Sales tax is an important part of doing business in Georgia. This includes retailers in the state, as well as businesses selling online or remotely to customers in Georgia. Sales tax represents a significant tax burden for many businesses, with sales tax returns to be filed as often as monthly. And the Georgia Department of Revenue aggressively audits businesses within Georgia and throughout the country to ensure compliance with Georgia’s sales tax laws.
What is Nexus?
Nexus is a foundational concept for sales tax. If your business has nexus, then you need to get a sales tax permit from the state, collect sales tax from your customers and remit sales tax to the state Department of Revenue (not the IRS). If you don’t have nexus, then you don’t have to worry about sales tax.
Before 2018, nexus meant physical presence. This refers to the existence of property (including inventory), payroll, or an office or warehouse in the state.
In 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that businesses with no physical presence in a state (such as online sellers) can establish nexus through economic activity, or economic nexus. Economic nexus means that a business (typically a remote or online seller) exceeds a certain dollar value of sales into the state, or a certain number of sales transactions into the state. Each state sets its own threshold.
As a result of this case, there are now two kinds of nexus which trigger a sales tax obligation:
- physical nexus, or
- economic nexus
An out-of-state business that meets either a state’s economic nexus threshold or physical nexus threshold must comply with state sales tax laws. This includes obtaining a sales tax permit, collecting sales tax, submitting it to the state and filing regular sales tax returns. There is no difference between an in-state business and an out-of-state business once either physical nexus or economic nexus is established.
Georgia Sales Tax: The Basics
The Georgia Department of Revenue (DOR) manages sales tax in the state. Sales tax in Georgia, as in most states, is collected by the seller from the customer. The business functions as the tax collector.
It is incredibly important to remember that sales tax collected from customers belongs to the state of Georgia, not the business or the business owner. Failure to remit sales taxes to the state, and failure to follow all the other sales tax regulations of Georgia, are serious offenses that the state will pursue with vigor.
Furthermore, if a business meets the nexus threshold in Georgia and chooses not to comply with the law, the business and the business owner will be responsible for the tax due, plus penalties and interest. The state will not bother to hunt down the the customers to collect missing sales taxes. They will pursue the business and its owners to get the tax.
Georgia Sales Tax Rates
The sales tax rate in Georgia is 4%. In addition, some local jurisdictions also have a sales tax which is in addition to the state sales tax rate.
Depending on the location within Georgia, combined state and local sales tax rates range from 4-9%.
Here are a few examples:
- Dacula, GA (Gwinnett County): 6%
- Sandy Springs, GA (Fulton County): 7.75%
- Dunwoody, GA (DeKalb County): 8%
- Atlanta, GA (Fulton County): 8.5%
- Columbus, GA (Muscogee County): 9%
In the case of online or remote sales, the sales tax rate is determined by the ship-to address of the buyer, not the address of the seller.
Nexus in Georgia
As stated above, sellers have nexus in Georgia either through physical nexus (property, payroll or an office or warehouse in Georgia) or economic nexus (based on sales). Here is a summary of what triggers nexus, and an obligation to collect sales tax, in Georgia:
- When an out-of-state seller has an affiliate located in Georgia. (affiliate nexus)
- When an out-of-state seller pays a Georgia business for referring potential customers through an internet link or website. The threshold is $50,000 in sales from referrals in Georgia. For example, a Georgia resident is an author with her own website. On her website she sells her books through an online seller and displays a link to the company’s website. The customer is able to “click through” to the website and purchase the book, which is subject to sales tax in Georgia. If the online seller has sold more than $50,000 in taxable sales to customers in Georgia, the online seller must collect the tax and remit it to the Georgia Department of Revenue. (click-through nexus)
- When an out-of-state business has over $100,000 in gross sales in Georgia, or more than 200 retail sales transactions in Georgia, per year. (economic nexus)
- Making sales through a marketplace facilitator, such as Amazon. In such case, the facilitator is responsible for collecting sales tax and remitting it to Georgia. The threshold for facilitators is $100,000 or more in sales into Georgia per year. (marketplace sales)
- Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) sellers, where the merchandise is stored in a warehouse in Georgia owned or operated by Amazon. As a result, sellers on Amazon need to find out if their inventory is stored by Amazon in a Georgia warehouse, whether or not they are selling to Georgia customers. Amazon is able to provide this information to its sellers. (inventory in the state)
- Orders taken or sales made during conventions or trade shows in Georgia.
Sales Tax Registration in Georgia
Sale tax registration is one of the first things a new business should do after they create their legal entity, get an employer identification number from the IRS and open a bank account.
Businesses register online for Georgia sales tax through the Georgia Tax Center (GTC). There is no charge to register for sales tax in Georgia. Annual sales tax renewals are not required. Registration remains in effect as long as the business exists with no change in ownership or structure.
