Should Web Professionals Charge Sales Tax? [US]
*This article was written by Intuit. This information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different. The information provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.**This information is based on United States taxes. Web professionals have a lot of decisions to make, including whether or not to charge sales tax during the payment process.
For many, the question may come as a surprise. Unlike online retailers who provide physical goods that are shipped or sold from a specific location, creative professionals operate in a gray space. Yes, you may attend conferences or trade shows where you meet new clients and discuss potential projects. Or perhaps you handle tangible products, like copies of documents or physical samples, from time to time. While online retailers exchange goods for cash on the spot or at the point of sale (including at trade shows, where sales tax nexus is applied), you build those expenses into an invoice. Additionally, rather than charge sales tax on top of your services, you may simply include a fee to reimburse your time—a fee that, presumably, will help go toward taxes later.
All of that said, typical practice is not always correct practice. Sales tax used to only apply to tangible personal property (TPP). But in recent years, the line between goods and services has become increasingly blurred, and many states apply sales tax to services as well. While some states offer a cut-and-dry policy on sales tax applied to services—South Dakota, for instance, requires sales tax be charged for nearly all services—others are more discerning.
Here are a few things to consider when determining whether or not to charge sales tax for your professional services.
Is your business located in a state with sales tax requirements related to services as well as goods?
Are your services exempt from sales tax?
Have you reached economic nexus in any state where you have clients who’ve purchased your services?
You should be fully informed when determining whether or not to charge sales tax. Consult your accountant or a tax expert to better understand your specific requirements and responsibilities.
Collecting sales tax with payments
If a sales tax authority requires you to charge sales tax for web development services, you need to either collect or charge sales tax at the time of payment or absorb the sales tax and pay it out of pocket when you file your sales tax return. You should note that certain sales tax authorities require sales tax to be charged separately from the payment for services.
In order to collect sales tax, you may need to apply for a license through the relevant sales tax authority first. If you have clients exempt from taxation, like nonprofit entities, they must provide a copy of their exemption certificate, which you should ensure complies with the specific rules of the relevant sales tax authority and keep for your records.
A client may also present you with a resale certificate exempting them from sales tax, but this is more common with selling goods than services. When a client provides a resale certificate, you may need to clarify that the sales tax you collect applies to the digital payments the client makes to you for your services and not to the products they might be selling to their customers via their website.
Properly remitting sales taxes
After you've collected sales tax, you need to remit it to the proper sales tax authority periodically. Most states require monthly or quarterly reporting, but you may have to do so annually depending on how much your annual taxable sales are. Remember to check with the relevant local sales tax authority to determine which clients you should charge sales tax to, if at all.
In some cases, so long as you hold a license to collect sales tax, you may still need to file a sales tax return, even if you don't have any taxable sales for the year and do not owe any sales tax.
Make record keeping easier
Sales tax collection is a complex process, so you should always thoroughly check the relevant sales tax authority's website first, as states have more power to determine nexus and decide who should collect sales tax. You may also need a license and to file sales tax returns separate from your income tax return.
QuickBooks Self-Employed integrates with Squarespace and can help you keep track of your sales tax collection for proper deduction and remission. It can also transform your business with smart record keeping and taxable sales tracking.
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