The Uncomplicated Truth about Sales Tax | Online Sales Tax Explained

We are so excited to have you here and thank you for joining us, and we hope that you find it very informational. We are going to try to squeeze in as much value as we possibly can in the time that we have available.

0:17 Kelley Birrell

So who is this webinar intended for? Well, we created it for really three kinds of people.

First, small online sellers who know they have to deal with sales tax and are trying to do so as inexpensively as possible. Second, larger ecommerce companies who aren't yet ready to outsource and are still trying to self-manage their sales tax. And third, accountants who are either interested in adding a sales tax practice to their existing practice, or have clients who are asking them to handle it for them and they need to know how it works.

0:45 Kelley Birrell

So as many of you know, sales tax is a beast. Not only is it a serious issue, but it's really quite complicated, and it's different in every state. But we're going to show you how to handle sales tax right, so you can be your own sales tax hero.

0:57 Kelley Birrell

So why is it so hard to wrap your head around sales tax? Well, for starters, it's different in every state. Some states' requirements are relatively easy to comply with, and other states seem to be making it as complicated as they can.

1:08 Kelley Birrell

There's a lot of bad advice and conflicting information floating around the internet, and it's confusing to figure out who actually knows what they're talking about. Then you factor in high risk and fear of the unknown and not knowing what you don't know, and it's really no surprise that you're nervous about stepping into all of this.

1:26 Kelley Birrell

Now, we've talked to a lot of online sellers over the years, and none of them started a business for the sole pleasure of doing accounting and sales tax. None of them has ever said to us, yes, I get to do sales tax, awesome. No. Most of you are frustrated and confused and just want to hand it over to someone else who knows what they're doing.

1:45 Kelley Birrell

Now, we may not be able to do your sales tax for you, but we can at least teach you how to do it yourself correctly. So our goal is to clear up the confusion and give you a practical step-by-step way to manage sales tax, so you can scale your business with confidence knowing that you've got this part right.

1:57 Kelley Birrell

Now I'm going to introduce you to our presenters for the rest of this webinar.

The first one is Brittany Brown. She is the CEO of LedgerGurus, and she graduated from BYU with a bachelor's and master's of accounting with an emphasis in audit. She worked with KPMG and Squire and founded LedgerGurus in 2014. She lives in American Fork, Utah with her husband and five kids.

2:15 Kelley Birrell

And let me tell you, Brittany has the amazing ability to take boring and complex topics, and folks, sales tax is boring, we admit it, but she has the ability to make it interesting and understandable. So I think you're really going to enjoy listening to her.

2:26 Kelley Birrell

Second, we have Kexin Smith. She is the Head of Sales Tax Research and Consulting here at LedgerGurus. She too graduated from BYU with a bachelor's and master's of accounting with an emphasis in US tax. She is an expert in US tax, specifically sales tax. She worked at Deloitte in London for a few years and now has worked at LedgerGurus for three years.

2:44 Kelley Birrell

She started our sales tax team and she loves researching tax laws and building processes. Folks, because she knows sales tax inside and out, she's going to be an amazing resource for you. She loves working with accountants and small business owners, and she lives in Lehi, Utah with her husband and three kids.

3:01 Brittany Brown

Thanks for that introduction, Kelley.

So we want to give you guys an overview of the webinar, so you know what your takeaways will be, and here's what we're going to cover.

3:13 Brittany Brown

We're going to start with a brief history of tax. Not enough to bore you guys or put you to sleep, but enough to help you understand the current landscape and what you're dealing with today.

3:18 Brittany Brown

Then we're going to talk about who really needs to worry about sales tax. Most of you as online sellers are super worried about this, but frankly, some of you are actually completely off the hook and may not even realise it. So we want you guys to walk away from this webinar knowing for sure whether you do need to worry about it or whether you don't.

3:36 Brittany Brown

Next we're going to give you guys a simple roadmap for sales tax compliance. We're going to go through the steps, clear away all the fuss and the noise, and help you understand exactly what you do need to do to actually get sales tax compliant, if you are some of the unlucky people who do have to worry about it.

3:48 Brittany Brown

And last, we're going to talk about our lifeline for you. We're going to talk about some additional resources that we've created to help you on this path and on this journey to help you be successful.

3:59 Brittany Brown

I want to talk about some bonuses that are going to be at the end of this webinar. We have a nexus analysis checklist that we'll be sending out to all webinar attendees.

4:06 Brittany Brown

We're also going to talk about three things that you should not do under any circumstance setting up your sales tax. As we have helped our clients and guided our clients on this journey, we find a lot of people have gotten bad advice before they get to us, and a lot of people have made some very critical mistakes that in some cases cost them thousands of dollars to unravel. So we're going to talk about the three big ones to avoid when setting up sales tax.

4:29 A brief history of sales tax

Kelley Birrell

So now we're going to jump into that brief history of sales tax. Don't worry, I'm not going to put you to sleep and it's only going to be for a minute.

