Recordkeeping and Remitting: Conquering Sales Tax Like a Pro
Sales and use tax can be a tricky topic for small business owners, but it’s essential to stay informed and compliant. In this article, we’ll cover the basics of sales and use tax, focusing on general understanding, registration and compliance, and proper recordkeeping. Let’s dive in!
General Understanding of Sales and Use Tax
Sales tax is a consumption tax that businesses collect from customers when selling taxable goods or services. The collected tax is then remitted to the state or local tax authority. Use tax, on the other hand, is self-assessed by businesses or individuals when purchasing taxable items from out-of-state vendors who didn’t charge sales tax.
Key questions to consider:
- What is taxable? Each state determines what goods and services are subject to sales tax. For example, some states tax groceries while others do not.
- Who is responsible for collecting sales tax? Generally, businesses selling taxable goods or services must collect and remit sales tax if they have a nexus—a significant connection—in the state.
- What is the difference between sales tax and use tax? Sales tax is charged at the point of sale, while use tax is paid directly to the state by the buyer when sales tax wasn’t collected.
What is Nexus?
Nexus is the legal term used to describe a business’s connection to a state that requires it to collect and remit sales tax. Nexus can be established in several ways, including:
- Physical Nexus: Having a physical presence in a state, such as a storefront, warehouse, or office.
- Economic Nexus: Reaching a certain level of sales or transactions in a state, even without a physical presence. Many states have economic nexus thresholds.
- Other Factors: Employing workers, attending trade shows, or having inventory stored in a state can also create nexus.
Understanding your nexus obligations is critical for determining where you need to register, collect, and remit sales tax. Failure to comply with nexus requirements can result in penalties and back taxes.


Registration and Compliance
To collect sales tax legally, businesses must register for a sales tax permit in every state where they have a nexus. Nexus can be established through physical presence, such as a storefront or warehouse, or economic activities, like meeting specific sales thresholds in a state.
Steps to ensure compliance:
- Register for Sales Tax Permits: Apply for a sales tax permit in each state where you have nexus.
- Determine Tax Rates: Sales tax rates vary by state and locality. Be sure to charge the correct rate based on the customer’s location.
- Collect and Remit: Add the correct sales tax to customer transactions and remit it to the appropriate tax authority on time.
- Stay Updated: Tax laws change frequently. Monitor updates to ensure your business remains compliant.
Proper Recordkeeping
Maintaining accurate records is crucial for managing sales and use tax. Good recordkeeping not only helps with compliance but also ensures smooth business operations.
Tips for effective recordkeeping:
- Document Every Sale: Keep detailed records of taxable and non-taxable transactions, including receipts and invoices.
- Track Exempt Sales: If you sell to tax-exempt customers, retain their exemption certificates.
- Monitor Purchases: For use tax, track purchases from out-of-state vendors and calculate tax owed.
- Automate Where Possible: Use accounting software or work with professionals to simplify recordkeeping and tax calculations.
Having organized and accessible records can save time and stress, especially when questions or issues arise regarding your tax obligations.
Why Choose VirtuCount?
Navigating sales and use tax can be overwhelming, but you don’t have to go it alone. VirtuCount specializes in helping small businesses like yours manage their sales and use tax obligations. From registration to compliance and recordkeeping support, we’re here to simplify the process and keep your business running smoothly.
Our personalized approach ensures we understand your unique needs, helping you stay compliant and avoid costly penalties. Let us handle the complexities so you can focus on growing your business. Contact VirtuCount today to learn how we can help you take the stress out of sales and use tax!
