business permit, you are corrupt. The customers will know that you are collecting taxes and pocketing the money to yourself.
It is advisable to have a sales tax permit often before you start collecting taxes. After issuing you with a tax permit, California assigns you with an e-commerce tax filing frequency. It can be either quarterly, monthly, or yearly.
The rule of thumb says that the more your sales volume is in a certain state, the more frequently the state requires you to remit collected sales tax and file sales returns.
Here is the standard information you will require when you register for a sales tax permit:
- The personal contact information
- The business contact information
- The social security number or Federal Employer Identification Number.
- Employer Identification Number.
- Business entities such as sole-proprietors.
- Your NAICS Code
Collect sales tax
The next step for tax requirements in eCommerce is to set up and begin collecting online sales tax regarding the online marketplaces and shopping carts.
Every marketplace and shopping cart requires you to collect online sales tax; however, some online sales tax collection turbines are stronger than others.
For instance, Amazon has an exact and detailed sales tax collection engine. On the other hand, eBay will only allow online retailers to collect a sales tax rate from clients in every state.
Report and file sales tax
The moment you received the sales tax permit, California state provided a sales tax filing frequency. For this, your due date for sales tax rolls out monthly, quarterly or yearly, or semi-annually.
However, bear in mind that each state’s due dates for taxes slightly differ. You’ll find out that the tax requirements for eCommerce in some states will want you to remit your online taxes on 2oth of every month while others look forward to getting your taxes on the last day of the month, etc.
When the due date rolls out, the seller’s job is required to give the amount of sales tax collected in every state. In case California requires only one number, it gets easier and simpler in your calculations every month, yearly, or quarterly. In some cases, some states might want to know the sales tax collected from clients in every taxing jurisdiction.
In California, tax requirements for eCommerce want you to figure out the amount of online sales tax collected in every city, state, county, and all other unique taxing jurisdictions in your nexus states.
It would hurt the government’s revenue if you sell via numerous online channels and all you do is integrate more than an online sales tax report.
The moment you report the number of online sales collected, you should file the online sales tax return and remit the clients’ sales tax.
Monitor compliance
The online seller laws change with the technology; therefore, you should conduct periodic audits for compliance. Here are tips to help you stay up to date with the changing law requirements for e-commerce:
- Connect with states
Sign up in the email listings of revenue departments to receive their notifications via a newsletter to keep you posted with the law changes. Besides, connect with the law authority on social media platforms.
- Monitor sales
Set an automated notification to let you know when you close an online sales tax threshold. It helps you register accordingly when your sales get to a certain level.
- Consult with advisors
It would be best if you discussed your sales tax compliance with the online business tax advisor.
Here are a few important factors to consider:
- Often file “zero returns:”
You should always file zero returns even though you have not collected any sales by a given taxable period. The government will never want to see your tax report despite making no sales. In California, tax requirements for eCommerce will have you pay the penalty if you fail to file a zero tax return.
- Take advantage of discounts.
The majority of states that require e-commerce businesses to remit sales tax have it in mind that requesting the seller to collect online sales tax.
How to manage tax requirements for e-commerce sales tax
It takes cooperation, effort, and assistance for you to manage online sales tax. In California, the following tips are essential to help you remit and e-commerce sales tax to the right tax authorities and correctly track state regulations and laws.
Track each penny – literally
The tax requirement for eCommerce needs you to keep your records by staying at the top of the sales tax requirements. With a great accounting solution, you can track the sales and invoices to know wherever your online sales are coming from.
Track every deadline dates for every state’s payment
When it comes to remitting sales tax, every amount that you collect from e-commerce sales often varies by state. To avoid confusion, you should mark up your initial calendar or create a new one for every state’s tax payment due date and ensure the payments are paid to the right authorities on time.
In every state that you register your online company, you are provided with the filing frequency, which is either monthly, quarterly, yearly, or other. Every filing frequency comes with its due date. The dates might be similar on every day of every reporting period.
However, the days might fluctuate due to weekends, holidays, or any other factor. It’s recommendable to know the exact day and not to rely on assumptions.
Understand how you should remit online sales tax
Every state has tax requirements for eCommerce that govern your business to file your online sales tax and remit accordingly. Some states may need you to write them a check, while others require you to do the transactions online.
Keep the proper permits
An e-commerce business should obtain a new online sales tax permit that might pop up as the technology changes. If, for instance, you sell hundreds of dollars of products in California using the current legislation, you will need to acquire an online sales tax permit to carry on with the practice. You’ll have to pay online sales tax in any state, and you should obtain an e-commerce sales tax permit.
Know the online tax penalties for delays and mistakes.
In California, the tax requirements for eCommerce need you to be aware of the penalties for incorrect or late payments. Knowing the tax penalties for delays and mistakes is as crucial as understanding the laws and regulations. You might accidentally fail to comply with the rules but could put your business for issues that might call or legal action.
Contact an expert
Contacting a tax professional will help you be sure of the tax responsibilities in your state and others. An attorney’s insight enables you to make proper decisions for the online business. They will make sure you collect and remit the correct sales tax.
They are ready to ensure you have enough exposure regarding taxes in both California and other states. However, it would be best if you did thorough research before getting a lawyer to ensure they have a better understanding that is experienced.
An expert ensures that the business you are operating online is not toxic, depending on the liabilities. In most states, the sales tax report obligations recur. Therefore, small retailers must maintain impeccable documentation every time they make a sale.
The great news regarding a tax professional for your online business comes with exceptions for your e-commerce business. You can get a reduction in total sales before filing returns. A tax attorney will also help your company if it doesn’t have a specialist in multi-state tax management.
Take Away
Taxes are daunting and overwhelming; however, they are essential to help manage a fruitful online business. The best way to stay up to date on the changes that come with sales tax laws is to ensure you keep track of your due dates and filing frequencies, keep your meticulous records, have the right sales tax business permit, and keep your tax lawyer close.
Tax requirements for eCommerce need you to fully be sales tax compliant by registering for a sales tax permit in a state where you have a sales tax nexus. You can now file and remit the sales tax due by every sales tax due date.
Familiarizing your online business with eCommerce laws and regulations and adopting the processes and tools for complying. It helps you stay ahead of the curve to grow your sales with confidence.