The holiday season is an eCommerce store’s chance for huge
profits. But this also means that any fundamental problems with
the way you collect sales tax in your Magento store can become
much grander in scale.
If you under collect sales tax during the Q4 rush, you will end
up owing a portion of your hard-won profits to the state. If
you over collect sales tax during the Q4 rush, you will end up
with unhappy customers who might complain or leave bad reviews
just when you need them the least. Optimize your Magento
store’s sales tax collection now so you can focus on more
pressing aspects of your business during Q4.
Double Check your Sales Tax Nexus
As your business grows and changes, your business’ sales tax nexus can change, too. If you have sales
tax nexus in a state, you are required by that state’s laws to
collect sales tax from your buyers in that state. Common
factors that create nexus include:
An employee or contractor
A drop shipping relationship
Doing temporary business, such as a trade show or craft
Evaluate any business activities that may have changed
recently. You can read about what each state has to say about nexus
here. If you have nexus in a new state, be sure to register for a sales tax permit and collect
sales tax from buyers in that state on all your sales channels.
Forgetting this could mean being required to pay the sales tax
you didn’t collect out of pocket later.
Check the Taxability of your Products
Clothing is not taxable in Pennsylvania. Groceries are not
taxable in New York. Textbooks are not taxable in Minnesota. If
you sell any of these product categories, or other product
categories that are non-taxable in various states, you’ll want to make
sure that you have assigned the correct product tax codes to
your products. Otherwise, you may overcharge a customer who
doesn’t expect to pay sales tax on your product. This could
mean an upset customer, or someone who simply moves on to a
competitor who handles sales tax correctly.
Ensure You’re Charging Sales Tax on Shipping Correctly
Do you charge your customers for shipping? If so, it’s
important to note that some states require you to charge sale
tax on shipping charges while others don’t. Be sure that you
have your sales tax on shipping set up correctly, or you might
yet again end up owing out of pocket or accidentally charging
extra sales tax to an unhappy customer.
Other Sales Tax Considerations
Here are a few more things to double check before Q4 hits:
Has your business address changed? If so,
be sure to change it in your Magento store sales tax
engine. In some cases, the amount of sales tax you charge
your customer depends on your business address.
Do you have any custom rates set up? Sales
tax rates can change. This includes city rates, county
rates, state rates, or other rates. If you have any custom
rates set up in your Magento sales tax engine, be certain
that these rates are still correct before you head into the
Put Your Sales Tax Filing on Autopilot
Q4 means all hands on deck when it comes to keeping the store
stock, orders fulfilled and customers happy and coming back for
more. With tax automation, you can automatically report and
AutoFile your sales tax returns so you don’t have to worry
about killing your holiday momentum, by doing tasks such as
stopping to figure out how much sales tax you collected from
buyers in each county in California and then logging in to file
a sales tax return.
About Mark and TaxJar
Mark Faggiano is the founder and CEO of TaxJar, the service
that makes sales tax collection, reporting, and filing simple
for more than 9,000 online sellers. Try a 30-day-free trial of
TaxJar today and eliminate sales tax compliance headaches
from your life!