How Does A Home Based Business Collect Sales Tax?

Sales Taxes for Home Business
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How Can A Home Based Business Collect Sales Tax?

You have just started a home based business and someone has told you that you must collect sales taxes on sales. You must figure out how to do this, on every taxable transaction.

In some ways, a home business collects sales taxes in the same way as other businesses, but a home business has some unique issues to deal with when collecting sales taxes. 

Here are some tips to help you collect sales taxes:

How Businesses Collect Sales Tax

Every business must collect sales taxes on taxable products and services. As you start your business, the first thing you must do is determine if your products or services are taxable, the tax rate, and the difference in taxes if you are selling to individuals in different parts of your state.

Go to the website of your state's Department of Revenue or taxing agency (it might be called something else in your state). You can find information on whether your products or services are taxable (most products are; many services are), and the tax rates in all localities in your state.

You will also need to register to collect sales tax in your state; in most states you can register, submit reports, and submit taxes due online.

If you sell in person, at your home or another location, you will need to find out the sales tax rate in effect for your business location, or for other locations where you sell. 

Options for Collecting Sales Taxes

When you have set up your sales tax account, you can begin collecting these taxes from customers. 

If your customers come into your home, you can include the taxes on the customer's bill. 

If your customers don't come into your home, you will need to collect remotely, either on the internet or by getting a credit card number by phone. 

Sales Taxes on Internet Transactions

The question of collecting taxes on internet transactions is confused at the moment. One question not in doubt is that you must collect sales taxes from customers in your state, whether they pay online or in person. 

Your obligation to collect sales taxes from out-of-state customers depends on whether you are doing business in a specific state (called a tax nexus

Some states are attempting to change this requirement to say that affiliates (an Amazon affiliate, for example) have a "physical presence" in the state, but only a few states have this problem right now. If you are selling online, you should make sure your "shopping cart" software allows you to insert state and local sales taxes for in-state transactions.

Sales Taxes on In-person Transactions

In-person transactions are the easiest to deal with. Let's say you have an in-home beauty salon. You will need to know the sales tax rate at your place of business (your home) and charge that to everyone who comes in. (This assumes that beauty services are taxable in your state). 

Keep Up to Date on Sales Tax Rate Changes

Register with your state department of revenue to receive emails and reminders about sales tax rate changes, for both the state and for localities where you do business.

Learn About Changes in Affiliate Status

If you are an affiliate selling for another company online, many states are now requiring sales taxes to be collected from sales-tax eligible products or services you sell. Registering with your state department of revenue should give you information on tax law changes on this subject.