What you aren’t is a tax collector. But when you’re an online seller, collecting, remitting and filing sales taxes is something you just have to do. Because getting sales taxes wrong can have serious repercussions for your business, ranging from fines to audits and penalties.
However, getting sales taxes right can be more difficult and time-consuming than you might think. Sales taxes are administrated by states and localities, so each place where you have customers can have different rules for sales taxes.
Figuring out your sales tax nexus, or which states require you to collect sales taxes, is complicated enough and can require a lot of research. But then you have to make sure you are charging the right sales tax rates in the states where you do have nexus.
Getting the right rate
When calculating what rate to charge on your products, it’s crucial to have a clear understanding of how your product is categorized for sales tax purposes. Different categories of goods and services can require different rates or be exempt from sales tax altogether; one size does not necessarily fit all. And again, the same kind of product can be categorized and taxed differently in each tax jurisdiction.
Information on sales tax rates for your products is available via tax rate tables and state revenue department websites. But beware of plugging in a rate and forgetting it: Rates change all the time. Lawmakers like to tinker with sales tax rates, both across the board and for individual products and categories. It’s crucial to stay current with any updates so that you can be sure you’re charging the right rates for right now.
Many states also offer tax holidays, specific periods of time when certain categories of purchases are exempt from sales tax, such as in back-to-school season. These may benefit consumers and boost sales, but for merchants, they are another element to keep track of in ensuring that you are charging the correct sales tax rates.
Another thing to be aware of when you are calculating sales tax rates is that figuring rates by plugging in ZIP codes may not result in the right rate. Tax jurisdiction and ZIP code boundaries are not necessarily the same, so one ZIP code can include more than one city or taxing jurisdiction and multiple sales tax rates. In Colorado, for example, the ZIP code 80111 includes at least five different sales tax rates. A more accurate method is using geolocation — or the exact address of the sale — to calculate rates.
Obviously, if you do business in more states — and potentially have nexus in more states — there are more variables to consider when you are figuring out sales tax rates. Keeping track of rates for multiple sales in multiple jurisdictions can quickly become an overwhelming task — one that can keep you from spending your time and energy on the basics of your business.
That’s where an automated sales tax solution — such as Avalara’s AvaTax — can come in. AvaTax taps into a powerful database that is constantly updated with the latest rates, tax holidays, exemptions and any other information that’s needed for the right rates.
AvaTax integrates seamlessly into Fishbowl. When it comes time to figure out the sales tax on a sale, AvaTax uses that database to calculate the latest updated rate on every single sale according to its shipping address, with 100% guaranteed accuracy. And with special plans for small businesses, it is an affordable solution.
Introducing automation into your sales tax system can take care of the tedious parts of sales tax compliance for you and allow you to focus on what really matters to your bottom line. Check out Avalara for Fishbowl.