No doubt about it, sales tax is complex.
To get you started, we’d like to highlight some of the most important points we think you need to know.
This is not intended as an exhaustive review. We just want to relay a few critical points and provide a starting point from which you can do further research.
We’ve provided links for more information at the bottom. We also highly recommend that you also consult a tax professional.
Before starting, we should also emphasize that the advice on this page is especially for US-based photographers. We know that’s a bit US-centric, and that we have a lot of users outside the US. But the majority of our customers are in the US, and it’s just not possible to review the tax laws of all other countries.
With all that in mind, let's get started.
1) In the US, you only collect sales tax where you have a nexus.
A nexus means an overlap between your business location and the location of the customer. For example, if your business is based in Colorado, and a customer in Colorado buys from you, then you may need to collect Colorado sales tax. Having a nexus depends on the location of BOTH the buyer and seller.
One complexity is that your business location may be more than just your physical address. Many states consider you to based in that state (and thus have a nexus with their customers) if you meet other requirements. Those may include having sales above a certain level within the state, having affiliates within that state, having employees within that state, or having a drop ship relationship within the state.
2) When using a print lab you may have a nexus based on the print lab's location.
If you use our print lab solution, that lab is operating as an extension of your business. That means you may have a nexus where the lab has a physical location (or a location as defined by other criteria as noted above). NextGEN Pro's tax solution address this (see below).
3) Some types of products are exempt from sales tax.
The rules on which types of products require sales tax vary from state to state. In may cases, though, tangible good are subject to sales tax, while most categories of digital goods (ie, software, online courses) and services (ie, portrait and wedding photography services, web design services) are exempt from sales tax. You should review the rules in your state, and only charge sales tax if required to do so.
4) It is illegal to collect but not remit sales tax.
If you collect sales tax, you must remit it to the relevant state or authority. It is illegal to collect tax, but not submit it. This is why you must know when to collect taxes, but also when not to.
This is also why it is a bad idea to charge a simple flat rate sales tax regardless of location. If you set a flat sales tax rate at 8%, but the tax rate is only 4% in a state where you have a nexus, you are overcharging for taxes. The extra 4% represents taxes that you are charging but not submitting, which is again illegal.
NOTE: You can entirely avoid this problem by NOT explicitly charging sales tax during checkout, even if you still intend to submit tax. That is, rather than having the customer pay tax (which you are then obliged to pay), just pay the taxes yourself out of your own revenue. You'll lose a percentage of sales, but you'll never need to worry about over collecting sales tax from customers.
5) You may not need to collect taxes at all if your business is small.
Many states don't require you to collect sales tax if your revenue falls below a certain threshold - say $100,000 per year. And that likely means $100,000 of sales within that state, not just overall revenue. If that's your situation, you should definitely take advantage of the opportunity to avoid all this complexity for now.
6) In many states, you must get a tax permit before collecting sales tax.
In many states, you're required to get a permit or other documentation before collecting sales tax. Again you should check the rules in states where you will have a nexus.
7) Sales tax may be charged by counties or other jurisdictions.
In most articles about sales tax, it's common for all the talk to be about the states and their various tax rates and rules. But in many locations, other jurisdictions such as cities, towns, or counties also charge sales tax. If you own a shop in a particular town, the sales tax you charge is the sum total of the tax for all the jurisdictions you are in.
For an online seller, this can create nearly impossible complexity. How can you possibly be expected to track the state, county, and city of every buyer, know all their tax laws and rates, and submit taxes to them? This is why it's almost a necessity to use an automated tax calculation service. They keep track of all these details and calculate the appropriate tax for you. NextGEN Pro uses Taxjar for precisely this purpose.
HOW NEXTGEN PRO SALES TAX WORKS
We’ve integrated Taxjar (www.taxjar.com) within NextGEN Pro for automated tax calculation and collection. If you want to collect sales tax, you can enable this option.
Taxjar keeps track of tax rules and rates in different jurisdictions. It will then use your business location, the locations of the print lab you are using (if you choose), and the location of each customer to determine where you have a nexus and to charge the correct tax amounts.
NextGEN Pro provides an option for you to determine Nexus based solely on your own business location, or to include the print lab locations as well. By default, if you do collect taxes, we recommend collecting taxes only in your own location, since that's where most of your sales will be, and where you're likely to meet relevant sales thresholds. If your business is large enough, you may also want to collect taxes on the basis of lab locations as well. You'll just need to be sure you submit any tax receipts in those locations.
Taxjar does not submit taxes for you. That’s something you’ll need to handle on your own come tax time.
RESOURCES FOR FURTHER RESEARCH
If you have further questions, here are a few good resources:
If you still have questions (and maybe even if you don’t), we strongly recommend consulting a tax professional before finalizing how your business will handle sales tax.