5 Sales Tax Compliance Tips for Small Businesses

Last Modified: October 17th, 2023

3 min read

Sales tax compliance is a critical aspect of running a small business. This means understanding the complex rules and regulations that govern sales tax collection and payment, as well as taking the necessary steps to ensure that you are properly collecting and remitting the correct amount of sales tax. While it may seem like a daunting task, there are some simple tips that can help you stay on top of things and avoid potential penalties.

Here are a few tips to help you stay on top of things:

Acquire a sales tax permit

If you sell through multiple channels, it is important to obtain a sales tax permit for each state in which you collect sales tax. This will allow your business to be on the right side of the law and avoid any penalties or fines for failure to comply with state rules regarding sales tax collection and payment.

Manage sales tax exemptions

If your small business has any customers who qualify for sales tax exemptions, you will need to manage these exemptions carefully. This typically involves applying for a reseller permit or exemption certificate from each state where your small business is registered. It’s important to know which items are exempt so that you can properly manage your sales tax and make your customers happy by not overcharging them.

Fortunately, there are options to seamlessly manage sales tax exemptions with automation tools. Programs like AvaTax and EXEMPTAX can help you streamline this process. You can identify, collect and validate tax exemption certificates in a comprehensive and easy-to-use exemption management platform.

Sales tax collection and timely remittance

Know the sales tax rates in the jurisdictions where you do business. Rates can vary based on the type of product or service being sold, as well as the location of the sale. For example, food items may often be exempt from sales tax, while other items may also be exempt in certain areas.

Collect sales tax from your customers at the time of sale, and then remit the taxes collected to the appropriate state or local tax authority on a timely basis. Many states require that returns are filed either monthly, quarterly, or annually, so it’s important to be aware of the deadlines that apply to your business. It is important to file and pay your sales taxes on time. If you don’t, you may be subject to penalties and interest.

Records organization

Keep good records of your sales and transactions. This will help you in case of an audit, and make it easier to file your sales tax returns. Most businesses are required to keep records for at least three years, but some states may have different requirements.

Sales tax automation software

Use sales tax automation software to help with compliance. This can save you time and help reduce the chance of errors. There are many different software programs available, so it’s important to find one that meets the specific needs of your business.

By following these tips, you can stay on top of your sales tax compliance obligations and avoid costly penalties. Make sure to register with your state’s Department of Revenue, be aware of which items are exempt from sales tax, collect and remit taxes on time, keep good records, and use sales tax automation software to help with compliance.

Pro Tip: Get Avalara AvaTax for your business

When in doubt, you can always get an Avalara Avatax subscription. It’s the best thing that happened to transactional tax calculation and processing automation! With AvaTax, you’ll enjoy its intuitive interface and plug-and-play usability that makes tax compliance easy. You’ll also get real-time updates on the latest sales and use tax regulations to help you ensure compliance with state rules and taxes.

If you’re worried about keeping track of your sales tax obligations, consider using a software program like Avalara’s Avatax software. It can help you manage your sales tax compliance obligations and avoid costly penalties.

Serge is a Managing Partner and the head of sales and business development.

Published on: May 6, 2022