Do I charge sales tax in every state?

It depends on where you have a connection to a state, which can include where your customers are. The rules changed in recent years, so ask an accountant if you sell across state lines.

Is sales tax an expense for my business?

Generally no. You collect it on the state’s behalf and pass it on. That is exactly why it should not sit in the account you spend from.

How much should I set aside?

The exact amount you collected, every time. Your invoices or point of sale reports show it.

← Answers

The sales tax I collect isn’t mine. How do I stop spending it?

Sales tax you collect belongs to your state until you remit it. Move it into a separate account every time you are paid, so your bank balance shows only what is actually yours. Rules and filing dates vary by state, so check with your state’s revenue department or your accountant.

Why a healthy balance can mislead you

Every sale with tax on it puts money in your account that is not yours. After a busy stretch the balance looks strong, and part of it is owed to the state. Spending it feels fine until the filing date arrives.

A separate account, every time

Open a second account and move the tax you collected into it whenever a customer pays. Then your main balance is the money you can actually use, and the filing date stops being a scramble.

Know your filing dates

States set different filing schedules, often monthly, quarterly or yearly depending on how much you collect. Put the dates in your calendar and check them each year, because a growing business can be moved to a more frequent schedule.

If you have already spent it

Contact your state’s revenue department before the deadline, not after. Many offer payment arrangements, and penalties and interest usually grow the longer it waits.

Also asked

Do I charge sales tax in every state?: It depends on where you have a connection to a state, which can include where your customers are. The rules changed in recent years, so ask an accountant if you sell across state lines.
Is sales tax an expense for my business?: Generally no. You collect it on the state’s behalf and pass it on. That is exactly why it should not sit in the account you spend from.
How much should I set aside?: The exact amount you collected, every time. Your invoices or point of sale reports show it.

Written for your trade

This is the kind of thing Solomon works through with owners using their own numbers. See how it works →