Michelle Browne - 10/02/2025

For small business owners, wearing multiple hats is part of the job. You’re responsible for sales, operations, marketing, and finances—all while keeping your customers happy. Amidst all this, sales tax compliance can easily slip through the cracks. Unfortunately, ignoring or mishandling sales tax obligations can result in costly penalties, unexpected audits, and damage to your business reputation.

At Browne Bookkeeping Services, we know that understanding and managing sales tax is one of the most confusing parts of running a business. That’s why we’ve put together this comprehensive guide to help small business owners understand the essentials of sales tax compliance, how it impacts your bottom line, and what you can do to stay ahead.

Why Sales Tax Compliance Matters

Sales tax isn’t just another administrative task—it’s a legal obligation. States and local jurisdictions depend on sales tax revenue to fund essential services, and enforcement has become stricter in recent years. With e-commerce and online selling, sales tax laws have grown more complex, making it more important than ever to stay informed.

Noncompliance can lead to:

• Penalties and fines for late or incorrect filings
  
  

• Interest charges on unpaid balances
  
  

• Audit risks that consume time and resources
  
  

• Loss of trust from customers if you mischarge them
  
  

Understanding your responsibilities up front can save your business from headaches down the road.

1. Determining Sales Tax Nexus

The foundation of sales tax compliance starts with knowing where your business has nexus—a connection to a state that requires you to collect and remit sales tax.

• Physical Nexus: Established by having an office, store, warehouse, or employees in a state.
  
  

• Economic Nexus: Triggered when your sales in a state exceed a specific threshold, even if you don’t have a physical presence. Many states adopted these laws after the 2018 South Dakota v. Wayfair Supreme Court decision.
  
  

• Marketplace Nexus: Some states require marketplaces like Amazon, Etsy, or eBay to collect sales tax on your behalf, but you may still have reporting responsibilities.
  
  

👉 Pro Tip: Review your customer base regularly. Selling just a handful of products in another state could create nexus—and new compliance obligations.

2. What Products and Services Are Taxable?

Not all goods and services are taxed the same way. Each state sets its own rules, which can vary significantly. For example:

• Clothing: Taxable in some states, exempt in others.
  
  

• Digital Goods & Software: Increasingly taxable, though rules vary.
  
  

• Services: Professional services may be exempt, while installation, repair, or SaaS may be taxable.
  
  

Failing to understand these rules can result in charging customers incorrectly—or worse, paying out of pocket to fix mistakes.

3. Recordkeeping Is Key

Compliance is about more than filing returns—it’s about being prepared if you’re audited. Accurate and complete records help protect your business.

Keep track of:

• Sales by state and jurisdiction
  
  

• Tax collected and remitted
  
  

• Exemption and resale certificates
  
  

• Filing confirmations
  
  

👉 Pro Tip: Use bookkeeping tools like QuickBooks Online, integrated with apps such as Avalara or TaxJar, to automate tracking and reporting.

4. Filing and Remitting Sales Tax

Each state sets its own filing schedules, typically monthly, quarterly, or annually, depending on sales volume. Missing deadlines, even unintentionally, can cost your business money.

• File returns on time—even if you made no taxable sales (many states require “zero returns”).
  
  

• Remit payment electronically if possible—most states prefer or mandate e-filing.
  
  

• Double-check jurisdictional rates—local taxes may apply in addition to state rates.
  
  

👉 Pro Tip: Work with a professional bookkeeper to establish a compliance calendar so nothing slips through the cracks.

5. Managing Exemptions and Resale Certificates

Some sales may be exempt from tax. For instance, nonprofit organizations or wholesalers often qualify for exemption, but you must collect valid certificates as proof.

• Always verify that certificates are complete and signed.
  
  

• Store them securely (digital copies are best).
  
  

• Revalidate certificates regularly to ensure they’re still active.
  
  

Failing to maintain exemption certificates is one of the most common mistakes uncovered in audits.

6. Preparing for Business Growth

As your business grows—especially if you expand online—your sales tax obligations grow too. Selling across state lines, shipping products through fulfillment centers, or working with new platforms can all change your compliance responsibilities.

👉 Pro Tip: Conduct a sales tax compliance review annually to catch new obligations before they become a problem.

Common Sales Tax Mistakes Small Businesses Make

1. Ignoring economic nexus thresholds.
   
   

2. Assuming services are always exempt.
   
   

3. Forgetting to file “zero returns.”
   
   

4. Misapplying local tax rates.
   
   

5. Not keeping resale or exemption certificates on file.
   
   

6. Waiting until year-end to reconcile sales tax.
   
   

Avoiding these pitfalls can save your business thousands of dollars.

How Browne Bookkeeping Services Can Help

At Browne Bookkeeping Services, we specialize in helping small business owners navigate the complexities of sales tax compliance. Our team can:

• Evaluate where you have nexus and what’s taxable.
  
  

• Set up systems to track sales tax automatically.
  
  

• Maintain organized, audit-ready records.
  
  

• File returns accurately and on time.
  
  

• Provide ongoing guidance as your business expands.
  
  

With our support, you can confidently manage your sales tax obligations while focusing on what matters most—growing your business.

Frequently Asked Questions (FAQs)

Q: Do I have to collect sales tax for online sales?
A: It depends on the states where your customers are located and whether you’ve met their economic nexus thresholds.

Q: What happens if I forget to file a return?
A: States may assess penalties, interest, and late fees—even for zero returns. Filing on time is critical.

Q: Can I just pay the tax myself instead of collecting it from customers?
A: While you technically can, it cuts into your profits and can complicate bookkeeping. The best practice is to collect sales tax at the time of sale.

Q: How do I know if my product is taxable?
A: Taxability varies by state. A bookkeeping professional can help you interpret the rules for your specific products and services.

Final Thoughts

Sales tax compliance is a moving target. Rules vary by state, change frequently, and can feel overwhelming. But with the right systems—and the right team—you can stay compliant and stress-free.

👉 Ready to simplify sales tax compliance? Contact Browne Bookkeeping Services today and let us handle the details so you can focus on growing your business.