Navigating State and Local Sales Tax Laws and Rates

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The ability to accurately navigate the realm of sales tax laws is a difficult feat. Some may believe, before being exposed to the proper information, that sales tax is collected at a steady rate across the country. Nothing could be further from the truth. Sales tax rates range from 0% to roughly 10% across the United States, which creates confusion amongst businesses as to how much sales tax should be collected for each state or locality sales are being conducted in. For example, in Colorado there are 276 different local sales tax rates. Each locality has its own list of statutes that define the taxability of different products and services, as well.

When a company conducts business in a state, the complexity of correctly filing can cause unwanted difficulties for your business. To be able to avoid all unwanted difficulties, one must have vast knowledge of every sales tax law across the entire state. For instance, an online retailer must know that according to New Jersey Regulation 18:24-31.4(a): “A certified seller may impose sales tax at 50 percent of the statutory rate on receipts from retail sales.” This regulation only brings up more questions regarding the online retail sales of products into New Jersey: What is 50 percent of the statutory rate on receipts from retail sales? Who qualifies as a certified seller? Are there other local taxes that are implied on these online retail sales? And many more questions that require either prior knowledge of all statutes ever created regarding sales tax or valuable time spent researching said statues.

Understanding sales tax statutes in their entirety goes hand in hand with knowing the sales tax rates like the back of your hand. Knowing each sales tax rate in any area, state or local, is less cumbersome than knowing every statute of every sales tax rate. Yet, both collections of knowledge are necessary for any business to remain in sales tax compliancy. Thinking you can get around the time and dedication required to become fully compliant in sales taxes will only make more work for your business in the long run.

Using a true scenario can help you better understand what happens if your company fails to prepare for sales tax compliancy:

Company X has been conducting large sales in 15 states for three years without sales tax crossing their minds. Each of these large sales establishes nexus on a single sale basis, so the company should be collecting and paying sales tax in each state they are conducting business in. After 3 years of not remitting sales tax, the states started to wonder where their tax money was. Sales reports were collected, tax amounts were calculated and penalties and interest were imposed on every period’s sales tax return that was incorrect for the past three years.

We know nexus has been established in every state the business has conducted sales in over the past three years. With the most common threshold of nexus establishment being $100,000 in sales in a state, we can assume this company has at least $100,000 of sales in 15 states. Using Texas as an example, a 10% penalty, on average, is imposed on incorrect sales tax remittance after 30 days. If company X has $100,000 in sales in one month in Texas and owes $6,250 in sales tax for those sales, then the 10% penalty would increase that month’s sales tax due to $6,875. That $625 is only a penalty for that single month of sales, add the other 35 months of sales tax incorrectly remitted on $100,000 of sales every month and the company would have $22,500 in penalties due in the state of Texas alone. $22,500 might not seem like a very large amount for three years of sales totaling $3.6 million, but the company still has 14 other states where sales tax has been incorrectly collected.

No company has the desire to have to pay hundreds of thousands of dollars in penalties for any reason, especially for incorrectly filing sales tax. Sales tax should be the least of a company’s worries, behind growth, success and many, many other variables that are required to run a company. So rather than waiting around for the government to come after you and charge you much more than what is required, why not prepare yourself for success?

As I mentioned before, the amount of time and effort needed to properly prepare your company for sales tax compliancy can add up. However, a second option for correct compliance with state and local sales tax compliance does exist. The second option allows the entirety of sales tax to be removed from your company’s list of worries. This second option seems to be less well known than sales tax requirements themselves: Sales Tax Compliance Firms.

Sales tax compliance firms, such as State Tax Advisors, alleviate all your company’s concerns about sales tax. By working with a firm like ours, your company will be able to avoid any penalties, stress and time spent on correctly complying to sales tax laws and statutes. If the benefits of working with a sales tax compliance firm sounds like the right decision for your company, reach out to State Tax Advisors today to learn exactly how our firm can benefit you and your company.


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