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Melinda asks:
Q: So um… what’s the deal with sales tax? When my customer buys something from my SquareSpace website, are they paying taxes? What about wholesale orders?
If I am creating invoices to stores who are buying wholesale from me within the same state as me (California), should I be charging them sales tax?
Where do taxes come into play with pricing formulas?
A:
First, let me clear up most questions with an overview:
After you’ve got that down, come back here and keep reading to learn more details about California and Squarespace.
CA is a destination based state. Therefore, when you make sales within the state, you have to charge your customer the rate for the district (zip code) they are in. You can download the rate table here from Avalara (these are promptly updated monthly).
The thing with Squarespace (and Etsy and Square) is that you have to manually enter each rate.
It depends on the site, so please check with your platform. Some sites, like Squarespace, you will enter the State Rate, and then the District Rates separately grouped by zip code ranges.
Please note: Shopify is exempt from this Arduous task. Shopify has an Easy tax section and everything is calculated automatically. It also integrates Correctly with accounting software Like Xero.
Shopify is the ONLY e-commerce website that integrates seamlessly with Xero Accounting Software. We do not recommend SquareSpace.
When having to enter tax rates into an ecomm site for California, North Carolina or another destination-based state, here are some tips:
- Sort the rate table spreadsheet by rate (the Combined Rate column)
- Enter the rates into your website’s tax section in batches, where a range of zip codes fall into one rate.
- Then, enter the additional individual zip code rates.
- This will take about 2 hours to enter into each eCommerce platform and then moving forward is easy to update if any rates change.
For Square, you can simply enter the rate where you are doing a show or the customer’s specific one off location, instead of entering all the rates. You have more control of who and when you are making a sale with Square because it is Point of Sale (POS). On Etsy or Squarespace, you cannot predict where someone will order from you online, so it is best to enter all rates.
For States that are origin-based or only have one Sales Tax Rate, then you are in the clear and only have to enter THAT ONE RATE!
For out of state orders, you do not collect sales tax at the time this post is written (Spring 2017). When a customer buys from out of state and you ship to them, they become the end user and are responsible for remitting “use” tax to their state because the tax hasn’t been paid on the item yet.
Your wholesale customers are responsible for collecting sales tax from their customers, the retail end user, so you don’t collect tax from your wholesale clients.
When you buy from out of state and don’t pay tax (think tools from Rio) then you are responsible for paying Use tax on those items. You are the end user for those items.
For Sales Tax, you remit the sales tax you charged and collected from your customers.
For Use Tax, you pay the tax out of pocket for items you bought and didn’t pay tax on that are not for resale.
For pricing, you can include the tax in the price total, but then have to back it out. The most common practice is to add tax on top of your price. This is easily calculated and traceable. Again, the tax is not a cost to you, it is a cost to the buyer. You are simply collecting it from your customers and remitting it to the state.
