How to Prepare a Sales Tax Return: A Guide to the Business
The process of preparing a sales tax return may appear daunting, particularly to small businesspeople. Nevertheless, after learning how it works and using a system, it becomes an easy aspect of running your business. This guide will provide step-by-step instructions on how to prepare your sales tax return, specifically of businesses.
What Is a Sales Tax Return?
A sales tax return is a document that companies provide to local or state tax collection agencies, where they will indicate the amount of sales tax that they have collected over a given time (monthly, quarterly, or annually). The tax that you collected should be remitted, and this return should be submitted before the deadline or penalties will be imposed.
Step-by-Step: How to Prepare a Sales Tax Return
Know Your State’s Requirements
Sales tax rules vary by state.
Each State Has its Own:
- Tax rate
- Filing frequency
- Due dates
- Filing Method (paper or online)
An example is that California asks some businesses to file monthly and others may file quarterly. Each state has its own rules.
Action: Check the state Department of Revenue (DOR) website to confirm requirements.
Determine Your Filing Frequency
Depending on your sales volume, your state will designate a frequency of filing.
Common Schedules Include:
- Monthly –Greater volume companies
- Quarterly –Moderate volume
- Annually – Soft sales volume or seasonal businesses
- Note: Filing frequency may vary
Organize Sales Data
In order to submit your sales tax filing correctly, compile and tabulate all data of sales to be reported during the period.
Include:
- Gross sales (overall sales, excluding tax)
- Taxable sales (not every sale can be taxable)
- Exempt sales (e.g., sales to tax-exempt organizations)
- Collected sales tax
Use Reports from Your:
- Point of Sale (POS) system
- E-commerce service (such as Shopify, Amazon, etc.)
- Accounting software (as QuickBooks or Xero)
Tip: This process can be automated by running a monthly or quarterly sales tax report.
Verify Tax Rates
Make sure that you pay the right sales tax rates in each jurisdiction that you have nexus (a tax connection.)
Types of Tax Rates:
- State sales tax
- Local sales tax (city, county, or special tax districts)
Use tools like:
- Avalara
- TaxJar
- State DOR websites
to obtain correct rates according to customer location.
Calculate Total Tax Due
After Organizing Your Data:
- Less exempt and non-taxable sales to gross sales
- Calculate taxable sales multiplied by the tax rate(s) to use
- Check the sales tax that you have already collected
- Check round-off errors, data inconsistencies
Example:
| Item | Amount |
| Gross Sales | $50,000 |
| Exempt Sales | $5,000 |
| Taxable Sales | $45,000 |
| Average Tax Rate | 7.5% |
| Sales Tax Collected | $3,375 |
You will record and file this $3,375 to the state.
Log In and File with Your State
In the majority of states, online filing is necessary using a portal.
How to file:
- Visit the Department of Revenue site for your state
- Log in to your sales tax account
- Enter: gross sales, taxable sales, tax collected, deduction or exemption (where applicable)
- Review and confirm
- Submit the return
Examples of State Portals:
- California DOR
- Texas Comptroller
- New York State DTF
Remit Payment
You must pay the sales tax that you received on customers.
Payment options:
- Bank transfer (ACH)
- Credit card (fees may apply)
- Paper check (if allowed)
Hint: Pay before the due date or on the due date to avoid penalty and interest.
Keep Records
After filing, save copies of:
- Filed sales tax returns
- Payment confirmation
- Sales reports
- Exemption certificates (if any)
The IRS suggests that a business should retain business tax records at least 4 years, although your state might have a longer duration.
Common Mistakes to Avoid
- Missing the filing deadline
- Filing with inaccurate data
- Forgetting to remit payment
- Failure to collect tax in the correct jurisdictions
- Most states will permit you to submit a corrected filing when you commit an error
How to File Sales Tax Returns Easily
Automated Sales Taxation
Calculate and collect the right tax in real time using tax automation software (such as TaxJar, Avalara, or Quaderno) to calculate taxes, particularly when selling across multiple states.
Use Accounting Software
Software such as QuickBooks, Xero, or Zoho Books can also be connected to your POS or online store and can assist you with automatically created tax reports.
Set Reminders
The timing and frequency of sales tax are state dependent. Establish calendar reminders or tax programs to prevent filings that are late.
Consult a Tax Professional
When you are uncertain about nexus, tax rates, or exemptions, then it would be prudent to consult with a CPA or sales tax professional- particularly when you are selling across state lines.
Example: Quarterly Sales Tax Return Calendar
| Quarter | Sales Period | Filing Deadline |
| Q1 | Jan 1 – Mar 31 | April 20 |
| Q2 | Apr 1 – Jun 30 | July 20 |
| Q3 | Jul 1 – Sep 30 | October 20 |
| Q4 | Oct 1 – Dec 31 | January 20 |
Note: Deadlines vary by state. Never forget to ask your local tax office.
Key Takeaways
- Businesses that collect sales tax have a legal duty to file sales tax returns.
- Keep track of your states filing deadline and requirements.
- Arrange your records, compute tax correctly, and submit on time.
- Enlist the assistance of automation and professional support to minimize errors and wasted time.
