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E-commerce Sales Tax: Everything You Need to Stay Tax Planning & Compliant

e-commerce sales tax

In recent times, most of the businesses are on the e-commerce platform and sell all over the world. It is really beneficial for businesses and consumers to have today era as an online store which helps consumers to get good quality products at a competitive rate and also helps businesses to increase sales and make a good profit out of it.

This process involves a really difficult part of compliance for the business especially. To help the business and consumer, many countries have introduced marketplace facilitator rules where only e-commerce platforms like Amazon, Shopify, etc. will be liable to collect and pay sales tax(Indirect Tax) on behalf of the seller to the tax authority.

It would be really helpful to the tax authority to avoid the loss of revenue on sales made by each business on an e-commerce platform. If you think of other ways like businesses are required to collect and remit the sales tax to the tax authority then it is really difficult for the authority to collect all the taxes on the sales made and it also costs a really high administrative cost for them to avoid revenue loss.

Due to these rules, authorities just need to check the activity of the e-commerce platform alone and the revenue collection will be done smoothly and easily.

Tax planning examples include tax diversification, investing in schemes such as PPF, and more. Additionally, claiming deductions for payments like home loan premiums, Mediclaim premium tax deductions, etc. also help in tax planning by reducing overall tax outgo.

First-time taxpayers must understand the fundamental objectives of planning their taxes. They are as under To reduce tax liability: Tax planning primarily revolves around reducing your tax liability. Every single taxpayer wishes to reduce the burden of paying taxes while saving money for their future.

Almost all of the states of the United States of America have passed laws to follow the marketplace facilitator rule. There are certain states in the USA where sales tax is not applicable and therefore this law is also not applicable there. All the Provinces of Canada also have this rule in place. There are many such countries where the rule applies like Mexico.

Due to this rule, it would be really easy for businesses to sell in any of the countries/states/provinces where this rule applies as a business is not liable for any kind of collection of indirect taxes from the consumers and pay it to the tax authorities. But it is necessary to note that this rule does not mean that businesses are not required to take any sales tax/GST/VAT registration.

You need to check the law of the land of each jurisdiction to check the registration requirements if any. In the USA, to check sales tax registration requirements, the economic nexus of the business is required to be checked.

To calculate the threshold mentioned for the economic nexus, each state has different criteria to determine the amount for checking whether the threshold mentioned in the economic nexus is breached or not. Certain states have made it mandatory to calculate the sales made on e-commerce platforms as a part of the threshold for the registration of sales tax so it needs to be checked based on each state.

If any breach of this rule, then the e-commerce platform is generally liable for the consequences like penalties. Businesses are not required to pay any penalty for any breach of the law from the e-commerce platform. It is also important to set up the financial system in such a way that all these sales made on an e-commerce platform must be added to the sales with the use of the report from the respective e-commerce website.

We as a company can help you to keep books properly by adding those e-commerce sales to the Profit and Loss and help you to reconcile the books in an efficient manner which causes us to be compliant with the remaining sales tax liabilities.

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