Whether you’re thinking of opening up a brick-and-mortar location in Washington, DC or you’re expanding your online operations to customers in the state, you need to know what the sales tax laws in the District are and how they might apply to you. This includes determining whether or not you have a sales tax nexus, and figuring out if what you’re selling is taxable in Washington, DC. You also need to know what rate to charge your customers if you are required to collect sales tax, and how to file your Washington, DC sales tax returns.
There is only one general sales tax rate in Washington, DC, and that’s 5.75%. There are no local or special jurisdictions that can impose their own tax in addition to this, so regardless of whether you’re shipping goods into Washington, DC or you have a physical storefront there, the applicable sales tax rate will always be the same.
The District does have special sales tax rates for certain items. Liquor sold for consumption elsewhere is subject to a 10% sales tax rate, for example, as are restaurant meals and rental vehicles. The sales tax rate for hotel accommodations is 14.8%, and the rate for parking in commercial lots is 18%.
You only have to collect sales tax on purchases made by customers in Washington, DC if you have a nexus, or substantial presence in the state. According to local regulations, conditions that may trigger a nexus for you include:
There are no Amazon fulfillment centers located within Washington, DC, so if you use fulfillment by Amazon, you don’t have to worry about your goods being stored in a warehouse there, and so triggering a nexus condition for you.
Most sales of tangible personal property in Washington, DC are taxable, while most services are not. Some of the services that are taxable include data processing, information services, and services involved in the maintenance of real property.
Groceries, prescription drugs, many non-prescription drugs, and medical devices are all exempt from sales tax. Both canned and custom software is taxable, however, regardless of whether it’s delivered electronically or on physical media. Shipping is also taxable as long as the item being shipped is taxable.
You must register for a Washington, DC sales tax license before you begin making taxable sales in the District. This can be done online, and there is no application or registration fee. You also do not have to renew your license once you’ve obtained it, and you will be assigned a filing frequency at the time of registration. This filing frequency will be based on your anticipated monthly sales tax liability, and it may be adjusted up or down over time due to fluctuations in your sales volume.
If your monthly sales tax liability is less than $200 on average, you will file and pay annually. If your average sales tax liability is between $200 and $1,200, you will be assigned a quarterly filing frequency, and if your average sales tax liability is more than $1,200, you will file monthly. Filing can be done online as well, or you can print out a return and mail it in.
Regardless of your filing frequency, returns and payments are due on the 20th of the month following the close of the period in question. For annual filers, that translates to a due date of January 20th of the following year.
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
If the due date falls on a weekend or holiday, returns will be considered timely when received by the next business day.
A failure to file your return on time will result in a penalty of 5% of the tax due per month or fraction of the month, up to a maximum of 25%. Late payments also incur a 5% penalty per month, with a maximum of 25%.
While having only one sales tax rate for the entire District is certainly convenient, that doesn’t mean it’s easy to stay on top of your Washington, DC sales tax reporting and payments. That’s especially true if you sell in other states, and so have to maintain records for all of your sales separately. Making sure you charge each of your customers the proper sales tax rate based on their shipping address, and then filing all of your returns accurately and on time can take up a huge amount of your time and energy that you would surely prefer to use in another way.
And that’s exactly where TaxTools comes it. This suite of software features various tools you can use to track your taxable purchases in Washington, DC and elsewhere. It will help ensure that you always add sales tax at the right rate, and that you can produce up-to-date reports complete with location data for all of your sales whenever you need to. It will also make it easier to file your returns and make payments to Washington, DC and other states on time and accurately, and it does all of this while also integrating smoothly with whatever ecommerce platforms you currently use.
So, if you’re ready to start benefitting from all that TaxTools has to offer, click here to sign up for a free trial today.