E-commerce and Sales Tax
Today’s ability to sell product to consumers around the country over the web allows companies to increase their revenue on much greater level versus selling it directly from their local store. With selling goods across state lines comes sales tax compliance obligations and selling throughout the country using e-commerce platform is a complex task, especially with quickly evolving tax laws.
To determine your tax responsibility in a particular State, you need to confirm you have sales tax nexus in that state. There are many rules that will determine that and some of them are physical presence in this state, click-through, economic, web cookies, and dealing with 3rd party warehouses.
In addition to nexus, many states have been passing remote seller laws and regulation for non-collecting retailers. What this means it that you may not be required to become a tax payer, but you may be obligated to notify your customers that you have not charged them tax, and it may be their responsibility to remit use tax to their state on their own. Furthermore, you, as a company, may have to provide to a state a list of customers you sold to, so the state can also send such notices.
We often get a question from our clients how to determine if they have nexus in a particular state. There are consulting companies that do nexus studies. They will provide you with a questionnaire that will help to determine what states you have sales tax responsibility in.
Once you have determined where your sales tax liability is, let’s have a look on what is needed to determine how much tax you need to collect from your customer.
First, is the address validation. Zip code is not enough, as the same zip code can be spread across two tax jurisdictions. Two, you need to determine tax sourcing rules; some states require to collect tax based on the state shipped from and shipped to. Rule three, you assign a tax jurisdiction. It can be simple with one tax code or as complicated as a combination of state, county, and city. Then you need to determine if the customer or a product are tax exempt or taxable; the latter can vary based on how and where the product is used. Once you have all of this, you can ship your goods to your consumer.
Fun fact: there are over 1800 rules across the country for product taxability and there are over 15,000 tax jurisdictions with the US.
Facing complex tax requirements can be time consuming and many of our clients do not have time to do that. We offer solutions that offer a full sales tax suite providing centralized tax management and reporting stored on cloud-based environment. It can be implemented across many channels of your business without a need to be maintained within your ERP software.