Understanding sales tax reporting by state
Just as each state has its own sales regulations and nexus rules, so too each state’s sales tax reporting requirements differ.
Key differences in sales tax reporting requirements include frequency, due dates, and specific reporting formats:
Frequency of reporting
Some states may require monthly reporting, while others may require quarterly or annual reporting. For example, California requires sellers to report sales tax monthly, while Texas requires sellers to report sales tax quarterly.
Reporting formats
Reporting formats differ from state to state and require different official forms for the reporting process based on reporting frequency and location. Even though most states have online sales tax reporting portals, there are still tax authorities who prefer paper submissions. There are also states, such as Alaska, who do not have an online reporting platform, where peroting has to be done manually with the tax authorities of local jurisdictions. Some states may require electronic submissions, while others may accept paper submissions.
Tax codes and categorization
Different tax codes and categorizations are used in different states, with incorrect code use leading to drawn out audits and even fines.
A closer look at the key components of sales tax reporting
Sales tax reporting may look slightly different in each state, but the key components that make up a sales tax report are the same wherever you go.
Gross Sales:
The total amount of sales made by the business during the reporting period.
Net Sales:
The total amount of sales made by the business during the reporting period, minus all returns, discounts, and allowances.
Total Number of Transactions:
The total number of transactions made by the business during the reporting period.
Total Amount of Taxable Sales:
The total amount of sales that are subject to sales tax.
Total Sales Tax Collected
The total amount of sales tax collected by the business during the reporting period.
Transaction Dates:
The date on which each sale took place
Invoice Number:
Each sale entry must be accompanied by a unique identifier that makes transaction traceability possible.
Location of buyers:
With eCommerce businesses and marketplace sellers, the recording of buyer locations plays a vital role in monitoring sales tax nexus obligations.
Detailed account of exempt sales:
All exempt sales need to be accounted for and provide the details of the exemption certificate or resale certificate used during the transaction.
List of refunds or Adjustments:
A list of any refunds or adjustments made during the reporting period.
Taxable Total Cost of Goods Sold:
The total cost of goods sold that are subject to sales tax.
Taxes Paid on Expenses:
The total amount of sales tax paid on expenses.
The benefits of accurate sales tax reporting
The purpose of a sales tax report is to give businesses a comprehensive overview of their revenue and sales tax obligations. That overview serves several essential and beneficial functions:
Identify areas of improvement
One of the core functions of sales tax reports is to help identify areas where a company’s tax management may be lacking or where they are making mistakes in the sales tax collection process.
Assess sales tax compliance
The report helps businesses assess sales tax compliance in operations and identifies common problems and challenges that stand in the way of compliance. While a report doesn’t provide solutions, it does bring the areas that need to be improved to the foreground.
Monitor changing tax obligations
Sales tax nexus is something that changes rapidly and sales tax reports can help businesses keep an eye on nexus triggers in different states so they can collect sales tax accurately and file the appropriate returns.
Provide support during tax preparations
Sales tax reports simplify the preparation and filing of returns by providing an up-to-date summary of total net sales tax paid, delinquent transactions, sales tax remittance, and expenses.
Stay compliant with tax authorities
Sales tax reports are essential for businesses to maintain compliance with tax authorities and avoid penalties and fines related to sales tax non-compliance.
How do you create a sales tax record?
Sales tax reports have formed a part of business due diligence long before the arrival of accounting software and automated SaaS platforms. But as you’d think, capturing each transaction and its tax information manually (on paper or electronically) is a painstaking process and prone to errors.
Sales tax reporting software simplifies the capturing and reporting process, ensuring each transaction and its sales tax data is recorded accurately in real time.
Digital reporting systems also make it easy to filter data according to varying metrics (date ranges, except sales, buyer locations, cost of goods sold) to gain insights into performance and revenue at the click of a button.
Digital sales tax records can also be exported as a CSV file, printed, or sent via email to make compliance and due diligence easy.
