Site owners with e-commerce stores face a unique challenge when it comes to sales tax.
Here in the United States, each state has it’s own laws concerning what sales tax you pay on your online sales form your e-commerce store.
To make it more confusing, depending what state you live in, you have to compute sales tax based on either your shipping address, or the address of the customer that you’re shipping goods or selling downloads to.
Sounds exasperating, doesn’t it?
Here are some tools to make it easier for you to focus on selling goods, and letting other tools and services collect the necessary tax information in the background.
Determining Whether You Need To Pay Tax
Though laws vary from state to state, if you have a physical presence in a state — like a storefront, office, employees, or fulfillment center — you’ll have to pay state sales tax (minus the handful of states with no sales tax).
This presence is called a “sales tax nexus”. This basically means you’re considered to have some sort of presence in that state.
As you might already know, some counties and municipalities have an additional local tax. Businesses must keep track of these additional local taxes.
Bluntly put, there’s a large amount of fragmentation regarding what sales tax you should be calculating, collecting, and paying.
California State Tax Laws
Every state has different laws, but for now, let’s just look at one state — California.
California law states that if you have a state tax nexus, you must apply for a sales tax permit with the California Board of Equalization. If you are doing business inside California for less than 90 days (like at a trade show), you must apply for a temporary sales tax license.
There is no charge for a sales tax permit, but if you haven’t registered your business yet, there may be fees associated with that.
California is what is know as an origin-based sales tax state. This means you charge customers based on the location of your offices. This gets more complicated if you have multiple offices or warehouses in California, as they may be in different local districts, and therefore have different tax rates.
If you’re selling services, and not products, good news! Services aren’t considered taxable items in California, though they are in many other places (like Europe).
However, if your services involve the creation of a tangible product, your services may be taxable.
Most tangible products are taxable in California, with the exception of food, prescription drugs, and medical items.
How To Keep Track of Sales Tax In Your State
Most states aren’t origin-based when it comes to state taxes, but rather destination-based.
This means taxes are calculated based on the shipping address of the recipient, and it is the responsibility of the merchant to keep track of all the different localized and state tax rates.
As you can imagine, this would be overwhelming without some sort of automation in place.
But if you’re running a WooCommerce store, there’s a solution.
For WordPress site owners, you can integrate your WooCommerce store with TaxJar via their plugin. The monthly fee for this service ranges from $19 to $99, depending on how many transactions your store is processing per month.
You’ll then automatically have access to the 10,000+ tax rates that TaxJar keeps track of, so there’s no more manually installing tax tables. For a small fee, TaxJar will even automatically file your state tax (monthly, quarterly, or annually). This saves you a ton of time and headache.