Most US states levy a statewide sales tax on businesses. Only five states have no sales tax rate: Alaska, Oregon, Delaware, Montana, and New Hampshire. Besides these states, if you own and run a business elsewhere, sales tax filing and payment will be mandatory for you. You have to maintain sales tax compliance to avoid potential penalties.
Keep in mind that sales tax obligations can be complex and vary by state/product type. The sales tax rate can go from 7.25% (in California) to 2.9% (in Colorado). So, you should navigate the whole sales tax payment process carefully and be mindful of these mishaps:
- Complicated regulations
- Liability determination
- Amount calculation
What’s the solution? Many online tools automate sales tax calculations, filing, and payment. You may even pay sales tax online today. These tools and methods will reduce the burden on you as a small business owner and save you from erroneously submitting the wrong information.
Trust TaxCloud to navigate these complexities. It offers a 30-day free trial, so you’ll experience its different features firsthand. This trial lets you see how automated solutions ease the burden of sales tax compliance and help businesses focus on growth rather than paperwork. Now, we’ll go through a 5-step process of filing your sales taxes in the United States.
How to Pay Sales Tax?
Step 1: Calculate Your Sales Tax Liability
First, we must find your sales tax liability to make sure you stay compliant with the regulations in question. In this process, you will determine how much sales tax you have collected from all your buyers during the reporting period. This period may be monthly, quarterly, or annually.
- Determine Total Sales: You can start by aggregating the sales transactions made during the reporting period (both taxable and non-taxable sales).
- Identify Tax Rate: Since different states & jurisdictions may impose different tax rates, you have to make sure that you’re using the correct rate based on the buyer’s location.
- Calculate Tax Collection: There’s a very simple formula for calculating it. It’ll look like this:
Sales Tax = Total Sales X Sales Tax Rate
- Record the Payable: Don’t forget to record the sales tax collected from buyers right in your accounting system under a liability account. You can call it Sales Taxes Payable to reflect how much money you owe to the government.
With TaxCloud, this whole sales tax payment process becomes way easier. TaxCloud can help you easily calculate the right sales tax amount by automating this process. That’s how your small business can save time and reduce the risk of errors that could lead to compliance issues.
Step 2: File Your Sales Tax Return
- Log in to your state’s tax portal account (or create a new one).
- Choose the “File Sales Tax Return” option on the portal’s dashboard.
- Select the right month/quarter for filing your sales tax return.
- Enter the total amount of sales tax collected from buyers during this period.
- Double-check your entries by pressing “Submit” on the portal.
How to Pay Sales Tax via Mail?
- Download the necessary tax forms from your state’s tax agency’s website.
- Fill in the required information (e.g., business name, tax ID, sales tax liabilities, etc.)
- Include a check or money order from the total amount of sales tax that you owe.
- Send this form (and the enclosed payment) to your state’s tax agency’s address.
Just make sure that you are filing your sales tax return before the filing deadline (which typically falls on the 20th of every month). Delayed filing and payment may lead to substantial fines/penalties that often range from 5% to 25% of the total tax amount.
Step 3: Make a Sales Tax Payment
When it comes to timely sales tax payments, you can avoid hefty penalties by considering your state’s filing deadlines. Don’t miss these deadlines, and consider different payment methods to stay compliant. We’ll discuss 4 major payment methods here:
- Online: You can leverage electronic payment options to process your sales tax payment immediately.
- Check: You can send a physical check along with your sales tax return.
- OTC: Over-the-counter payments also work, but they’ve to be done in person.
- ACH: A unique option is to set up an automated clearing house transfer to make your entire sales tax filing and payment process streamlined.
TaxCloud enhances the payment process by offering seamless integration with various payment methods. It automates the calculation of taxes & provides options for direct electronic payments, simplifying the remittance process for businesses.
Step 4: Verify Payment Receipt and Keep Records
When you’re done making a sales tax payment, you should verify receiving this payment as well as maintain accurate records for future audits. Audit preparation is vital, so you should confirm that the stage agency has received your payment and recorded it correctly. You should maintain a series of records of your own that can include the following documents:
- Copies of your filed sales tax returns
- Payment confirmations or receipts
- Sales transaction documents that generated this liability
With TaxCloud, payment verification becomes much easier. You can easily keep all records as well as automate the process of tracking the sales tax payments made through its system. So, you can now simplify the process of maintaining accurate records of your sales tax payments.
Step 5: Plan for Future Sales Tax Payments
Lastly, you should ensure timely compliance with future sales tax obligations today. Manage the payment scheduling of your company to stay on top of future payments. You can increase your sales tax compliance this way by:
- Setting automated reminders for upcoming filing deadlines and payment due dates.
- Use software solutions like TaxCloud to streamline the entire taxpaying process.
- Assess your sales tax obligations based on changing business activities or regulations.
Final Thoughts
Keep in mind that paying your sales taxes on time is crucial for your business’s survival. You must calculate the correct sales tax rate to file your sales tax returns on time. Use TaxCloud to make this process much easier with automation and reduce the risk of errors & penalties.
Get started with a free 30-day trial of TaxCloud today and simplify your sales tax payments.