Ep 3 | Everything Boutique Owners Need to Know About Sales Tax + Nexus

In this week's podcast we have a special guest with us. Allison Brooks, our Sales Tax Expert for Boutique Bookkeeping Co is here to talk to us about how to stay current with Sales Tax. Many of you probably know what Nexus means; this is when you hit limits in other states - whether it's transactional limits or sales volume. But there's a 12-month look-back period. Now that we're in a new year, February is when we do Nexus audits for all of our clients because now we have a calendar year to look back at. Allison shares the key things to know about Sales Tax so you can stay on top of your game.

So be aware. We had big boutiques that came to us and they weren't filing and when we audited their Nexus they had 25 states to turn on. You have to look at it, can't ignore it, and it's not that hard so don't be afraid.

This is why we brought Allison on the podcast today! Here, she tells us everything she knows.

You are basically the middle man for the government. They impose taxes on customers - you collect it from the customer and turn around and pay it to the government. You don't make any money off of it (unless you get an early pay discount) and it shouldn't cost you anything as long as you're collecting correctly.

You're responsible for filing returns. That can be monthly, quarterly, semi-annual, or annual. Each state varies with what services or items are taxable or not, so you have to make sure you're following those guidelines.

Once you hit Nexus in a state - even though you don't have a physical employee or store in a state - but you have a big enough presence because you have so many customers buying from you then you fit economic Nexus and they want you to start collecting sales tax on those customers in the different state and filing and paying them. So you need to register in that state, start collecting sales tax from those customers and paying that state as well as the state you're currently in.

So, what if someone didn't know and they weren't paying sales tax when they needed to? For sales tax within states that you have a physical presence you will be required to go back and file returns from the first day you started selling. For those who do not have a physical presence but hit nexus in previous months/years, we recommend that you start fresh. Now that you have been made aware of Nexus and that you have exceeded the thresholds, you will need to turn on collecting sales tax in those states and register. You just start paying once you have registered. If you don't have someone doing your sales tax then you have to go in there and look at the reports and see if you've hit a limit. If you hit a limit, you have to register in that state and turn on sales tax and it'll tell you how often to pay and you'll pay just like you would with your home state, now you have two to file instead of one, that's all.

How do you know you have a significant presence? Nexus is ongoing so you could hit it all throughout the year. It's not just a once a year thing that you look at. As soon as you hit the 200 orders or the gross sales thresholds then you need to start registering in that state. Each state has different thresholds.

States collect different rates. Some of them are origin based which means it's collected where your physical store is and then other ones are destination based which is wherever the customer receives the physical product - so they order online and come to your store, it's your store's rate. If they order online and it's shipped to their house in a different city you have to collect the different city rate.

POS - It is also very important to make sure that your Point of Sell sites are accurately collecting your sales tax on products. It is time consuming but categorizing your products on the front end will save you time in the long wrong when you run into states that only collect on accessories/shoes. It is also important to make sure your POS is setup to collect tax at the correct rate (city/county/state). You can end up with some upset customers that are charged sales tax on items that should be and you might be over/under collecting from customers if the wrong percentages are in there.

Tax websites - There are some several common sales tax sites that we have seen boutique owners use over the years. Some items to pay close attention to are: 1. cost of services (subscriptions, filings, registrations, nexus audits) 2. Accuracy when filing - with most of these services you have to tell them what websites to integrate, if you don't then your numbers will not be accurate. (this also helps to have bookkeeping services with sales tax so that there is a checks and balances to ensure that you are filing the correct numbers if there is every a change in how your sales tax is linked with all your websites. 3. Previous filings - does the company file your catch-up returns?

So, boutique owners listening today, now is the time to audit yourself to make sure you are collecting sales tax for other states. Every state has a limit to transactions before sales tax. You need to hunt and see if you've hit any limits in other states. This is what we do for our clients quarterly or annually - we track when they need to start paying sales tax in OTHER states so we stay on top of things so you don't have to.

If you want more content like this, we are excited to announce a new module dropped in Boutique School today as well and it's all about Nexus and Sales Tax, so you can hear more from Allison there. If you have not joined Boutique School yet, it's our membership training where we equip boutique owners in learning how to run a business. We add new videos and modules every month, so it's always growing and keeping our members on top of everything that's going on. We would love for you to join us there. You can learn more here.