What Every Small Business Should Know About Sales Tax Tracking
Sales tax can be one of the most confusing and stressful parts of running a small business. Rules vary by state, industry, and even by city, and failing to track and remit sales tax correctly can lead to hefty penalties.
Whether you sell physical products, offer digital services, or operate both online and in person, understanding how to properly track sales tax is crucial for staying compliant and avoiding surprises.
1. What Is Sales Tax (and Who Has to Collect It)?
Sales tax is a government-imposed tax on the sale of goods and, in many states, certain services. As a business owner, you may be required to collect sales tax from your customers and remit it to the appropriate tax authority.
You may need to collect sales tax if:
You sell tangible products (like merchandise or equipment)
You sell taxable services (varies by state)
You have a physical presence (nexus) in a state
You sell online and meet the economic nexus threshold in certain states
Pro Tip: Even if your state doesn’t require sales tax, selling to customers in other states might.
2. Know Your Sales Tax Nexus
“Nexus” means a connection or presence in a state that creates a sales tax obligation. Nexus can be created by:
Having a physical storefront, warehouse, or office
Having employees or contractors in the state
Storing inventory in a third-party warehouse (like Amazon FBA)
Exceeding a certain number of sales or revenue in that state (economic nexus)
Why it matters: If you have nexus in a state, you're required to register, collect, and remit sales tax there.
3. Register for a Sales Tax Permit
You must register with your state’s Department of Revenue before collecting any sales tax. Collecting sales tax without a permit is illegal in most states.
How to register:
Visit your state’s Department of Revenue website
Complete the registration form for a sales tax license or permit
Keep track of your permit number and renewal requirements
4. Set Up Sales Tax Tracking in Your Bookkeeping System
Sales tax should never be lumped in with your revenue. It’s money you’re holding on behalf of the government and needs to be tracked separately.
In QuickBooks Online:
Use the Sales Tax Center to enable automatic tracking by state
Assign the correct tax codes to each product or service
Review tax liabilities before filing
Why it matters: Accurate tracking ensures you remit the correct amount and don’t pay out of pocket for mistakes.
5. File and Remit Sales Tax On Time
Your state will assign a filing frequency (monthly, quarterly, or annually) based on your sales volume.
How to stay compliant:
Set calendar reminders for due dates
Use QuickBooks or other software to generate sales tax reports
File online through your state’s Department of Revenue portal
Penalties for late filing:
Late fees
Interest charges
Risk of audits
6. Common Sales Tax Mistakes to Avoid
Not collecting tax in states where you have nexus
Including sales tax in your gross revenue totals
Missing filing deadlines
Not tracking tax-exempt sales properly (e.g., nonprofit organizations)
Why it matters: These mistakes can lead to financial penalties and damage your business’s credibility.
Final Thoughts
Sales tax doesn’t have to be scary—but it does require attention to detail. Setting up proper tracking from the start saves you time, stress, and money down the road.
At DPP Bookkeeping, LLC, we help small business owners stay on top of sales tax tracking and all aspects of financial compliance. Whether you need setup, cleanup, or ongoing support, we’re here to make it simple.
Need help getting sales tax under control? Visit DPPBookkeeping.com to schedule your free consultation.