4:35 Kelley Birrell

So prior to June of 2018, states only required sales tax to be paid on purchases made from in-state sellers. At first this wasn't that big of an issue, but as the online market got bigger, states began to realise that they were missing out on some serious revenue opportunities.

4:48 Kelley Birrell

Lawsuits ensued, and in June of 2018 the Supreme Court made the South Dakota versus Wayfair decision. They ruled that states can require sales tax on purchases made from out-of-state sellers.

4:59 Kelley Birrell

And with that ruling the floodgates opened for states to generate a lot more revenue than they were before, since online purchasing was becoming a new way of life for many Americans.

5:05 Kelley Birrell

States decided that it was far easier to go after the big marketplaces to collect and remit sales tax than after the individual sellers. So these marketplace facilitator laws began to be enacted. That means that the marketplace is responsible for collecting and remitting the sales tax made on retail sales through their site for most states.

5:22 Kelley Birrell

And then COVID hit. Many traditional brick and mortar stores had to close, or at least temporarily, and states noticed that their sales tax revenues drastically decreased. They started to aggressively go after online sellers to replace the lost revenue.

5:36 Kelley Birrell

So now sales tax has become a complicated beast that has to be managed by most online sellers, though not all.

5:50 Who needs to worry about it

Kexin Smith

Right. So who does and who does not need to worry about sales tax? We have some good news and some bad news.

5:55 Kexin Smith

If you are selling on your own website, for example if you're selling out of Shopify, WooCommerce, BigCommerce, Magento, or any custom website that is not considered a marketplace facilitator, then you still need to worry about sales tax. It's your responsibility to calculate, collect and remit sales tax for all the sales that are going through your own website.

6:20 Kexin Smith

However, if you are only selling on a marketplace like Amazon, Walmart, eBay, Etsy, Zulily even, I just recently saw clients that sell on there and they're worried if they need to collect sales tax. The answer is, you're pretty much off the hook if you're only selling through a marketplace facilitator.

6:47 Kexin Smith

So talking about marketplace facilitators, what are those marketplace facilitator laws?

A marketplace facilitator law means that the marketplace is responsible for collecting and remitting sales tax made on retail sales through their platform. The marketplace is considered to be the retailer in the state's eyes.

7:04 Kexin Smith

So when the state comes to audit something, they consider the marketplace as a whole, and all the sales that are facilitated through the marketplace as one combined entity. They're not going to go after each individual seller. They're going after the big retailer, which is the marketplace.

7:25 Kexin Smith

And so far, the good news is all the states have enacted marketplace facilitator laws except Missouri. Missouri is going to join other states on January 1st 2023. They just have some issues they need to figure out internally and make it simple for out-of-state sellers. But all the other states have joined marketplace facilitator laws.

7:46 Kexin Smith

So when you log into your Amazon Seller Central, you can see those states are all greyed out and Amazon is taking care of that for you.

7:53 Kexin Smith

So in plain English, if you sell on a marketplace only, you don't have to really worry about where you have nexus or where you have exposure, because the marketplace is considered the retailer for all your sales and they are responsible.

8:17 Kexin Smith

So some people might ask at this point, if you're only selling on Amazon and we've been telling you that you don't actually have to worry, then what if you've already registered in a bunch of states? What are some actions you can take today to make your compliance burden a little less stressful?

8:37 Kexin Smith

So the first option is you can consider deregistering. If all of your sales are through Amazon or other marketplace facilitators, you actually don't have a requirement to collect and remit, so you might as well deregister. You can either fill out forms or contact the state directly to deregister your account.

8:56 Kexin Smith

The second option is, if for some reason the states do not want you to deregister, they want you to keep reporting to them that you have like a thousand dollars of sales but all of those are marketplace facilitator sales, then you can request them to give you a less frequent filing requirement. So you don't have to report every month to remit zero dollars to them. They can simply have you report every three months or even every year, and that makes it a lot easier for sellers.

9:29 Kexin Smith

Okay, that's all the good news. But there are still a few things that you should know, and you probably could consider this the bad news.

9:36 Kexin Smith

First, economic thresholds are impacted by marketplace sales. And second, FBA warehousing does create physical presence in most states.

9:47 Kexin Smith

So that means that if you are selling on your own website and on a marketplace, the sales on the marketplace must be factored into your sales totals to determine when you have crossed a state's economic thresholds. It also means that you may be responsible for sales tax on your other channels if Amazon is holding your inventory in an FBA warehouse, even if you haven't crossed the economic threshold in that state.

10:13 Kelley Birrell

Now we know that ecommerce sales tax is a beast, and it is a beast with a mean growl, sharp claws and foul breath. Yeah, it is pretty scary, or it can be.

10:25 Kelley Birrell

Facing the beast of ecommerce sales tax is so challenging that many small to medium-sized businesses run and hide, and we really don't blame you. Mostly because they're overwhelmed and they don't even know where to start.

10:30 Kelley Birrell

The problem is that avoiding sales tax can threaten your business survival and success, so that's not really a great viable option, to just hide from it.

10:37 Kelley Birrell

States expect you to cough up the sales tax whether or not you collected it at the time of sale. You can't just say sorry, I didn't know. They actually expect you to come up with it out of pocket if you didn't collect it.

