How Does A Home Based Business Collect Sales Tax?

Sales Taxes for Home Business
Sales Taxes for Home Business. Dave & Les Jacobs/Getty Images

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

For more details on registering, collecting, reporting, and paying sales tax, see "How to Register, Collect, Report and Pay Sales Tax".

Sales Taxes on Internet Transactions

At this point, unless you have a physical presence in the state where your customer is (this is called a tax nexus), you do not have to collect sales taxes for online transactions. If your customer's address is in your state, you do need to collect sales taxes. 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

If you are selling directly to individuals, through home parties or at flea markets or other venues, you will need to have a way to calculate sales tax on transactions.

See if your state has a sales tax calculator that you can print out and take with you. Keep it simple; if you are selling at a flea market in Canton, Ohio, assume that all customers are residents of that city and collect the state and local sales tax for that city.

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.

Back to Answers to Common Questions about Sales Taxes