The recent influx of easy-to-use point of sale (POS) devices like the Square Reader®, PayPal Here Card Reader®, and Amazon Local Register® has made it simpler than ever for merchants to sell products from anywhere. If you aren’t already using one of these devices then you’ve likely swiped your card and used your finger to sign with one – maybe at your locally owned coffee shop, a food truck or a craft fair.
POS devices make it easy to sell from any location. But if sellers aren’t careful, this simplicity can get them into sales tax trouble.
POS Devices and Sales Tax 101
When you use a POS device to take a payment from someone on location, you run the risk of establishing sales tax nexus at that location. Different states’ taxing authorities define nexus somewhat differently. However, they all agree that having a significant physical presence at a location (which may include setting up shop at a craft fair or trade show) constitutes nexus. (What counts as “significant” varies from state to state and can be quite a challenge to define.)
What happens when you have sales tax nexus in a state? That state’s taxing authority expects you to register for a sales tax permit, collect sales tax from your customers and remit that tax to the state at predetermined intervals.
It can be a Catch-22 situation: if you don’t collect sales tax, you may be responsible for the amount you should have collected out of your own pocket, and you may incur penalties and fees besides. If you do collect sales tax, but fail to register for a sales tax permit in a state, then that state might consider your actions unlawful.
Beware of getting tripped up when traveling with your POS device.
Mind Your Jurisdictions
Most merchants who have been doing business for any period of time are familiar with sales tax nexus. But POS devices can trip sellers up in other ways.
For example, you usually sell your handmade barn wood tables at a flea market in your hometown, Woodstock, GA. Because you always sell from this location, you have your POS device set to collect sales tax at the local rate. That’s the 4% Georgia sales tax rate plus the 2% Cherokee County sales tax rate. But a craft fair in Atlanta’s 30309 zip code has invited you to set up shop there for a weekend. The sales tax rate in that area is actually 8% - Georgia’s 4% plus the 3% Fulton County rate and a 1% Atlanta rate. (BTW - don't forget that sales tax rates do change periodically, so referenced rates may no longer be applicable when you read this post.)
If you forget to tell your POS device how much sales tax to collect, you could inadvertently collect too little sales tax from your Atlanta customers. At the end of the day, you would be responsible to the Georgia Department of Revenue for that extra 2% on each transaction.
Sales Tax Filing
And then there’s the process of actually filing your sales tax returns. You are responsible for filing a sales tax return in each state where you have nexus at intervals that the state determines. For example, if your craft fair circuit takes you around Wisconsin and Minnesota, you will have to collect and remit sales tax in both states. But Wisconsin – your home state – might want you to file a quarterly sales tax report while Minnesota only wants a filing from you once per year.
Further, many states want you to report and file your sales tax by jurisdiction. Take the Georgia table seller example. The state of Georgia would require you to separate out and report how much sales tax you collected in each taxable district. This isn’t supremely difficult if you just sold tables in Woodstock and Atlanta, but if you traveled around the state your sales tax compliance burdens would become more and more cumbersome. If you also sell your tables online through a site like eBay, you have to figure out how much sales tax you collected through there, too.
As your business grows more complex, so does the burden of collecting and remitting sales tax.
Other recent “Small Business E-Commerce” posts by Mark Faggiano:
- POS Devices and Sales Tax: What Multi-Location Sellers Need to Know
- E-Commerce Sales Tax Compliance: 5 Step “No Automation” Approach