Most businesses don’t start out big. Some of America’s most beloved companies—from Apple to Amazon — started out with an entrepreneur, a dream and a garage. But business is about more than dreams. At some point, every home-based business (also called “micro businesses”) needs to understand government regulations, like those surrounding sales tax.
Why? Well, whether your microbusiness has big dreams of growth or you just want to work for yourself, keeping in compliance with sales tax regulations is critical to continued success. Sales tax audits can put a huge dent into profits, and states are hiring more auditors than ever to ensure that every business, big and small, is paying its fair share.
Some owners of home-based businesses think they don’t have to worry about sales tax until they’re one of the “big guys.” In fact, nothing could be further from the truth. Many states require all sellers located in their state who sell goods or services regularly to register for a tax ID number and file sales tax returns, regardless of the specific dollar amount of sales the business makes.
But most microbusinesses don’t have full-time accounting staff. So how can you ensure that your small business is in compliance?
Registering for sales tax is the first step toward meeting your sales tax obligation—but today, more than ever, even knowing where to register can be tricky. A decade ago, most microbusinesses only had “nexus” (a close enough connection to a state to trigger sales tax collection obligations) in their home state. Today, even home businesses use drop shipping and warehousing services, like Amazon FBA, to make sales. These services can trigger sales tax registration and payment obligations on sales to end users in several states.
Figuring out where to register can be tough, but actually calculating and filing sales taxes using tax tables can be even tougher. Different jurisdictions have not only different rates, but may exempt different goods and services from taxation. As your business grows, compliance gets even more complex: there are over 12,000 sales tax jurisdictions in the United States, and hundreds of changes to sales tax rules and rates every year.
Compliance doesn’t have to be this difficult. Avalara’s white paper, Three Steps to Choosing a Sales Tax Solution for Microbusinesses, can help you take your first steps toward guaranteed accurate sales tax calculation and filing. Don’t wait for an auditor to change the way you think about sales tax — take charge of your microbusiness and find a solution that works for you now.