Should you collect sales tax in Washington, DC?
Sales tax is levied on retail sales of tangible personal property to customers. However, you will collect the sales tax if you determine the nexus in Washington, DC. A nexus is a presence that may come physically or economically.
Physical nexus is typically created when your business has a store, warehouse, or office in Washington, DC. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the statute. These thresholds can be on revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Washington, DC.
A physical nexus is integrated when your business is engaged in the following in Washington, DC:
- Leasing or owning any physical property in Washington, DC.
- Maintaining, occupying, or using a place of business or an office in Washington, DC.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to establishing a market in the Statue.
- Having a distribution place in Washington, DC.
- Employees working in the Statue.
You may also refer to the Washington, DC, Revenue Department advisory to know more about business activities that may create a physical nexus within the Statue.
Is it constituting an Economic nexus in Washington, DC?
You are required to comply with and register under sales tax rules if your retail business sales in Washington, DC, exceed $100,000 or if you made 200 or more transactions during the current or previous calendar year.
For more detailed guidance on economic nexus, kindly read the guidance issued by the Washington, DC, Department of Revenue.
How can you Register for Sales tax in Washington, DC?
You can use the online portal to apply for tax registration and obtain Washington, DC’s tax account number. You can use the FR-500 application form to avail of the registration for sales tax.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- Personal and Business IDs (e.g., FEIN, SSNs).
- Business starts date.
- Business Address.
- Bonds and licenses as applicable.
- Contact information
Is your product or services liable to Sales tax in Washington, DC?
Tangible Property: Sales tax in Washington, DC, is imposed primarily on the retail sale of tangible personal property, e.g., Furniture, giftware, toys, etc.
Services: Many services are taxable in Washington, DC, except otherwise exempted. Examples of taxable services include Real Property Maintenance Services, Landscaping, Information services, Car Washing, etc. For more information, click here.
Digital Product: Sales or use tax applies to digital products regardless of how they are accessed, downloaded, streamed, etc. Here is what Washington, DC, says about digital products and online transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is taxable in Washington, DC. Review the Washington, DC, Revenue Department advisory on a case that discusses cloud-based services.
The statute provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. Please click here to see what exemptions are covered.
You can read further by visiting the department website to know exactly what’s included in your list of items bound to pay sales tax.
How should you collect and calculate statute taxes in Washington, DC?
Collecting and computing accurate sales tax to be remitted to the Statue may involve stratospheric efforts, especially when you are not Washington, DC-based, as the sales tax is destination-based in Washington, DC, which means you must collect taxes on tangible property sold to buyers based in Washington, DC.
However, complexities are involved when you have a business nexus, even outside the statute. Any default may lead to severe concerns, penalties, or fines by the law. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Washington, DC, has a base sales tax rate of 6%. However, a few items are charged at a different sales tax rate. For instance, Alcoholic Beverages sold for off-the-premises consumption are charged at 10.25%. You may visit the sales tax rates page on the Washington, DC, Revenue Department website for more information on sales tax rates.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (Base Tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such sale are not liable to sales tax. However, the sale includes both taxable and non-taxable items, shipping charges need to be apportioned relatively between taxable and non-taxable parts of the sale, and accordingly, sales tax is applicable on the taxable portion of the sale. The statute described all charges included in the sale price as chargeable to tax. Refer to more detailed guidance.
How should you file sales tax in Washington, DC?
There are multiple options available to you for reporting your sales tax.
E-file: You can e-file your return using the Washington, DC Department of Revenue website’s online portal.
Form FR-800 must be used to report and pay the sales tax in the statute.
You would also be required to file and pay Washington, DC, Occupation and Business tax along with sales tax filing.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Washington, DC Department of Revenue assigns you a filing frequency, which can be Monthly, Quarterly, or Yearly. According to your filing frequency, the due date for filing sales tax would be the 20th of the month following the relevant reporting period (for cable television, the returns are due by the 21st of the following month).
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official Washington, DC, government advisory, where you can see what the statute says about sales tax filing due dates.
Are there any fines or penalties for default in filing or paying sales tax?
The statute levies a penalty of 5% per month of sales tax due if you default in filing or paying the sales tax by the due date. The maximum penalty amount would be 25%. An interest of 1.5% per month will also be charged for late return or payment.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines issued by the Washington, DC, Revenue Department for penalties and interest.