Links:

➡️ Training registration: https://getlegit.lpages.co/tax10124/

➡️ Get Legit Toolkit wait list:  https://getlegit.lpages.co/getlegitwaitlist/

Transcript:

Hi there.  Janet LeBlanc from Paper + Spark and welcome to Day 1 of the PSA tax series for e-commerce sellers. Before we dive in to today's topic and tax  #1, I want to let you know that this Thursday, March 28th, I'm hosting a masterclass, called when to worry about taxes for your online business at both 12pm & 8pm EST. And you're invited if you received the email link for this podcast and you're already registered and I hope to see you there live.

I'm also opening the doors to my signature financial program the Get Legit Toolkit this Thursday, if you need help getting in your financial ducks in a row, I can't wait to share more information about this later this week. So let's go today. Let's discuss the first of three types of taxes every online seller should know about and understand, and that is.

Drum roll. Sales tax.

Sales tax is governed by your state's department of revenue. It's not a federal or IRS regulated type of tax.

Now, I could talk about sales tax for a really long time, because it's a complicated and complex topic. And it can differ a lot state to state. So I'm going to try my best to sum this up in about ten minutes for you.  And just make it as clear as possible for you to understand a general overview of how sales tax works for you.

Sales tax is governed by your state. It's your state's department of revenue. It's not a federal thing. It's not with the IRS. It has nothing to do with those guys. So that means it's not the type of tax that your typically filing April 15th. It doesn't go with your personal income tax stuff. All us states, except for Alaska Delaware, Montana, New Hampshire and Oregon have sales tax.

But today in the internet age, Even if you're in one of those states, you might still have to deal with sales tax in some sort of capacity. So I'll explain more in a bit. Now the good news about sales tax is that you actually aren't paying it. Your customer should be paying it. Sales tax is a tax that  that the end consumer or user of a product is supposed to pay at checkout. So if you're doing sales tax, right, you're charging it to your customers. You're holding onto that money for a little bit of time, and then you pay or remit it over to your state when it's due. It's also helpful to note that sales taxes are usually paid on your gross revenue. That's total revenue.

You're usually not subtracting any expenses or deductions when it comes to calculating how much sales tax you owe on your sales tax form. You're not taxed on your net income or your profit, like you are with income tax, which will make more sense later. So who has to deal with sales tax? There's a few different ways you can trigger sales tax in a certain state.

The first and most obviously understandable way is physical presence. If you have a physical presence in a state that has sales tax. You usually trigger. What's called a nexus in that state. Now nexus is a fancy tax word. That means significant presence. Having a physical presence in a state like living there, working from there, having your place of business there, or even literally just running an online shop from inside of your house in that state generally triggers a physical presence nexus there.

Which means that you have to deal with sales taxes in that state. That usually means for most of us that you need to get a sales tax permit with that state's department of revenue, which is one of the important steps on the road to getting legit. So let's say you have a physical presence nexus in your state.

And so you've got your sales tax permit. And this example, let's say you're in Texas because Texas rhymes with the word nexus. So we have a nexus in Texas. Does that mean that you charge the Texas sales tax rate to all your customers now going forward? No. You actually only charged sales tax to the customers in the state in which you have nexus. So all my Texas customers.

Are now going to pay Texas sales tax when they buy from me because I've got an excess in Texas. I don't need to charge my out of Texas customers the sales tax rate of Texas or   theroetically of anywhere else. I hold onto that money that I get from my Texas customers, that Texas sales tax that collected from them.

And I remit it over to the state of Texas when it's due. The state will actually tell me how often they want me to pay them when I get my permit. So that maybe annually semi-annually quarterly or even monthly, depending on what they want from you. Now a few years ago, this was it, this was the basic gist of how sales tax works. Physical presence was the deciding factor. We usually only have a physical presence in the state in which we live in. So that was the only thing we had to deal with.

Unfortunately. We have this big thing called the worldwide web and brick and mortar store owners got tired of us, fancy online people not having to deal with sales tax for the vast majority of our sales. So now we have other additional ways that nexus can be triggered. Ones that don't depend on just your physical location.

First most states have adopted a new, additional type of nexus called economic nexus. This role is saying, Hey, Even if you don't have a physical presence in this state. If you've got a significant volume of sales into this state, you've now got a nexus. Each state has different thresholds for what triggers that significant volume of sales. So you kind of have to be on your toes if you're a higher volume seller and pay attention to whether you're getting close to a high volume of sales into any one state.

By high volume. I generally mean about a hundred thousand dollars of sales into any one state. Most states have thresholds at least that high. But some states also have a number of sales thresholds. And in some states that could be as low as 200 orders into one state. So it can really vary by state. So again, if you're a higher volume seller, you want to be aware of these different thresholds for different states.

So it is possible that as an online seller, You could trigger another state's economic nexus. And need to deal with sales tax there. Keep in mind your own state's economic nexus rule does not matter to you. You already trigger your own state's physical presence just by being there. So, no matter how many sales you do or don't have in your own state.

That doesn't matter. Finally we've had most states make another new sales tax rule for big online marketplaces. This is like Etsy, eBay, Amazon, and Walmart. Most of these states have said, Hey, you big online marketplaces. You're selling such a high volume of stuff into my state. We don't care if you don't actually have a warehouse or brick and mortar location here.

You've got to deal with sales tax in my state. Anyway. So these online marketplaces are now required to deal with or facilitate collecting sales tax. On their individual sellers behalves. So that's why, for example, you see Etsy collecting and remitting sales tax on your behalf. If you've got an Etsy shop, they have their own marketplace sales tax rules that they have to deal with. And those kinds of supersede, anything that you can do on the individual shop level there.

So you may have a physical presence in your state. But you're selling on Etsy. And their settings, their sales tax rules are going to deal with that. 4:00 AM. And that is my five minute spiel. Really fast forward, quick on how sales tax works. There are more questions to consider here. It's very multifaceted. So there's more questions you want to be aware of? Like what rate do I actually charge my customers? How do I know what percentage to charge them?

How do I set up my shop or my online storefront to properly do that, especially if I'm selling off of a marketplace, like not on Etsy. Is the product that I sell, even subject to sales tax. Sometimes it's not do I need to charge sales tax on the shipping in that my customer pays me, is that subject to sales tax to.

There's lots more that we could dive into. These are all nitty gritty details that I do dig into in the course, the get legit toolkit and remember, doors are opening Thursday and I'll be sharing a special bonus for attendees during our live masterclass at noon or 8pm Eastern.  📍 I hope this chat gave you some clarity on what sometimes feels like a confusing and overwhelming topic.

I will see you tomorrow for tax number two.