Filing a sales tax return in any of the US states is a relatively simple process, but you must make sure to calculate your input and output taxes correctly. This determines how much you owe the local government, or how much they own you as a refund.
Particularly for digital entrepreneurs, SaaS and e-commerce businesses, declaring GST is a standard routine. You file online either once a year, every quarter, or every month.
So it’s even more important that you learn the basics of US sales tax and the declaration process!
Before we begin, you should know that how you calculate your tax declarations could depend on your accounting practices or special tax schemes for certain products. Such as:
- annual accounting
- cash accounting
- payments on account
When should you declare sales tax?
In the United States, this varies from state to state and can depend on your accounting and reporting method. “Sale basis” means when the sale was made, “cash basis” when the payment is received.
In some states, you have the choice of how you report, such as Missouri. You just need to choose one method and stick with it!
Other states stipulate when you must declare the tax, such as Louisiana, which says:
“Transactions for the sale or purchase of tangible personal property or taxable services must be reported on the dealer's sales tax return for the month or quarter in which the sale was made, the service rendered, or the purchased property was imported into the state for use, regardless of when the proceeds of sales are collected, or when payment to the seller is required.”
Once you’ve determined when to declare, you can follow the next steps for each jurisdiction where you’re registered!
Calculate your gross sales & taxable sales for the reporting period
Gross sales, also known as gross receipts, equals the total amount of sales your business had for the period in which you are filing the return. Taxable sales equal the total amount of sales after you make a couple adjustments.
1. First total all the sales you made in the month, quarter, or year.*
2. Separately add up all the cash refunds you gave to customers, as well as all the sales you made to tax-exempt organizations.
3. Subtract the cash refunds from your gross sales, and enter that amount in the Gross Sales field of the return form.
4. Enter your tax-exempt sales amount in the tax-exempt field.
The result is your taxable sales for the reporting period.
*Do not include sales tax in your gross receipts!
The amount of sales tax collected should not be included in your gross receipts. If the sales tax is included in your gross receipts, it should be “backed out,” meaning reverse-calculated out of the total. To do this, take your total amount of gross receipts, including the sales tax, divide it by 100% plus your current tax rate.
Example of backing out tax from gross sales:
Gross receipts including sales tax = $2,500.00
Current sales tax rate = 5.725%
Divide $2,500 by 105.725% = $2,364.63
Your gross receipts should be reported as $2,364.63
Calculate the tax owed
Multiple your total taxable sales by the appropriate sales tax rate. This could be a statewide rate, or it could fluctuate depending on local county rates. The result is the amount of sales tax you owe.
Here it’s important to revisit whether the state has origin- or destination-based taxes, since that’s how you’ll accurately calculate what is owed to each jurisdiction.
Tax return forms in some states will have separate lines for each local county level. If you’re lucky, the online form will automatically do these calculations for you! Others will ask you to manually note each jurisdiction and look up specific tax codes, such as Georgia, which says:
“You must separate the sales by location ID (if applicable) and by appropriate jurisdiction code.”
Calculate your timely payment allowance, if you get one
Now for some good news: some states reward you when you file on time!
Typically, this is how payment allowances work. On all sales tax returns filed and paid by the required due date, you’re granted a certain percent back as a reward.
Let’s say the state offers a 2% timely payment allowance. Take the amount of tax due and multiply it by 2%. Then subtract this amount from the amount of tax owed.
$100.00 tax due
$100.00 x 2% timely allowance = $2.00
$100.00 - $2.00 = $98.00
The amount of tax you need to pay is $98.00
What counts as a sales tax deduction?
The US has complicated rules about this, as taxpayers can choose between a standard tax deduction and itemized deductions. The thing is — these often don’t apply to sales tax returns. Instead they apply to income tax returns.
Of course, check with the local tax authority for the exact rules and a complete list of what’s eligible or ineligible on your return. After that, there are all sorts of tactics to maximize your tax return refund!
How to prepare for an US sales tax return
Once you have your calculations and records ready, you can file a US return pretty quickly. But it’s the preparation of all these numbers that is actually time-consuming!
The best solution is Quaderno tax reports. We help you prepare taxes for the EU and other countries, too. We won’t file the return for you, but we do make it possible for you to fill out the forms in mere minutes. Because all the data you need is at your fingertips.
Basically, when it’s time to fill out the return, you can just click on a certain country in the app, and a tax report is produced for you instantly. All the information you need to file is there in one, easy-to-read place. Give it a try with a 7 day free trial.