How to Determine your Sales Tax Charges

Regardless of what trade your business is in, one of the hardest things to get right is determining what sales tax you're going to charge your customers. After all, you don't want to charge too much sales tax and scare them away; yet at the same time, you can't afford to charge them too little.

What makes the problem even worse is that there is no actual official sales tax in the United States. So, instead of a nationwide sales tax that would make everyone play to the same rulebook, you might end up charging twice as much tax as a competitor in a different state. The effect of determining a sales tax is left to the business, and this is where it's so important to get it right.

Location, location, location
Since there is no national sales tax in the US, it can make it pretty unfair for businesses in certain parts of the country. For example, any sales made in Texas to a company with a presence in the state will be liable for sales tax for the Texas transaction. So, in essence, even if all you have in Texas is a small accounts office with one employee, and the actual sale was made through your Chicago sales team's offices, you'll still have to pay the sales tax for the resident in Texas.

This is why so many businesses are pushing for some kind of recognized sales tax agreement. Congress is listening - they're currently looking at the Fair Tax Act, yet that could be some way off. In the meantime, it doesn't help your business when it comes to trying to determine your sales tax charges. It all really depends whether you're operating mainly online or offline.

Web Sales versus Retail Sales
With the Internet providing so many of today's business transactions, sales tax calculations can be a little muddy. However, the general rule is that as long as you don't have a presence wherever the sale was made from - say an eBay store made a sale to a resident of Florida, but the eBay store owner lives in Dallas - then you won't have to charge sales tax. For small businesses, this can mean a huge difference.

The reason the waters are so muddy when it comes to online is that many businesses with an online sales presence use third-party merchant accounts. If your customer and your merchant account provider are in the same state, you'll have to charge sales tax for that area.

Retail sales are a little easier, as it depends on what your state average is for general sales tax. So for example, Alabama's general tax is around 4%, while Idaho has a 6.4% state sales tax. Depending on what is sold has a big say in the matter as well, with alcohol and prepared food costing more than newspapers or groceries. Alaska has no tax at all, although the local governments usually encourage a 7% charge.

At the end of the day, determining how much sales tax you should charge depends on many variables, and to make sure you don't over or undercharge, speaking to your local chamber of commerce and tax office can help you make the right decision.