Sales Tax for Small Business – How to Pay Sales Tax in LLC


Steve Goldstein
Steve Goldstein
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Steve Goldstein, founder of LLCBuddy, is a specialist in corporate formations, dedicated to guiding entrepreneurs and small business owners through the LLC process. LLCBuddy provides a wealth of streamlined resources such as guides, articles, and FAQs, making LLC establishment seamless. The diligent editorial staff makes sure content is accurate, up-to-date information on topics like state-specific requirements, registered agents, and compliance. Steve's enthusiasm for entrepreneurship makes LLCBuddy an essential and trustworthy resource for launching and running an LLC.

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For taxes, one of the most important things you need to consider is the sales tax for small businesses. Every business, even a limited liability company, needs to pay the sales taxes as a part of the compliance requirement decided by the Department of Revenue. Hence, most business owners are always concerned about getting the sales tax permit, understanding the sales tax rates, and so on. On this page, we explain everything about the sales taxes and other related facts.

llc sales tax for small busineses

What Is Sales Tax?

Taxes are the amount you need to pay back to the government as a part of fees for allowing you to do business in the state or country. These taxes are the main source of revenue for different governments, including sales taxes.

A sales tax is actually a consumption tax that the government imposes on the sale of any good or service. These goods and services can be of any form. From the name itself, you can understand that the tax is levied only on the point of sale, i.e., the moment a selling transaction is made between two parties, which can be between businesses, a business and an individual, and between individuals.

Types of Sales Tax

According to the industry, there are four different types of taxes that are levied on a business at the point of sale. These are:

Sales Tax

This tax is levied when one entity is selling something to the other, be it a good or service. For example, let’s suppose an LLC business is selling its services to a group of locals in the city of Michigan. Now, the customer needs to pay a sales tax to the government when he buys the service from the Michigan LLC. Similarly, if your business is selling clothing to a retail shop, the shop owner will pay the sale tax since it is buying the goods from your business. These taxes are the main revenues for both the state and the federal government.

Use Tax

A use tax is a necessity when a purchase does not fulfill the requirements of sales tax. Following are the conditions under which the use tax is levied:

  • When you are selling your service or goods to another person or business in other states with no sales tax rules.
  • If the seller is not qualified for paying the sales tax, the use tax will be implemented.
  • When you are ordering a catalog from an online shop, and the mode of delivery is email.

Exemptions

Exemptions are allowed to the consumer in many states where he is purchasing goods necessary for survival like groceries, clothing, and others. Here, the sales tax rate is lowered so that one can enjoy the saving of money during a transaction.

Excise Tax

When the business sale consists of goods not required for survival, like alcohol, tobacco, and others, the government will apply the excise tax on the cost of the goods. This particular tax reduces the risk of doing such business for both the manufacturing companies and the resellers.

Taxable Goods and Services

The main advantage of sales tax is that it is not applicable to all the goods and services that the buyers get in a particular state or country. When you are involved in a business, you need to understand which goods and services are taxable and which aren’t.

Goods

Any tangible product or property will be taxed under the goods section, no matter what kind of business services you are offering. Here are some of the examples of a taxable product against which the department of revenue will levy a sale tax.

  • Vehicles
  • Rental and personal properties
  • Furniture units
  • Computers
  • Home appliances
  • Raw materials
  • Gardening items
  • Books

Services

Not all businesses come under the rules of sales taxes. Hence, you need to identify whether your business services are applicable for sales tax nexus or not. Here are some examples of business taxes that you have to pay in your county or city.

  • Services provided to any component of property like construction, installation, property maintenance services, and so on
  • Services provided to any real property like snow removal, lawn mowing, repairing, and so on
  • Businesses services like an advertisement, consultations, hiring of employees, and so on
  • Personal services like pet grooming, personal care, dry cleaning, and others

Importance of Sales Tax for a Small Business

Before you form an application to gain access to the sales taxes forms, you need to understand the importance of the same for the businesses.

  1. According to the sales taxes regulations, the revenue earned by the government will be used for community development, be it in the construction of public schools, parks, roads, or anything else.
  2. For public services and development situations, the government collects the sales taxes and uses them for the same.
  3. The protective services like the police force and the army expenses are somewhat gathered from the sales taxes paid by several businesses across the US.

