We hear you. Anything that has to do with Sales Tax can be one of the most confusing aspects of running a business! There are multiple questions on collecting, calculating, reporting, and paying sales tax and it has only grown more complicated with online business. Many times we hear businesses wondering What Type of Company Needs to Pay Sales Tax?
Sales tax is something that isn’t mandated federally, but most of the states in America do charge their own, including Wisconsin. On top of that, many municipalities also collect local sales tax, too. With all of these different laws, rates and timetables, it’s no wonder it’s one of the most frequent inquiries that small business owners have. Most of the time, hiring a professional tax accounting is a sound business investment to make sure you’re following the necessary laws and not putting your business at risk.
What Type of Company Needs to Pay Sales Tax?
Sales tax is usually triggered when a consumer makes a retail purchase on a tangible product, but it may also be charged on different services. And just because the sales tax is being passed on to the consumer doesn’t mean you’re free and clear. At that point, it’s the business’ responsibility to collect the tax and hand it over to the state, county, or municipality where the business resides. It’s also mandatory on any type of transaction, such as cash, credit, installment, and trade-ins, unless something is specifically exempt. And then there are online sales…
Does your company provide any of the common taxable goods below?
If so, you can assume that you will need to pay sales tax to your state and local governments:
• Furniture
• Motor Vehicles
• Computers
• Home Appliances
• Electronics
• Books
• Toys
• Raw materials (lumber, cloth, etc.)
• Gardening items, including plants
• Rental Properties
Service-Oriented Businesses
If your business concentrates more on service-orientated items, taxable services can include:
• Personal property services like installing, inspecting, maintaining, and repairing items for customers
• Real property maintenance services on customers’ property, such as lawn mowing and landscaping, snow removal and repairing utilities
• Photographic services, including taking, processing, and printing of film
Possible Exemptions
Each state does have rules for different businesses that are exempt from Sales Tax, so it’s important to fully understand if any exemptions apply for you. If they are waived, it will be imperative to be able to present a valid certificate that proves sales taxes are waived for you.
Some areas where sales tax exemptions may apply include:
• Food
• Medicine and medical devices
• Yard or Garage Sales
• Estate Sales
• Wholesale items being resold
• Products provided to certain industries such as agriculture, manufacturing, and industrial processing
• Sales to the federal government, state government, cities, counties, or other local jurisdictions
• Other Sales made to nonprofit, charitable, religions and educational organization if it’s for the organization’s nonprofit purpose
To make it even more overwhelming, if you sell online and have customers from different states, it can be more tricky. It’s important to establish what your Sales Tax Nexus is, or where your business has a presence (i.e., Wisconsin). However, you may have an economic nexus if you provide things online to other states or have any type of physical location in another state. An economic nexus means that you meet the threshold to collect sales tax in other states, whether through online sales, trade show sales, or some other method.
Finally, many states give a break to businesses with less than $100,000 in sales or a certain amount of transactions. So double check if your state has different rules for small businesses. In Wisconsin, for example, if you are an out-of-state business, but sell more than $100,000 in the state, you are considered to have economic nexus here and are required to pay sales tax.
So, What Type of Company Needs to Pay Sales Tax? As you can see, the overall knowledge of wondering if you need to collect sales tax can seem never-ending. It’s also vital that you understand what this tax obligation could be, or it could lead to serious fines. This is only one piece of the puzzle! Sales tax also extends into other areas: like how often you must pay it, how you can collect it, and how you calculate it. Reach out to us at Knecht Business Solutions and we can help walk you through the sales tax maze!