I usually encourage teenage micro business owners to start a service business instead of selling a product, because service businesses are easier to start and manage.
But sometimes a teenager has a great idea of a product to sell. I don’t want to discourage a teenage entrepreneur, but selling products involves knowing about sales tax.
Here’s what you need to do about sales tax (from my book Money and Taxes in a Micro Business):
1. Read up on your state’s sales tax laws.
Most states have a website that explains their sales tax rules. Most states only tax retail sales. Retail sales are the sale to the final customer. Wholesale sales are usually not subject to sales tax. Wholesale sales are usually large quantity sales sold to someone other than the final consumer such as to a business or manufacturer.
This website will help you determine what your state and local laws are concerning sales tax: www.taxadmin.org/fta/link/
2. Obtain a vendor’s license
Most states require businesses to apply for a vendor’s license if they make sales-taxable transactions. Sometimes the state calls it a business tax registration or a sales tax permit. This website www.taxadmin.org/fta/link/ will lead you to the registration information for your state.
Sometimes a state’s sales tax laws can be difficult to understand, so do not be afraid to call your state’s sales tax office. Rehearse what you will ask before calling and say something like, “I’m starting a new business selling ________. Will I need to collect sales tax?” Then ask for information to be mailed (or e-mailed) to you. Do not hang up without getting confirmation that something will be sent to you.
3. Pay your sales tax
For most micro businesses, sales tax will need to be paid only annually or quarterly, but that can vary depending on your state law and the amount of sales you make. Very large retailers must pay sales tax monthly. For example, in New York State, you file a sales tax return only once a year if you owe $3,000 or less in sales tax during the year. The form and tax payment are due March 30.
Mark your calendar with the sales tax due date for your state and send it in on-time or early. If you are late, you will probably be charged a fine.
You can read more about sales tax in my book Money and Taxes in a Micro Business including:
- What you need to know about vendor’s licenses
- Out of state sales
- Internet sales
- How to calculate sales tax
Read more about the book including the Table of Contents and a sample here.