This article was originally published on the Quaderno blog. Click here to see the original one.
Online sales tax rules, tax registration thresholds, economic nexus laws — all of this gets pretty complex for an online business. So complex that it’s hard to answer the most basic question of all: “Do I need to charge sales tax or not?!”
We feel your pain.
By the end of this blog post, you’ll understand if you need to collect sales tax for selling online and how to automate this in your business.
Do I need to collect sales tax for selling online?
You must collect online sales tax in any place where you’re registered for sales tax, VAT, or GST.
So the question becomes: Do you need to register for sales tax?
This depends on where you’re selling and how much you’re selling each year. The following sections will address the questions of where and when your business registration is required.
Why are tax registrations important?
Tax registration is important because it is the very first step of tax compliance, anywhere in the world. You can only collect sales tax, VAT, or GST after your business is registered in the local tax system.
It can be hard to keep them all straight. As your business expands, you enter more tax jurisdictions that might have their own registration policies, rates, and rules. And these obligations can be wildly different.
For example: If you make your first sale in Spain, you better register for EU VAT right away. But if you make your first sale in California, you probably don’t need to register for sales tax until you sell $500,000 in that state alone. Like we said, wildly different!
A “tax jurisdiction” is basically a geographic area that has its own rules. It could be a country, region, group of countries, province, state, city, county, district or whatever other local authorities are out there.
As you can see, there are many levels, and sometimes your business must answer to multiple levels at once.
How do I know where I’m liable for sales tax, VAT, or GST?
Monitor where your business is selling
As you grow, you’ll probably become liable for taxes in new places, and you need to stay on top of this to avoid those two missteps mentioned above. (Fines, fees, and lawyers, oh my!)
Each tax jurisdiction might have its own tax registration threshold, including separate ones for physical or digital products. This is also called an economic nexus in the US.
When your sales pass the tax threshold, you must register and start collecting taxes. Or the country/state/city might not have any threshold at all, which means you are liable for taxes from the very first sale.
Yes, we already touched on this with our first point, but it bears repeating! Here’s everything you need to know about tax registration thresholds and how they impact your business.
Manually monitoring your sales in every place where there’s a tax threshold would be a second full-time job. Ain’t nobody got time for that! Especially not you.
How to track sales and tax thresholds automatically
Quaderno does the “looking” for you! The app tracks all of your sales in real time, no matter where you’re selling, and measures those totals against each jurisdiction’s threshold rules. Plus Quaderno visualizes the data for you. Check it out:
Various tax jurisdictions
One tax jurisdiction
How do I know when to register for sales tax, VAT, or GST?
You must register for sales tax, VAT, or GST when your annual sales have surpassed a tax jurisdiction’s threshold or economic nexus.
When you’re growing quickly, you might be making sales in a brand new country every month, week, or day. While this is super exciting, it’s a lot to keep track of, logistically and legally, on top of everything else.
Even the most hands-on business owners might not be able to catch each new tax jurisdiction as it happens — or catch each registration threshold as it’s hit.
So tax compliance software should keep an eye on this for you and alert you when necessary. That way you can focus on the parts of your business that you love, not this tedious stuff.
How to set up automatic tax alerts for sales tax, VAT, and GST
Thanks to Quaderno’s threshold reports and real-time data tracking, the system will alert you based on three different scenarios:
- Your sales have hit 100% of the threshold (letting you know it might be go-time for tax compliance!)
- Your business is liable for a new tax because you’ve made a sale in a new place, where there’s no registration threshold.
You’ll receive these notifications both in the app and via email. Who doesn’t love a heads up about important info? Especially when it can save you time, money, and stress.
Quaderno threshold notification
How to track your business registrations automatically
With Quaderno, all of your business tax registrations are visible in one place, set up and recorded digitally. You can easily update, edit, add or remove these registrations at any time.
Quaderno can also automatically calculate taxes based on the registered jurisdictions and the products’ tax classes.
(And anywhere you are not registered, Quaderno will not calculate or charge sales tax.)
How to store your tax IDs digitally
Why is this important?
Every time your business registers in a new tax jurisdiction, it will receive a different ID. In the EU, that’s an EU VAT number. In Australia, you might need to register for an Australian Business Number (ABN) before registering for GST and receiving an ID for that…
Basically, as you grow, you might collect quite a few tax IDs.
And you’ll need these for pretty much any business you conduct at home or abroad. If you’re doing anything B2B, selling to or buying from another business, you’ll need your tax ID to use the reverse-charge mechanism. Your business tax ID should also be on every receipt, invoice, credit note, or return.
How to store tax data securely
Quaderno keeps your tax information secure, in the cloud, for as long as you need it. No more rifling through file cabinets or binders, flipping through registration papers. All of your tax identification numbers will be clearly logged, attached to the accurate tax jurisdictions, and automatically entered on important business documents.
Tax ID on a Quaderno invoice
How to track your sales tax liabilities automatically
Some say you should know the tax laws before you sell in new places.
The problem is that researching local tax laws in every market where you might want to sell is exhausting and time-consuming. On the other hand, if you don’t do your research, you might break the law.
If you find yourself often wondering “Do I need to collect sales tax for online sales in X?”, then you should consider compliance software that will monitor your sales tax liabilities automatically.
Quaderno is a “set it and forget it” solution to your sales tax woes. We don’t register your business for you, but once you set up your tax settings in Quaderno, the app will:
- Keep your tax registrations in order, with the information easily at hand
- Calculate the correct tax amount on every sale and generate your reports.
- Automatically alert you to any changes in tax rate
- Monitor your sales around the world so you know where you’re growing
- Alert you when you might be liable for taxes in a new place, so you can register in time
- Generate instant reports so you can see how much sales tax, VAT, or GST you’ve collected in each jurisdiction.
- Store all of this data securely for as long as you need.
If you’re curious how the software can help automate your tax processes and transform your growing business, try a risk-free trial of Quaderno.
* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.
