POS system sales tax FAQ and guide

POS stands for “point of sale.” It’s an acronym that many in the restaurant and retail industries are already familiar with. 

Sometimes called the point of purchase (or POP), the point of sale is when and where the transaction actually happens between your business and your customer. A cash register or payment terminal are examples of a point of sale or POS.

A POS system, or point-of-sale system, is the tool that processes your transactions. Examples of point-of-sale systems may include some modern cash registers and mobile POS systems such as Square and Clover.

In many cases, yes, your POS system can be set up to charge sales tax. However, there are instances where you may need to set up how your POS system charges sales tax. 

This includes making sure your system is charging the correct sales tax rates, updating your system to reflect sales tax holidays, and other considerations.

It’s a good idea to consider using a POS system to calculate sales tax for your restaurant or retail store. Using a restaurant or retail POS system can automate and streamline your sales tax collection so that you charge the correct tax automatically, every time.

In many cases, you need to check your POS system and make sure that it’s set up to charge the correct rates. Failure to do so could result in charging too much or too little sales tax, which could result in potential audits or back taxes.

Tracking down this information can be tricky. Using a sales tax calculator and tax rate lookup tool can help you make sure your system is up to date with the latest rates.

You typically connect your POS system online through Wi-Fi or a direct connection through an Ethernet cable. 

Some POS systems don’t have online capabilities; other times Wi-Fi may not be available. An inability to connect online means that content like sales tax rates and rules must be updated manually. 

However, it’s important that your business uses the most up-to-date tax rates when charging your customers. That’s why a content generation system that can provide you with the most up-to-date rates, even when you’re offline, can be a lifeline for maintaining tax compliance for small businesses.

Charging sales tax with your mobile POS is generally a simple process. In many cases, you set up the correct sales tax rates in your POS system, then the system will charge sales tax for you. It’s important to remember that you need to keep the information in your POS system up to date.

Yes. Most POS systems can apply multiple sales tax rates. Keep in mind that you may have to input the rates manually, and the process might be different depending on your POS.

Yes. Many POS systems are prepared to help you handle tax-exempt sales. Some, like Shopify, let you specify tax rates just for exempt customers. Others, like Square, can also let you identify tax exemptions for particular items.

Remember that even though POS systems can often handle exempt sales, it’s on you to set it up correctly in your system.

There are typically two ways to integrate your existing software with your POS system. Some POS systems can integrate directly with your existing software. Others must be integrated through a third-party app, like DAVO by Avalara. Getting set up is relatively simple and can often be completed in a few clicks.

When your POS collects sales tax, it takes that money and deposits it to an account you’ve specified, such as your business bank account. When it’s time to file, you take the money from that account and remit it to the appropriate government authority.

Of course, keeping things separate between your collected sales tax and your actual revenue can be complicated. It’s a best practice to have your sales tax go to a secondary account to avoid confusion. 

This is why it can be useful to integrate a solution with your existing POS system that automatically sends your sales tax to a secure holding account and pays the state automatically when your sales taxes are due.