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Sales Tax Basics: Why Startups Should Care

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March 29, 2021

Guest Post: the following post is a sponsored guest post by Avalara. All views and opinions represented in this post are the views and opinions of Avalara and do not represent those of 500 Startups or any of its staff or affiliates.

When starting a business, there’s obviously a lot to juggle. For many, sales tax compliance rarely makes the list of top priorities. While it may be tempting to put off tax compliance in favor of revenue-generating or growth activities, you do so at your own risk. Businesses are often audited, and states are very good at collecting back taxes and penalties for noncompliance. 

But for startups, it isn’t just the tax collectors to be concerned about. Unresolved tax issues can also potentially jeopardize your chances of securing venture capital, going public, or completing a merger or acquisition. Investing time in tax compliance early on can save startups precious runway and resources in the long run.

Five steps to managing tax compliance

While tax compliance is a complicated process, there are five basic steps to get you in alignment:

  1. Determine where your business has tax obligations
  2. Register with the appropriate tax departments to collect and remit sales tax
  3. Calculate the correct amount of tax, based on where sales take place
  4. Collect and manage exemption certificates on tax-exempt sales
  5. File returns and remit taxes to each tax authority you’re registered with

Sales tax across state lines

Gone are the days of remitting sales tax based solely on physical presence. Now, you can establish sales tax obligations, or nexus, in many ways: by hiring remote employees, selling out of state, or attending trade shows, to name a few.

Each state sets its own thresholds for what activities trigger nexus, as well as the specifics around business licensing, registration, returns remittance, and tax or exemption certificate collection requirements. Your obligations can vary if you’re selling on a marketplace or drop shipping from a warehouse. Products are also taxed differently in each state. The variation of rules is one of the key reasons automating is such a time-saver for companies selling in multiple states.

More markets, more complexity

Any business shipping across international borders needs to be aware of global taxes and tariffs. Value-added tax (VAT) and goods and services tax (GST) are the international equivalents of sales tax in many countries. In addition to those, you’ll need to pay import taxes and customs duties (also called tariffs). You can automate calculation of these with an international tax solution, like Avalara Cross-Border.

To learn more about managing sales tax compliance, register for this webinar I’ll be hosting on April 15th, at 10:00 a.m. PT.

If you’re ready to offload compliance now, 500 Startups members can get three months of sales tax automation with zero payments.

This post is a sponsored guest post by Avalara. Any views or opinions represented in the above post are those of Avalara and do not represent those of 500 Startups or any of its staff or affiliates unless explicitly stated. All content represented above is provided for informational purposes only. 500 Startups makes no representations as to the accuracy or completeness of any information contained in the above post. Under no circumstances should any of the above content be construed as legal, tax or investment advice from 500 Startups or any of its affiliates.

Under no circumstances should any information or content in this post be considered as an offer to sell or solicitation of interest to purchase any securities advised by 500 Startups or any of its affiliates or representatives. Under no circumstances should anything herein be construed as fund marketing materials by prospective investors considering an investment into any 500 Startups investment fund.

Logos and trademarks of third parties referenced herein are the trademarks and logos of their respective owners. Any inclusion of such trademarks or logos does not imply or constitute any approval, endorsement or sponsorship of 500 startups by such owners.

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