Sales Tax on Out of State shipments

[mspreema]

Looking for some clarification on how Square automatically applied sales tax to an item being shipped outside of my state.  I am in Michigan and only need to collect tax for in state sales.

If I select "automatically applied sales tax" for Shipping and non-physical sales, is Square collecting tax based on the customer state tax, which means I need to submit that tax to that state? Or, it will collect tax based on my tax rate, which means I need to submit that tax to my state? Or because I don't need to collect for out of state taxes it will automatically be zero? I don't if the Square system is sophisticated for each states tax.

There is the option to not collect taxes on shipping sales. If it is a sale in my state, will it still collect sales tax?

[HC_Charlie · Accepted solution]

Hello @mspreema thanks for your post. You can setup your sales tax info in your Square Dashboard:

https://app.squareup.com/dashboard/business/manual-taxes

Square pre-configures your tax registrations based on your Square locations. You can add new tax registrations if you plan to ship orders to a state outside of your existing registrations. However, you are usually only required to collect sales tax for shipments to a state where you have a physical location in operation. But I am no tax expert or advisor, so please contact your own tax accountant or advisor for legal advice. Square will ONLY collect sales tax for those jurisdictions you have setup in your Square account. If you run a sales report in Square you can see what taxes were collected.

In my personal situation, I have a physical location in Pennsylvania, so I created a tax at the rate required by my state/local collection agency. For example, my business is located in Pennsylvania, so I am required to collect and remit at a rate of 6% (on certain kinds of items). So I created this tax rate in my dashboard. For any in-person sale I make, or any sale shipped to a Pennsylvania address, Square automatically calculates the sales tax, and collects it from the buyer. Square passes that sales tax amount to my in my deposits, and it's on me to keep track through Square Reports how much I need to put aside in my tax account and hold until I make my sales tax payments to the state of Pennsylvania. If someone from out of state makes a purchase, it's on them to indicate they made out of state purchases on their federal income taxes, and pay the tax that way. ( I don't remember the exact question, but there is a question in our federal income tax that asks about any out of state purchases that did not collect sales tax.)

As a side note, you can use Square Savings to setup a savings account to put aside a percentage of each of your Square payments to save for this purpose. Square would automatically put it into a savings account, and you can transfer that money out to your regular deposit account when you are ready to pay your sales tax.

I hope this helps answer your question, please let us know if you have any more questions about taxes in Square.

[JJ_]

Thank you so much for the great reply here @HC_Charlie ✨

[mspreema]

Thank you so much! I think this has answered my question.

[PAPR]

In my state, we're required to pay taxes on ALL sales, whether they are in or out of our state. But I cannot for the life of me figure out how to get Square to charge sales tax when I ship to an address in another state.

This means that every month, when I submit my taxes, I am coming up short and have to pay the difference out of pocket. I'd like to keep being able to ship out of state, but I cannot justify continuing much longer without being able to charge tax, especially as credit card processing rates are increasing.

Can Square add the ability to apply tax to all sales, regardless of location?