10:48 Kelley Birrell

If they audit your company and find that you are not complying with sales tax, not only will they retroactively ask you to pay the taxes, but they will probably ask for penalties and interest as well. And it can end up being a lot of money out of your pocket.

11:05 Kelley Birrell

Because of this, ecommerce businesses cannot mess around with sales tax compliance. We've seen it significantly set companies back, and in some cases set them up to destroy them.

11:13 Brittany Brown

So here's the deal. We're not saying all this to scare you. We're definitely not trying to be fear mongers here. We want you to understand how serious it is, so that you don't take the approach of sticking your head in the sand and hiding from it.

11:25 Brittany Brown

But we're also not going to leave you in this mess without offering you some help. And this is where you get to find some sanity around sales tax for a change.

11:30 Brittany Brown

We're going to give you three main guideposts for sales tax compliance to follow. This is where we're really trying to help break this all down and help you understand what you really need to do, what you really need to worry about, and what the easy logical steps are to actually get compliant in this area.

11:43 Brittany Brown

Those steps are basically nexus, register and set up, and then collect and remit.

11:56 Step one: working out nexus

Brittany Brown

You know you've got to deal with sales tax, but where do you start? The first step really is about determining nexus, or understanding where you need to collect sales tax.

12:02 Brittany Brown

Now you've heard us throw this word out a lot in this webinar. If you're unfamiliar with that word, we're going to help you understand it more in depth in just a minute.

12:13 Brittany Brown

Understanding where you have nexus is actually a fairly complicated process, depending on how many channels you're selling on and all the different factors that are impacting that. But our goal really is to make it very straightforward for you.

12:27 Brittany Brown

It is vital to knowing where you need to register, collect and remit, so you know what to do next. So even though this process is complicated, it becomes the basis and the foundation for literally everything else that follows.

12:39 Brittany Brown

Once you know that, you need to create a sales tax strategy by weighing the risks and practicalities of registering, collecting and remitting in every single state. We're talking about 50 states here, and you're talking about an independent relationship with every single one of these. And especially if there are back taxes involved, you definitely need to come out of this with a very solid strategy about where you want to move forward and what you want to do next.

13:01 Brittany Brown

So I want to talk about really defining this word nexus, so that as you engage in this you can become like a nexus expert, because it's kind of important for this part of it.

13:08 Brittany Brown

So what is sales tax nexus? Sales tax nexus is about determining in which states your business has a strong enough connection to be legally required to remit sales tax. Typically this is based on three separate factors, three different things that can create nexus in a state.

13:28 Brittany Brown

The first one, and the traditional one that Kelley talked about earlier, was physical presence. So if you are in a state and you're doing business in that state, or you have employees or property or buildings or all that sort of stuff, that's considered physical nexus.

13:40 Brittany Brown

The next one that came about with the recent ruling is this economic nexus idea, basically meaning that if you're doing a certain amount of business in that state, whether or not you have a physical presence in that state, the state thinks you have nexus there.

13:57 Brittany Brown

And the last one is this marketplace nexus idea.

13:58 Brittany Brown

So what is a nexus analysis? We talked about this as being the first step. In some ways it's the most important step, because it really gives you a road map for everything else that follows.

14:09 Brittany Brown

So it's really a determination of where you owe sales tax and why. And also I would add upon that, helping you understand what your actual exposure is if you choose to get compliant or not get compliant.

14:23 Brittany Brown

So a good nexus analysis, the one that our course walks you through, helps you understand your potential sales tax exposure. Then it helps you understand all your potential fines and penalties involved with that exposure.

14:37 Brittany Brown

And in general, not surprisingly, the higher the sales tax exposure, the higher the penalties and interest will be. Penalties are typically a percentage of the sales tax owed, whereas interest is based on the number of days that you're late. So the longer you go sticking your head in the sand, the more that these fines accrue.

14:57 Kexin Smith

So what is the process of doing a sales tax nexus analysis? Let's talk about that right now.

15:03 Kexin Smith

Well, the first step is you have to understand where you have that physical presence. We talked about some things like inventory, employees, locations. Basically making a list of all the states that are impacted by that physical presence.

15:16 Kexin Smith

The next one is to understand where you're meeting the threshold for all your annual sales, or for the number of sales that you're doing. This is really about going into your channels and understanding how many sales are running through all those channels, and whether or not you've crossed the thresholds in the individual states.

15:33 Kexin Smith

Next, even though you've crossed the threshold in some of those states, a lot of your sales may actually be tax exempt, either based on the product that you're selling or based on the customers that you're selling to. So you can actually exclude those tax exempt sales.

15:44 Kexin Smith

And the last part of the nexus analysis is to actually create the strategy. What is your plan to decide where and when to register in order to become compliant?

15:58 Kexin Smith

Okay, let's start with physical nexus.

When I think about physical nexus and physical presence, I think about two Ps, people and property.

