Black Friday is almost here, and while you’re busy planning discounts and stocking up on shipping supplies, it’s easy to overlook the less flashy side of ecommerce: sales tax compliance.
If you want to avoid post-holiday compliance woes, now is the time to double-check a few critical items. Here’s a quick checklist to make sure you’re ready.
1. Double-Check Your Tax Nexus
Have your sales grown this year? If so, you may have reached economic nexus in new states where you haven’t collected previously. It’s important to track sales against each state’s small business exemption thresholds, and to begin collecting in new states if you’re at that threshold. Even if you’re only approaching the threshold, holiday sales may push you over. It’s better to start sooner rather than later.
Click here to learn more about economic nexus.
Some shopping carts, such as Shopify, track nexus for you. If you’re using our services on certain platforms, we do as well. But if your e-commerce software doesn’t track it for you, you should be doing it manually.
Also, make sure you haven’t gained physical nexus in new states, either. If you started using Fulfillment by Amazon (FBA), a different fulfillment center or service, or if you hired remote employees in other states, you may have an obligation there even if you haven’t reached the threshold for economic nexus. Physical nexus applies to sellers of all sizes; there are no thresholds.
2. Audit Your Product Taxability
Not all products are taxed the same way in every state. Clothing, food, supplements, and digital goods are some examples of products that have unique taxability rules. Go through your product catalog and confirm that your tax settings are correct on an item-level basis.
If you over-collect due to errors, you usually must remit that overcollection to the state. However, if you under-collect, you still have to pay the correct amount… and this could mean the difference comes out of your own pocket.
3. Review Shipping and Handling Settings
In some states, shipping is taxable. In others, it’s exempt but only if you show it as a separate charge. Handling charges are often taxable, especially if listed separate or bundled with shipping as a single “Shipping and Handling” line item.
Make sure your store’s checkout is configured to calculate tax on shipping correctly.
4. Check Your Filing Frequency
If you’ve grown this year, your filing frequency may have changed. States where you’re registered may move you from quarterly to monthly based on sales volume. Check your notices and update your filing calendar before you’re surprised by a new deadline!
Pro tip: our filing services handle this for you.
5. Test Your Checkout Tax Settings
It’s important to test your entire website prior to the busy holiday season, but many retailers don’t think to test sales tax. Run a few test orders across different states and products, and make sure tax is being applied correctly. This simple step can help you catch setup issues before hundreds of orders (or more!) go through your system.
Final Tip: Black Friday is a great time to grow your business. Just make sure your tax compliance scales with your sales. A little prep now can prevent a lot of trouble later.
