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Jessie Eby contributed to this article.
One of the most common stumbling blocks for small business owners is understanding sales tax rules and regulations. Often, we don’t know what we don’t know, so it can be hard to ask the necessary questions to get started. This article is meant to distill the convoluted topic and give you the tools to move forward in your business, or at least give you the information to know which questions you should be asking.
What is sales tax?
First things first: what is sales tax? Sales tax is an additional charge imposed by the state of Nebraska and some cities and counties for goods and services purchased within the state. This tax is applied to the sale, transfer, or exchange of a taxable item or service and is paid by the consumer, collected by the seller, and then passed along to the government. Tax revenue is then used by the government to fund various services and programs.
Sales tax vs use tax
Use tax is often lumped together with sales tax, but it’s not the same thing. Use tax applies when you sell a taxable item to someone outside of Nebraska where you don’t have a business presence and, therefore, wouldn’t charge state sales tax. Use tax is paid by the customer to their state to make up for the fact that they did not pay sales tax on the taxable item they purchased from you.
Although you won’t need to worry about collecting use tax from your customers as a small business owner, you may still need to think about reporting and paying it on items you purchase for your business. If your business buys items and does not pay sales tax on them, you are responsible for calculating and paying use tax to the state in which you use those items (not the state in which you purchased them).
What are my responsibilities as a small business owner?
While you don’t have to be completely versed in tax law, you do need to have some level of understanding of how taxes work. You are in charge of collecting sales tax, reporting it accurately and on time, and paying the amount owed. It’s worth noting certain goods and services are not subject to sales tax, and you can read more about them here.
Collect sales tax
Before you can collect sales tax, you’ll need to know how much to collect. This amount varies based on the location where the transaction occurs. You’ll need to collect the state sales tax (5.5%), plus county and city sales taxes, if applicable. This means that if your business makes sales in multiple locations within the state of Nebraska, you need to charge sales tax according to the location where the transaction occurs. You can find the current tax rates here.
Tip: track and reserve sales tax as you collect it
It’s a good idea to set up an additional account to help keep track of the sales tax you’ve collected. Every time you receive payment, separate the amount you charged for sales tax and transfer it to the other account. This will ensure you never come up short when it’s time to pay your taxes.
Report and file taxes on time
You will be required to report sales tax either monthly, quarterly, or yearly. This frequency is determined by your estimated annual revenue when you file your Nebraska Tax Application.
How do you file your sales tax returns?
The Nebraska Department of Revenue makes it easy to file and pay your taxes online using a digital form, which will automatically figure the sales tax owed, taking into account the differing tax rates by location (if you have sales in multiple locations).
If you’re not interested in filing your taxes digitally, you can still use a paper copy of the Nebraska Form 10. Bear in mind, you’ll have to manually calculate the sales tax owed for each jurisdiction.
When you collect and file sales tax, you’ll receive a 3% discount on taxes owed. This is a way to put money back in the pockets of small businesses and motivate sellers to collect sales tax.
Common tax questions from small business owners
Tax compliance is a multi-faceted, layered subject. Here are a few of the most common questions small business owners ask.
At what point in my business should I start collecting and reporting sales tax?
You should be collecting sales tax right from the start. The first thing you’ll need to do is register your business with the Nebraska Department of Revenue to get a Nebraska sales tax permit. Once you’ve completed the form and received your permit, you’ll need to collect and report sales tax.
What if I’m delinquent? How can I catch up?
The best course of action is to call the Nebraska Department of Revenue. Employees there can answer any questions you have and potentially set up a payment plan to help you get back on track.
What if I sell outside of Nebraska state lines? Do I need to report sales tax in other states?
Generally speaking, no, you do not have to report sales tax in other states. You only need to collect sales tax in the states in which you have a physical presence, an employee or a representative, or a significant amount of sales. This is called “nexus,” and it can get a little convoluted. If you are doing a significant amount of business outside of Nebraska, you should check with an accountant or tax professional to determine your tax obligations.
It’s also worth noting that if you are selling products over the internet using a service like Fulfillment By Amazon, where Amazon warehouses and ships your products, you may have nexus for sales tax in the state where your product is being housed. Again, it’s best to check with a tax professional to make sure you’re meeting all tax requirements.
What happens if I file late?
If you file late, you’ll be charged a fine of $25 or 10% of the total owed, whichever is greater.
If I have nothing to report for the tax period, do I still need to file?
Yes. Even if you had no taxable sales for the tax period, you need to report it. If you fail to do so, the state will use previous months as a reference and penalize you accordingly. If your business has permanently closed, you will indicate that on the form.
If my business has multiple locations, should I file separately for each of them?
Unless you file the Nebraska Combined Filing Application, you must file separately for each location. Additionally, each location will need to be registered with the state for a sales tax permit.
If I sell a taxable item or service in a city that is located in a county that imposes county sales and use taxes, do I pay the state tax, city tax, and county tax too?
Yes, you would pay all sales taxes that apply to that location. You can find all current sales and use tax rates within the state of Nebraska here. This list is updated quarterly.
How do I handle transactions that include taxable and non-taxable items?
If you sell a non-taxable item or service alongside a taxable service or item, the whole transaction becomes taxable. For example, if a bakery sells a wedding cake, there is no tax on the cake. However, if it offers delivery services for its cakes, there is sales tax on the delivery service. So, if a customer purchases a cake with delivery, the seller will need to charge tax on both the delivery service and the cake.
Who can I turn to for help in reporting sales tax?
The Center For Rural Affairs has free resources available to any small business owner in Nebraska. We can answer any questions you have and connect you with experienced tax professionals. If you haven’t yet hired an accountant or bookkeeper, it might be time to consider doing so. Not only does it remove a task from your already-full plate, it can save you money in the long run.
Navigating the complexities of sales tax may seem daunting, but when you’re armed with the correct information, you can move forward confidently. We’re here to help you succeed. Reach out to the loan specialist in your area for guidance with your small business.