16:04 Kexin Smith

With people, you want to ask yourself, where do I have employees? And not just full-time employees, contractors count. So think about all the people that you're giving out W-2s and 1099s to. Do you have any travelling sales people that are going into other states? Do you have any contractors and subcontractors? All of those create physical presence for you.

16:29 Kexin Smith

The second part that creates physical presence is property. Where is your warehouse located? Where is your headquarters? Where's your office? And also where's your inventory, which is one of your biggest assets.

16:41 Kexin Smith

As an online business seller you need to know where your inventory is stored, either in a 3PL or through Amazon's warehouse, or you might have your own warehouse. So people and property create physical presence for you.

16:54 Kexin Smith

The next part is to determine where you've crossed economic nexus thresholds.

17:02 Kexin Smith

And I've gotten this question asked a lot, so just remember, before you cross the threshold you do not have nexus, and after you cross the threshold you do have nexus. And that's when the state can legally require you to collect sales tax.

17:18 Kexin Smith

So all of the sales before you cross the threshold, you don't owe any tax on those. So even after you pass the threshold, the states can't come after you for the first hundred thousand dollars of sales. So don't worry about that part.

17:36 Kexin Smith

So economic nexus is checking your economic activity into certain states to see if you've passed the threshold that's set out by each of the states.

17:50 Kexin Smith

So what we do is we usually pull the sales report from all your channels for the past 12 months, and then we summarise the sales by state. Then we compare the revenue and transactional number based on your sales to the state's threshold, to see if you've passed the threshold or not.

18:09 Kexin Smith

After you analyse your economic nexus thresholds, then we want to look at whether you have any tax exempt sales.

18:17 Kexin Smith

So this step is what really sets LedgerGurus apart from all of our competitors, because we don't stop at telling you, yes, you have nexus through physical presence or economic activities. We look further to see if you have any tax exempt transactions, either the product is not taxable, or the transaction itself is a wholesale resale situation, so you as the middle person shouldn't pay sales tax, or if you're selling to exempt entities.

18:55 Kexin Smith

We take out all of those parts that are exempt to arrive at taxable sales. And your exposure for all of your sales tax liability is based on that taxable sales number, not on your gross sales number.

19:15 Kexin Smith

So that's when we would use an average rate of eight percent to multiply the taxable sales by, to get you the number of exposure, which is going to be how much tax you actually owe if a state comes after you. So that completes our plan and our analysis for your nexus footprint.

19:40 Building a sales tax strategy

Brittany Brown

So the next thing you're going to do is create a sales tax strategy.

Now, whether you've done your nexus analysis yourself, or whether you've had us do it for you, or whether you've had someone else do it for you, the next thing you need to do is basically say, what am I now going to do with this?

19:52 Brittany Brown

So what you really need to understand is that you can be a very large seller and still have very low exposure in some states, but also very high exposure in other states.

20:06 Brittany Brown

So let's do a couple of simple calculations to describe what I'm talking about, and this is why we evaluate your exposure by every state.

If we're looking at eight percent of sales, which is kind of an average tax rate, and you're looking at a hundred thousand dollars worth of sales in that state, and you've maybe just barely crossed the threshold, you have eight thousand dollars of sales tax exposure.

20:22 Brittany Brown

Well, if you didn't register and get compliant in the state, maybe that's not that big of a deal. If the state came after you, you probably would be kind of unhappy, but you wouldn't be out of business if that were to happen.

20:34 Brittany Brown

But what if you were looking at a state where you were actually doing a much higher level of sales? Perhaps you were doing a million dollars of sales in a state. Well, eight percent of a million dollars of sales is actually eighty thousand dollars worth of sales tax exposure liability. And we're not even talking about penalties and interest yet. We're just talking about the sales tax that you should have collected at the time of sale that you didn't. And if you didn't collect it at the time of sale, now you're looking at coming up with the money out of pocket.

20:58 Brittany Brown

One of the really interesting things about sales tax is that it is not an out-of-pocket expense in general. The cost of compliance is an expense of sales tax, but the sales tax itself is not an out-of-pocket expense unless you fail to collect. It's basically just money that's marked up at the time of checkout for your customers, that you just collect and hold on to and then send to the state. So it's really no money out of your pocket at all, unless you fail to collect.

21:22 Brittany Brown

I know I keep saying this, but this is so important to understand. If you fail to collect it, and the state then chooses to audit you and they discover that you should have collected say eighty thousand dollars worth of sales tax, they do expect you to now come up with that money out of your pocket, including any penalties and interest and fines that would have been associated with that.

21:45 Brittany Brown

And eight percent out of your pocket, if we're talking about a large state where you've been doing a lot of sales, can completely wipe out your profits and really hurt you as a business.

21:55 Brittany Brown

So after you have all of this information line by line, state by state, you have the ability to see what your exposure in that state would be.

22:01 Brittany Brown

You're probably going to find that in some states your exposure is relatively small, if it exists at all, and in other states your exposure is going to be quite high.

22:13 Brittany Brown

So now you need to weigh these two things. You need to weigh the potential exposure and risks of being audited and having to come up with that money out of your pocket, basically give the state the sales tax that should have been collected including those penalties and interest, or the cost of compliance.

