Charging Your Customer Sales Tax

When selling items online, its a daunting task to charge the correct customers with the proper sales tax. And even when done correctly, the store keeper must also keep tidy records so that she can properly send the sales tax collected to the state tax authorities.

A member of the SFEtsy team inquired about how to do this through Paypal so I came up with some advice. I am in no way providing legal advice but after selling online for 3 years I have learned a few tidbits that I thought I’d share.

First, I will start with how to set up your Paypal account to charge the correct sales tax to the right customers.

Second, I will suggest some ways to book keep your sales tax.

In a later post, I plan to write about how to determine what sales tax to collect and from whom to collect it from.

Setting Up PayPal

I know you can do this if you have an upgraded account such as a business or premium account but am unsure if such settings are available in a basic account.

  1. After logging in, click on PROFILE.
  2. Then, click on SALES TAX. You can find that under the section called “Selling Preferences”.
  3. You can create sales tax based on state or zip code. If your state has one general sales tax, then chose “state”. If your state also has varying sales tax according to city, county, zone, etc. then you will also need to setup sales tax according to zip code. If you create both a state specific sales tax and a zip code specific sales tax you will have overlapping rates. When this is the case, the zip code specific sales tax will override the more general state specific sales tax.

Book Keeping Your Sales Tax Collected

Now once you’ve collected the sales tax, you must tally it up so that when the time comes, you can report and send the sales tax collected to your local sales tax collector.

This is easy if your state has only one general sales tax or if your state requires you to apply the sales tax applied to the point of sale location. If you do not have a sales manager like Quickbook or Peachtree, you can just tally it up on an excel sheet. I know I receive many more out of state sales than instate so the time you spend inputting the information into the excel sheet should be minimal. I suggest inputting the following information into your excel sheet:

  • Date of purchase or sale
  • Name of customer
  • Address of customer
  • Price of goods sold
  • Shipping charges
  • Sales tax collected

Now, if your state has confusing sales tax based on city, county, district, etc. = [location] in which the item was delivered to, I highly suggest using Quickbooks or Peachtree. This is because, while its not too difficult to list you sales as suggested above, it will be harder to report to your sales tax collector. Usually (and this is just general information so please check your local sales tax collector for specific information), you will need to report how much you sold within and without your [location]. This means you will need to track exactly what [location] it was sold to.

If you decide to use excel for this task, I suggest creating a separate sheet for each [location]. This will add more time to your task as you should cross check and accurately assign sales to each sheet.

If you opt for Quickbooks (I currently use Quickbooks Pro 2009), its really simple. First, you need to setup your sales tax profiles. To do this:

  1. Go to LISTS > ITEM LIST.
  2. Click ITEM > NEW.
  3. Choose SALES TAX ITEM as the type.
  4. Make sure to name your sales tax so it is recognizable by you. I suggest placing the year and location (location is important if you have varied sales tax within the state).
  5. Click OK.

When creating an Invoice or Sales Receipt, make sure to:

  • Mark the appropriate items as taxable. You can find this option on the very right side of each item line.
  • Toggle the sales tax profiles at the bottom to the appropriate profile.

Then, when it comes time to reporting, all you need to do is:

  • Click on VENDORS > SALES TAX > SALES TAX LIABILITY
  • Then choose the correct dates at the top.
  • This will provide you the amount of taxable sales, nontaxable sales, and tax collected for each [location]. You can use this information to report to your sales tax collector.

To record your sales tax payment:

  • Click on VENDORS > SALES TAX > PAY SALES TAX
  • Make sure you choose the correct date range.

Please let me know if you have additional information or find some of the instructions difficult or incorrect.

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