Ways to Register for Sales Tax

As an employer or one of the active vendors in your state, you will need to pay the sales taxes. However, before you talk about the sales tax nexus and the sales tax return, you need to learn the way of registering for the sales tax.

Get the Seller’s Sales Tax Permit.

For both offline and online sellers, it is mandatory to gain a sales tax license or permit. The sales tax laws vary from one state to the other, and hence you need to connect with authority to know more about the process of registering yourself as compliant to pay the sales taxes.

  • Visit your state’s sales tax legislative online website.
  • Click on apply for a sales tax permit and fill up all the necessary details. These details will be related to your business structure.
  • At the time of filling up the details, make sure to keep the business formation paperwork close-by since one wrong detail and your request will be canceled. Also, you will need your EIN number for applying.
  • If there is a registration fee, you will have to make the payment at the time of submitting the application.

Calculate Sales Tax Obligations

The sales tax calculation depends on three main sales tax types, which we have discussed here, irrespective of the businesses or the products.

Store Sales

When you are involved in the traditional business of selling goods or services on the site of the business itself, you will have to consider the store sales. Here, the sales tax return is the same for everyone.

In-State Sales

If you are providing the services to different places within the same state, the in-state taxes will be levied.

Destination-Based Sales Tax

Businesses like Amazon and others have to pay this particular tax where it is calculated based on the address of the customer, especially when the purchase is made online.

Origin-Based Sales Tax

The origin-based sales tax is the one where the rate is calculated based on the origin address of the seller doing the business.

Out-of-State Sales

For the out-of-state taxes, the business needs to have the nexus, and then only one will be compliant to pay the said tax.

How to Pay Sales Tax for Small Business

To pay Sales Tax for your small business, you need to determine whether your product/service is subjected to Sales Tax. If liable, you need to register for a Sales tax permit.

First and foremost, it is important for small business owners to understand their sales tax obligations. This includes knowing the sales tax rates in their area, as well as any exemptions or special rules that may apply to their particular industry. Keeping abreast of changes to tax laws is essential in order to stay in compliance and avoid any surprises come tax season.

Once you have a solid understanding of your sales tax obligations, it is crucial to establish a system for tracking and documenting sales tax transactions. This may include keeping detailed records of all sales, as well as any exemptions or discounts that may apply. Utilizing technology such as accounting software can help streamline this process and ensure accuracy in your tax filings.

When it comes time to actually pay your sales tax, there are several options available to small business owners. Many states offer online portals where you can easily file and pay your sales tax, allowing for a quick and convenient payment process. If online filing is not an option, you may also be able to pay in person at your local tax office or through the mail.

In addition to traditional payment methods, there are also services available that can help automate the sales tax payment process. These services can save small business owners time and effort by automatically calculating the correct amount of tax owed and submitting payments on their behalf. While these services may come with a fee, the peace of mind and time savings they provide can be well worth the investment.

Finally, it is important for small business owners to stay vigilant and review their sales tax payments regularly. This includes checking for any errors or discrepancies in their filings, as well as staying informed about changes to tax laws that may affect their business. By staying proactive and maintaining a diligent approach to sales tax compliance, small business owners can avoid costly mistakes and keep their focus on growing their business.

In conclusion, paying sales tax as a small business owner may seem like a daunting task, but with proper planning and organization, it can be a manageable process. By understanding your tax obligations, keeping accurate records, utilizing technology, exploring payment options, and staying vigilant, you can ensure compliance with sales tax laws and focus on what really matters – running a successful business.

F.A.Qs

What is the sales tax nexus?

Sales tax nexus is a legal term used to determine whether a business has any physical presence in another state or not. Several forms of nexus are present, like a physical address, a marketing affiliate, a temporary office location, and so on.

Are all the goods and services fall under the category of taxable product?

No, not all the products being sold are taxable. It is only the tangible properties that come under the sales tax department.

In Conclusion

Sales taxes are paid on the sales of the company. For a small business, the burden of the sales tax is much less. In this article, you have learned the types of sales taxes and how it works for a small business. To pay the sales tax you need to register your business with the state tax department. File your sales tax return to be up-to-date with the regulations.

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