22:30 Brittany Brown

Because like we talked about, whether you're paying somebody like us to do it for you, or whether you're paying somebody else to do it, or whether you're doing it yourself, this is still costing somebody time, and time is always money. So there will always be a cost to this compliance, and that includes stuff like the cost and hassle of the setup, and the cost and hassle of maintaining that compliance after it's set up. There's a cost to either side.

22:48 Brittany Brown

So how do you decide whether or not you're going to get registered in each state? It's really about weighing these two issues.

22:56 Brittany Brown

We talk about two basic approaches with this cost-benefit analysis. One of them is the practical approach that I take as a business owner.

23:02 Brittany Brown

I'm also a CPA, and therefore I am duty bound to tell you to register in every state and pay the government every single cent that they believe is owed to them. However, as a business owner I also know that that's not always a terribly practical approach. And if I have a state where I only owe eighty dollars potentially if I got audited by the state, the cost of compliance in that state is simply not worth it to me. I'm probably just going to roll the dice, and if I got audited I would just cough up the eighty dollars.

23:31 Brittany Brown

So you have the practical approach that I just described, and then you have the risk averse approach. We have some clients, they just want to be compliant in every single state. It just gives them peace of mind, they just sleep better at night. I have no judgment one way or the other, by the way. So as you're making this decision, we have no sense of judgment at all with whether you go one way or the other. But we definitely want you to make an informed decision when you're going through this process.

23:48 Brittany Brown

And a general rule of thumb is that you're going to spend about a thousand dollars per state per year in compliance costs. So when you're evaluating whether or not to get registered in a state, consider that as the general cost of compliance. And that's really what you're weighing against the cost of non-compliance.

24:05 Registering, collecting, and remitting

Kexin Smith

Thanks, Brittany, that was super helpful. And that's for sure the hardest part of this whole process.

24:12 Kexin Smith

I just want to say that after you make a decision on where to register, the rest should be pretty smooth and pretty easy, and we're here to give you some guidance for that.

24:24 Kexin Smith

So the first step is to register with the states, and the second step is to set up tax collection on your sales channels.

24:31 Kexin Smith

So remember, do not reverse this. You need to register first before you can turn on tax settings to start collecting sales tax. Because as Brittany talked about, sales tax is pretty much a pass-through tax for business owners. You collect it on behalf of the state from the customers, then you pass it to the state. So the state wants to give you the authority to collect on their behalf before you can charge customers. So don't reverse the order.

25:05 Kexin Smith

So getting registered is not hard, but it's different state by state. Here is some of the information that you will need, based on our experience with registering with all the states.

25:18 Kexin Smith

You will need your EIN, social security numbers of the owners. They ask for your address and birthday, and even driver's licence sometimes too in certain states.

25:31 Kexin Smith

With your business they always want to ask your business address, mailing address, what your business is selling, your NAICS code. And California asks for vendor information as well.

25:46 Kexin Smith

And sometimes the state that you're registering in is not necessarily going to be your home state, so they want to know, where are you registered, where is your home state, and they'll ask for that home state registration number as well.

26:00 Kexin Smith

So when you're ready to register, just Google the Department of Revenue's website and go there. There's usually a box that would say start a new business, or register for our sales and use tax licence or permit. Just go there and start the process online. All the states have the online option now, so you don't need to worry about filling in a paper and manually mailing it to the state.

26:27 Kexin Smith

So the processing time usually takes them 10 to 15 business days. If you don't hear back from them, either electronically or if you don't get any mail from them, three weeks after you submit your registration, do not hesitate to call the state and ask them what is my status. Tell them that you plan to start selling into their state and you need the number, and they should be able to give you an update.

26:51 Kexin Smith

Okay, so the next step is turn on your tax collection on your selling platforms, so you actually start collecting that money from your customers and you're not paying out of pocket.

27:04 Kexin Smith

So we have a video that explains this process for Shopify pretty thoroughly. The other channels are pretty similar in theory, so let us know if you have any questions.

27:17 Kexin Smith

But the general idea is you want the platform to know that you want to start collecting sales tax in this state on this date, and whether you want to collect tax on shipping as well. So refer to that video for sure, it's a really good video.

27:35 Kexin Smith

Okay, so then the next step is collect and remit. We first need to decide how much to remit, and then we actually file the return to the states through the state's portal.

27:48 Kexin Smith

So whichever website you went to to register, you would have set up an account. You would also go back to the same place to file your return electronically.

27:59 Kexin Smith

So just remember, all the money you collect is not yours. It needs to go back to the states that you registered in.

28:11 Kexin Smith

So we want to show you how to pull up the reports and how to gather the information for the remittance and collection. So we have a video here on YouTube as well that walks you through the Shopify sales report, how to download the report, and we walk you through each column of the report and tell you the exact information you need to file your sales tax return.

28:35 Kexin Smith

So here's the link for that video. And then after this you need to record your sales tax activity onto your QuickBooks Online or other platform you're using to keep your books.