Collecting Sales Tax in Georgia
The collection of sales tax depends on how the goods are sold. Here is a summary:
- Brick-and-mortar stores: The sales tax rate is based on the location of the store.
- Hosted stores: Shopify and Squarespace will usually take care of the sales taxes for you, including determination of the correct rates.
- Marketplaces: Amazon and Etsy, like Shopify and Squarespace, will usually take care of the sales taxes for you.
- Mobile point of sales: Systems like Square rely on GPS to determine sale location and the proper sales tax rate.
Sales Tax Exemptions
Certain types of merchandise are exempt from sales tax in Georgia. These include prescription drugs, medical supplies, and manufacturing equipment. Non-prepared food items are exempt from state sales tax, but are subject to local sales taxes.
Most services are exempt from sales tax in Georgia. However, Georgia does tax the sale of accommodations, in-state transportation of individuals (e.g., taxis, limos), sales of admissions, and charges for participation in games and amusement activities.
Some customers are exempt from paying sales tax in Georgia. These include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate exempt transactions. In the event of a sales tax audit, the state will hold the business liable for sales taxes if exemption or resale certificates were not obtained. And add on to that interest and penalties.
Shipping and Handling
Georgia sales tax generally applies to shipping and handling charges for taxable sales to Georgia residents. It does not matter whether the charges are separately stated or included. Do keep in mind, however, that there are many exceptions related to sales tax on shipping and handling. This should be checked on a case by case basis.
Delivery charges for exempt sales are generally exempt.
Georgia Sales Tax Returns
Filing a Georgia sales tax return includes submitting the required sales data and remitting the collected sales tax to the Department of Revenue.
Businesses use Georgia Form ST-3 to file and remit sales taxes to the the Georgia Department of Revenue. Businesses that owe more than $500 in sales tax are required to file online via the Georgia Tax Portal.
Businesses are required to file sales tax returns at the completion of each collection period, whether or not sales tax was collected. If no sales tax was collected, the business must file a “zero return.” Businesses often miss this requirement. Failure to do so may result in penalties and interest.
The frequency of filing sales tax returns in Georgia depends on the size of the business or the volume of sales. The Department of Revenue tells each business how often they need to file and remit sales taxes. Filing frequencies can be monthly, quarterly or annually.
Sales Tax Services
In our Atlanta accounting firm, we frequently prepare a Sales Tax Matrix for our clients with potential sales tax issues. The purpose of the Matrix is to calculate the most accurate sales tax rate for the customers of our clients. The matrix also shows the various types of nexus (and thresholds) for every state and local jurisdiction, based on the type of goods and services that are being sold. We do this for locations throughout Georgia, as well as for all states nationwide that have a sales tax.
The Sales Tax Matrix is one of our most valuable CPA tax services. It is an excellent way for businesses to stay organized about sales taxes when they have customers in many states, keep on top of sales tax filing deadlines, avoid a sales tax audit and never charge customers too much or too little in sales tax. The Sales Tax Matrix is particularly valuable for eCommerce, technology, software and online retailers.
We also prepare sales tax returns and sales tax registrations in Georgia and all other states.
And we handle sales tax audits, including sales tax nexus letters from the states.
Nexus and the Sales Tax Audit – Powered by Avalara
Georgia, like all states, is actively auditing in-state and out-of-state businesses for Georgia sales tax compliance. Please check out our article on Sales Tax Audits for an in-depth discussion of this topic.
Nexus is an issue that is fundamental to sales tax audits for businesses with multi-state operations. This is particularly true for online sellers, eCommerce and software providers. Thus, an evaluation of nexus is often a critical part of an effective sales tax audit defense.
At Massey and Company CPA, we use software tools powered by Avalara as a foundation for our sales tax audit defense on behalf of our clients. We also use these tools to proactively avoid sales tax audits in the first place.
Here are some example of how we utilize these tools when defending business clients that are under audit for sales tax issues:
- Provide up-to-date sales tax research for all 50 states and the District of Columbia
- Model fact patterns based on real-life scenarios
- Research sales tax obligations in complex multi-state industries, such as SaaS, technology and eCommerce
- Examine industry-wide sales tax practices on a national basis in such areas as business services, construction, food and beverage, restaurant, healthcare, hospitality, manufacturing, retail, shipping and warehousing
- Develop taxability charts per item across all states
- Validate sales tax rates by city, state, county, zip code, and geolocation
When representing a client in a sales tax audit, whether in Georgia or any other state, we are always respectful and friendly to the auditor, but our sales tax audit defense strategy is robust, strong and fact-based.
For more information about the tax and accounting services we provide, including sales taxes, visit our Home Page!
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Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales taxes and small business accounting and bookkeeping.