Congrats! You’ve finally made your move and started your ecommerce business! We at Prestige Auditors are extremely happy to hear that! However, so is the IRS, because you’re starting to sell products and you know what that means: time to do some sales tax calculation!
Sales tax analysis is one our major services here at Prestige Auditors, and there’s a reason why we do it. Your business might have triggered a nexus in a state in which your products are being sold, and you need to analyze to make sure everything is alright tax-wise, meaning you have the proper tax exemption certificates (which, surprise, surprise, we can get for you!). On top of that, this will shelter you from getting hit by heavy state fines which could really be death nail for your business.
That being said, sales tax analysis is a procedure that is done by professionals like us. But what if you want to do some sales tax calculation on your own? No worries, we’ll teach you how!
Sales Tax: A Reminder
For the sake of a reminder, we’ll quickly go over what sales tax is. You know when you go to a store to get a pack of chewing gum, and it seems like you paid more for it than what was written on the pack or the price tag? That’s pretty much sales tax. They also call it the consumer tax, because the consumer is ultimately the one who pays for it. If you are a seller, you are responsible for collecting that sales tax from consumers, and give it to the government.
Alright, let’s get to the main point of this article, and calculate some sales tax!
Collect all of the rates in the location you are looking to calculate the sales tax in, as all the rates must be added up to get the final rate. Keep in mind that if for example, a state like New York is known to have a state sales tax rate of 4%, that doesn’t mean that all of New York’s counties and cities have the same sales tax rate. It can differ all across the board. For example, some cities might not have sales tax rates.
Let’s throw in a bunch of random numbers and see what we can get:
We know that New York has a state sales tax rate of 4%.
Let’s imagine X County in New York has a state sales tax rate of 0.5%, and X City has a sales tax rate amounting to 2.89%. That would put the total sales rate at around 6.78%.
Now, imagine a product which costs $123 dollars. To calculate the sales tax on that specific product, you have to multiply the total sales of that product by the sales tax rate of that location.
In this case, it would be something like this:
If the product had just one sale: $123 x 0.0678 = 8.33
That would mean an additional $8.33 dollars would be slapped to the end consumer’s bill as sales tax, which you have to collect and remit to the relevant authorities.
Even though it looks simple, it’s actually pretty tricky given all the regulations, especially if the number of sales is very high. The average seller will have a hard time keeping track of their sales. Ecommerce businesses in particular need to regularly run sales tax analysis on their businesses. Luckily for you, our team at Prestige Auditors is more than capable of handing all tax-related inquiries which you might have concerning your business! So, don’t wait too long! Give us a call and let’s get your taxes properly taken care of!