28:47 Kexin Smith

Okay, so remitting sales tax. We just want to give you a couple of practice management tips, so you know how to plan your workflow so you can confidently manage this process.

29:00 Kexin Smith

So you need to know the frequency, which the states will tell you at the process of registration. So in the letter that you get, on top of the licence, or maybe it's another page after the actual licence, it'll tell you when your first return is due and what your filing frequency is.

29:19 Kexin Smith

So it's usually either monthly or quarterly. If you are not selling that much into the state but you have a physical presence that made it mandatory that you had to register, even though you don't sell that much, you might even get away with a semi-annual or annual filing frequency. So we're always hoping for that for our clients.

29:44 Kexin Smith

Anyway, so you know the filing frequency, and then you know the due dates. They are usually the 20th of every month if you're a monthly filer, and some states, a very small number of states, would give you until the end of the month.

30:02 Kexin Smith

In your head you should plan to have all the sales tax returns filed by the 20th and you should be good. Except for Maine. Maine actually wants everybody to file their return by the 15th. So, Maine the 15th, everywhere else plan for the 20th. Some states you do get to wait until the end of the month to file it.

30:23 Kexin Smith

So what you need to know to remit. Some of the numbers you need to look out for on the orders report you download from your sales channels are gross sales, any deductions, exemptions that we talked about, if your product is not taxable, if you're selling to customers that are not taxable.

30:39 Kexin Smith

Tax rates are different for every state and every jurisdiction. Some states, I think Texas has 1,700 different local jurisdictions and Missouri has over 2,300. So you just really want to make sure you apply the right tax rate to the right ship to address.

31:06 Kexin Smith

And then, let's hope you don't have any penalties and interest, but if that does happen then on the form you also need to calculate penalties and interest. Some states automatically calculate for you, some make you calculate.

31:20 Kexin Smith

And then the good news is if you file on time you don't have any penalties and interest. And in, I want to say about 15 states, you actually get a vendor's credit from the state to compensate for your trouble of remitting sales tax for them.

31:42 Kexin Smith

It's somewhere between one percent to two percent, or 2.5 percent, with a certain cap. New York is very generous. New York would actually give sellers up to like 200 every return as a credit for filing it on time and remitting all the funds back to New York.

32:05 Kexin Smith

Okay, so remember I talked about there are lots of local jurisdictions and different rates. I want to just quickly touch on this, that you have an option to use Excel to aggregate all of those rates, apply them to each one of your transactions, and then you can fill out the forms based on your calculation on your Excel spreadsheet. Or you can use one of the tools. We work with Avalara, TaxJar, Taxify, and we support our clients on all of them.

32:31 Kexin Smith

Another thing to consider is when you are filing, how will you pay the states? They usually give you two options, either ACH or credit card.

32:45 Kexin Smith

With credit card you can move your funds faster, but they'll charge you a fee. With ACH sometimes it takes at least one business day, some states would say like three business days.

32:56 Kexin Smith

So maybe even file your return like three days before the 20th, because you don't want your payment to be late either, because it takes the states a few days to process your ACH payment if that's the payment method you decide to go with.

33:16 Brittany Brown

So because LedgerGurus is an accounting firm that does all the accounting for ecommerce businesses, we're also always focused on the way all of this ties into the complete financial picture.

33:22 Brittany Brown

So the last thing we wanted to touch on in this particular section about sales tax is about correctly keeping track of sales tax on your financial statements. Because sales tax is not income, so quit cooking the books, bruh.

33:39 Brittany Brown

So we record sales tax as a liability when it's collected. As we've mentioned, it's money that you're collecting on behalf of the state and then you're holding it and remitting to the state for them.

33:45 Brittany Brown

So we want you to understand the impact it should and should not have on your financial statements. In the books, sales tax is not income. It's not income when you collect it, it's not an expense when you pay it. It goes on the balance sheet as a liability that's collected and then remitted. It does not go on the income statement.

34:03 Brittany Brown

So we have a YouTube video about this, how to read and analyse your ecommerce balance sheet, that talks about all of these things.

34:09 Brittany Brown

As you guys have probably noticed by now, we're referencing a whole bunch of YouTube videos. We do have a really great YouTube channel. We highly encourage you to subscribe to that channel if you're an ecommerce business, or if you are an accounting firm that's trying to service ecommerce businesses. We have a lot of really great content on our YouTube channel and we release a lot of content on a regular basis.

34:32 Brittany Brown

So if you want to see how all of this fits into your financial statements, we have several on financial statements, but this one in particular talks about sales tax and the way that it impacts your balance sheet. And by the way, our YouTube channel is LedgerGurus, you can look it up there.

34:43 Options and the three big don'ts

Brittany Brown

And so, as a refresher, here are the three basic guideposts of sales tax compliance. But now what?

34:50 Kelley Birrell

Well, we've broken down the basics for you, but we haven't really indicated the how-tos and the pitfalls, and those are really important too. So first we're going to talk through some of your options for putting all of this into practice, and then we're going to talk about those pitfalls, or the three big don'ts. So make sure you stay tuned.

