Every business owner dreams of expanding their company and going over state lines, but there’s also the issue of compliance and tax obligations, which adds to the complexity. Each state has its own rules about tax rates, filing deadlines, and collection thresholds. Without the proper organization and filing systems, multiple state sales tax returns can quickly become a nightmare of work. That’s why many growing businesses are turning to outsourcing tax preparation to manage their multi-state tax responsibilities efficiently and stay compliant.
Here’s a step-by-step guide to build your confidence and compliance while streamlining your business sales tax obligations.
1. Understand Nexus Rules in Each State
Nexus is the legal connection that obligates your business to collect and remit sales tax. There are two main types:
- Physical Nexus: Having a location, warehouse, employee, or inventory in a state.
- Economic Nexus: Crossing a state’s sales or transaction threshold (e.g., $100,000 in sales or 200 transactions per year).
Tip: Check each state’s nexus thresholds regularly—they vary widely and can change.
2. Register for Sales Tax Permits
Before collecting sales tax in any state, you must register for a sales tax permit with that state’s Department of Revenue. Collecting tax without a permit is illegal in most states.
- Keep a record of your registration confirmations and account numbers.
- Use a spreadsheet or cloud-based CRM to track your multi-state registrations.
Tip: Stay organized to avoid compliance issues.
3. Track Sales by State and Jurisdiction
Your accounting system or sales platform should track sales by state and, if needed, down to local jurisdictions (county, city, special district).
- Tools like QuickBooks Online, Shopify, and Avalara can automate this process.
- Separate taxable vs. non-taxable sales for accurate returns.
Tip: Configure your POS or invoicing system for each state’s tax rules.
4. Stay on Top of Filing Frequencies and Due Dates
Each state has its own filing frequency (monthly, quarterly, annually) based on your sales volume.
- Create a sales tax calendar for all states you file in.
- Set reminders ahead of due dates to avoid penalties.
Tip: Some states charge penalties even for late $0 returns—don’t ignore them!
5. File Accurate Returns — Even $0 Filings
When filing business tax return, ensure you report:
- Gross sales
- Taxable sales
- Exempt sales
- Collected tax
Always file a return, even if you had no sales in a given state during the period (a “zero return”).
Tip: Use software or a third-party filing service to avoid errors in tax preparation.
6. Understand Exemptions and Resale Certificates
Not all sales are taxable. Learn the rules for:
- Exempt customers: Nonprofits, government entities
- Exempt products: Groceries, clothing, software
- Resale certificates: For B2B sales
Tip: Collect and store exemption certificates digitally with expiration tracking.
7. Automate Sales Tax Collection and Filing
As your business grows, manual management becomes unsustainable. Consider tools like:
- Avalara
- TaxJar
- Sovos
- Vertex
Or integrate tax modules into QuickBooks or Xero. These platforms can calculate rates, track nexus, collect the right tax, and even file returns on your behalf.
8. Maintain Records for Audit Defense
Most states require you to keep sales tax records for 3–7 years. Your records should include:
- Invoices
- Proof of exemption (if applicable)
- Filed returns
- Sales tax collected and remitted
Tip: Digitally store everything in cloud folders organized by state and year.
9. Work with a Tax Professional or CPA
If you’re unsure about compliance or expanding rapidly, consult:
- A sales tax specialist
- A CPA familiar with multi-state compliance
- An outsourced accounting team experienced in U.S. sales tax filing
They can help you:
- Monitor nexus status
- Register in new states
- Stay compliant with complex rules
10. Stay Updated on Law Changes
Sales tax laws are constantly evolving, especially after the Wayfair v. South Dakota decision in 2018.
Subscribe to:
- State revenue department newsletters
- Tax software alerts
- Accounting firm blogs
Final Thoughts
Sales tax compliance relies heavily on the perception of the business. Penalty fees can easily accumulate, which makes competition even harder. However, filing multi-state sales tax returns is not simply a matter of remitting collected funds. There are a lot of compliance obligations, which if not followed, can put the business at risk and incur huge fees.
Need help with sales tax compliance? Contact Alpha Accounting, your trusted partner for business accounting in the USA and India. Let us handle the complexities while you focus on success!