As businesses grow and expand to new markets and products, keeping up with sales tax laws becomes increasingly difficult. To help you keep your sales tax in check, we have made this simple guide that should help your growing business stay compliant with various tax laws.
But first, let’s define the sales tax just to make sure that we are all on the same page. According to the definition, a sales tax is a consumption tax imposed by the government on the sale of goods and services. A sales tax is paid in the country where a company resides, but it can also be paid in a country where a company has storage, affiliates and so on.
Here are four scenarios in which you should definitely reconsider your tax laws.
Adding New Products to the Line-Up
If you are adding new products to your line-up, there’s a big possibility that they will be taxed differently from the rest of the items you are already selling. There are many similar products that are taxed differently. That’s why, before adding any new products to your line-up, you should check how that product is taxed.
For example, if you sell software solutions that you traditionally sell on disks, but now you are planning to sell the same solution via your website as a download, you might be looking at different tax regulations.
You have to ensure that you and your staff understand the difference in tax when selling a disk via a download. In some countries, for example, digital downloads are not taxed at all, while in other countries they might be taxed differently than the software sold on a physical disk.
Adding New Sales Channels
In recent years, an increasing number of online businesses have been going offline. Many online businesses have decided to open a store in the real world which can have a massive impact on the way they do their taxes. If you are an online business that’s planning to open a real-life shop, you definitely have to rethink your sales tax. Taxes can vary greatly between online and offline business ventures.
The same thing goes for the opposite situation as well. In the days when more than 90% of people make their purchases online, many companies choose to establish an online presence to grow their sales. Most business owners know that selling products online carries additional shipping costs, but most of them don’t realise that different tax rates can apply as well. If you are a business owner ready to go online, make sure to inquire about how the sales tax for online purchases differs from the tax you pay for your offline business.
Adding New Services to Your Company
As your company grows, you might find yourself hiring assistance or partners that will cover one part of the job for you. For example, if you do delivery, you might have to hire a drop shipper or rent storage. Both of these might come with a whole set of new taxes you will have to pay. Also other activities such as online advertising, product line expanding and so on can all have an impact on the taxes you have to pay.
For example, if you don’t ship your products directly but you rely on drop shippers to ship it, that might mean that both you and your drop shipper will have to pay different taxes. This particularly goes if you and you drop shipper aren’t located in the same country or in the same state. If an audit discovers that you didn’t pay all of your taxes or that they were paid incorrectly, the fines can be staggering, and result in the closure of your business.
Expanding to New Markets
This should be a no-brainer. Every time your company expands to a new market, you must reconsider your sales tax and align your sales to the regulations that exist on that market. Today there are many companies that sell products on a global scale and make shipments worldwide.
However, every country in the world has different tax regulations that have to be taken into account when shipping products to that country. But this doesn’t apply to online sales alone.
For example, even visiting a trade show in another country is a cause for rethinking the sales law as all items that are sold in another country are subjected to the laws of the country they are sold in. That’s why, before you expand to any other market, even if it means just visiting a weekend-long trade fair, you should ensure that you get your sales tax right and avoid legal problems that might occur.
If your company is going through any one of these four changes, make sure to contact Global Tax Reclaim and learn all you need to know about doing your taxes in changed circumstances.