35:06 Kelley Birrell

So first, your options. You know how Siri or Google Maps gives you exact directions on how to get to where you want to go? Well, we want to be your sales tax Siri.

35:18 Kelley Birrell

So in the past we've really only had two options to choose from. The first is a one hour sales tax consultation, where you meet with one of our sales tax experts and get your questions answered. This is a great option if you've got most of the process figured out but you still have a few questions.

35:29 Kelley Birrell

The second option is to outsource your sales tax to our team of experts, who will take care of the entire process for you.

35:35 Kelley Birrell

The thing is though, that we really think there should be a middle ground, for people who don't have the process figured out yet but aren't yet ready to turn it over to someone else. Which honestly, from talking to lots of online sellers over the years, we know is a whole lot of people.

35:47 Kelley Birrell

Well, now we've got you covered. Introducing LedgerGurus University, with lots of our sales tax courses available for you to choose from. I'll tell you more about the details in a minute, but first let us show you what we'll teach you.

36:05 Kelley Birrell

We've given you some basic guideposts for managing sales tax, and now we're going to show you how our Sales Tax Roadmap Made Simple course gives you the exact navigational directions you need.

36:12 Kelley Birrell

We've taken the sales tax process and broken it down into five parts. We'll call them checkpoints, to go along with the idea of a roadmap. Game plan, set up, collect and remit, project management, and tools. We're going to go through each of the checkpoints and show you exactly what we're going to teach you in the course.

36:38 Kexin Smith

So the first one is game plan. Game plan is broken out into two parts.

The first part is how to do a nexus analysis. We'll walk you through how to determine where you have physical presence, pull sales reports from the back end of your channels to see where you have economic nexus, summarise the sales by state, compare that against state economic nexus thresholds, and then calculate total potential sales tax exposure by taking into account exempt sales.

37:09 Kexin Smith

The second part is create a sales tax strategy, which Brittany talked about. We'll walk you through how to handle the sales tax exempt sales, interpret the sales tax analysis to determine your sales tax liability, and help you make decisions about what next steps to take. We can have conversations with you to help you make that decision, so you're not alone.

37:33 Kexin Smith

Then the next part is set up. In this part the first piece is how to do a registration, and then we'll do a channel setup.

37:45 Kexin Smith

In registration we will show you how to register in each and every single state. We have resources and screenshots for those steps for every state. What information you need, where it is, how to get it done, the flow of the information. We have everything documented.

38:03 Kexin Smith

We'll also show you how to get exemption certificates. And then we'll show you how to set up your channel step by step, the back end, change the tax rate, any overrides you need to add, sales tax engine, editing the channel settings according to your business needs.

38:19 Kexin Smith

So the next part is collect and remit. I've talked about the basics of this part, it's pretty much gathering information and then putting it on the returns.

38:36 Kexin Smith

But in this module in our course we'll show you how to modify sales data to be prepared for return purposes, to be able to read the forms from each state and understand the information that they're asking for, and understand the overall logic of filing a sales tax return, so you can apply that to any of the other states that you have nexus in.

38:57 Kexin Smith

And that will also show you a few examples of actually filling out sales tax returns and filing on their website.

39:08 Kexin Smith

In the project management part we will show you how to create a project management system for sales tax, account for sales tax correctly, best practices for holding the funds before remitting as well. So this combines the management as well as recording it correctly on your books under the liability accounts that you would set up for sales tax.

39:33 Kexin Smith

The last part is, I would say it's almost as valuable as the nexus analysis part, we will walk through the three tools we support our clients on. Avalara, TaxJar and Taxify. And we will show you the pros and cons of each of those tools, and we'll also actually walk you through how to set up the tools, how to integrate them with your sales channels, and how to use them to file your sales tax return when it comes.

40:03 Kelley Birrell

So as we were talking about sales tax and our course in general, it may seem a little overwhelming. But we want to show you how we're going to support you all the way through.

40:08 Kelley Birrell

Sales tax may be a beast, but it doesn't have to be scary when it's explained in the right way. By following our Sales Tax Roadmap Made Simple course you'll have access to detailed training content, downloadable templates and worksheets, our team of sales tax experts, and the Sales Tax Roadmap Made Simple community.

40:27 Kelley Birrell

The training content is in video and audio format with slides and lots of screen shares. We're going to walk you through every single detail so you know exactly what to do when you're working on this yourself. We're going to go inside the state registration websites and into the dashboards for sales channels and sales tax tools to show you exactly what you need to do. And by the way, this is the same process that we use with our clients, so we know it works.

40:51 Kelley Birrell

We also have a lot of downloadable content for you, to break down the steps into manageable pieces. You're going to be able to download Excel templates so that you don't have to reinvent the wheel, and worksheets. And by the way, we're going to walk you through all of that in the videos. We're not going to just throw these Excel spreadsheets at you and say, hey, go figure them out yourselves. No, we're going to explain every piece of it.

41:15 Kelley Birrell

We have screenshots and reference guides, lists of important information and downloadable forms. We've tried to include everything that you're going to need to do this process simply and efficiently.

41:21 Kelley Birrell

Our team is a valuable resource and they'll be like experts in your back pocket. Like we mentioned, we've been doing this all day every day for years, and we're so excited to share that expertise with you.

41:38 Kelley Birrell

The Sales Tax Roadmap Made Simple community is the easiest way to access our team of experts. Our experts love to teach and consult, as you can see from this webinar. You'll be able to ask questions anytime you want in the group and we will get back with you as quickly as we can. And by the way, your questions can help others in the group too.

41:56 Kelley Birrell

Now, we want you to understand the sales tax process thoroughly, because the better you understand it, the better you're going to be at being able to move forward with this.

42:02 Kelley Birrell

We know everyone has varying levels of sales tax needs, and we want to find a way to serve as wide a range of you as possible, regardless of where you are on your sales tax journey. That's why we've made this course into a basic version and a premium version with a few different features.

42:14 Kelley Birrell

The Sales Tax Roadmap for Online Sellers course, or the basic course, is designed for online sellers who have nexus in one to five states and want to own the sales tax process themselves.

42:26 Kelley Birrell

It teaches some simple methods for figuring out where you have nexus without having to do a deep dive into all the sales data. Because honestly, if you only have nexus in a few states, you don't need to do that deep dive yet.

42:37 Kelley Birrell

It also shows you how to use that simplified nexus analysis to make educated decisions for how to handle your sales tax obligations now and in the future. Now, you'll get all the registration, collection and remittance material that we talked about before, as well as a section on how to choose a sales tax tool when you're ready for it.

42:54 Kelley Birrell

The Sales Tax Roadmap Premium Edition course is designed for online sellers with nexus in five or more states who aren't yet ready to outsource their sales tax, or for accountants who want to build a sales tax practice.

43:07 Kelley Birrell

The main difference between the basic course and this premium edition is that in this one we teach you how to do an in-depth, detailed nexus analysis. We'll show you how to do a deep dive into your sales report so you have the best data to make your informed decisions with. This is the same process we use for our own sales tax clients and it is very effective.

43:25 Kelley Birrell

Now, we'll cover all registration and setup and remittance and sales tax tools sections as the basic course, and we've also included a section on how to project manage several states at once, and how to handle sales tax in your books.

43:37 Kelley Birrell

Both courses offer access to our team of sales tax experts through our online community. This is a great resource because you can ask questions specific to your business and situation.

43:44 Brittany Brown

So, are you guys ready to become a sales tax hero?

Now, I'm not a fool. I know that some of you, as you've listened to everything that's involved, are thinking, oh, swear word, I don't think so, no thank you.

43:55 Brittany Brown

If that's where you are and that's what you're thinking, but you have a need for sales tax because you are an online seller, rest easy. We're happy to just take it off your plate. We also have packages where we set it all up for you and then teach you how to use it.

44:07 Brittany Brown

But if what you really want to do is nail all this down yourself and keep the cost as low as possible for yourself moving forward, by knowing how to maintain it all, or maybe you have an employee that you'd love for them to become trained on how to do this instead, we would love to help you on that journey.

44:24 Brittany Brown

Now I want to cover the three big don'ts that we talked about. And we are serious, don't do this. We have had to unravel these. They are expensive, they're a pain in the neck, and our clients usually did them because of bad advice they got from other accountants who didn't know what they were doing. So just hear what we're saying, do not do these.

44:36 Brittany Brown

Number one, do not turn on your settings to collect everywhere if you are not registered.

Oftentimes when clients begin to be worried about sales tax they think, no problem, I'll just turn on every single channel to collect in every single state. And I'm telling you right now, we have had clients spend thousands of dollars unravelling that, because you don't actually have nexus in every single state, and now that you're on the state's radar they do expect you to collect and remit for them. And do you really want that hassle moving forward?

45:09 Brittany Brown

Number two, do not register in a state until you pass the threshold.

So as Kexin mentioned, you do not have nexus responsibility in a state until you pass that threshold. It's not like, if you think you're coming up on a threshold you better get registered because all of your sales leading up to that are now going to be exposed to sales tax. Not true. You do not have nexus until you cross the threshold. Therefore do not register until you actually cross the threshold in the state.

45:34 Brittany Brown

And then the last don't is, if you need to provide a resale certificate to a seller that's not in your home state but that you do not have nexus in, do not rush to go get registered in that state.

45:49 Brittany Brown

You have other options to filling out a resale certificate or an exemption certificate without registering in all the states that you do not have nexus in. So for sure consult with an expert before you register in a bunch of states just to get a resale certificate.

46:07 Brittany Brown

Guys, you can do this. We hope that at this point in the game you at least have a clear understanding of what you need to do, some decent idea of how to go about doing it, and a really good idea of the resources you have available as you're engaging in this.

46:24 Brittany Brown

We want to get to know you better, and we look forward to getting to know you better as you become a sales tax hero. We really do want to support you in this journey. We really genuinely want to serve you on this journey, and we hope to see you again.

46:31 Brittany Brown

Thanks guys.