For many online sellers, sales tax compliance has never been a simple task even if they are only obligated to collect sales tax in a state or two. But if states have their way, sellers could be required to deal with sales tax in a lot more places.
Online sales get different tax treatment than those in brick-and-mortar stores due to a 1992 decision by the U.S. Supreme Court, Quill Corp v. North Dakota, that companies are only required to collect sales tax for a state if they have a physical presence there.
National legislative efforts to change this — including the Marketplace Fairness Act, the Remote Transactions Parity Act and the Online Sales Simplification Act — have yielded no results in years of trying, so many states are taking matters into their own hands.
The most recent entry is South Dakota, which passed a law requiring out-of-state sellers with annual South Dakota sales over $100,000, or 200 separate transactions, to collect sales tax. The law took effect May 1 and the state starting enforcing it immediately, suing four online sellers, including Newegg and Overstock.com, for noncompliance.
However, a group representing online sellers has challenged the law in court, resulting in an injunction that prevents the state from enforcing the law until the matter is decided.
While this particular case may be on hold, it’s clear that states will not stop fighting to expand sales tax obligation for online sales. For online sellers, this means that there are even more possible sales tax changes to watch out for in order to reduce the risk of audit, under- or overpayment or fines.
What you can do
There are several steps that merchants can take to make sure they are one step ahead of ever-changing sales tax regulations.
1. Do your research
A wealth of free information exists to help businesses keep up on the latest sales tax rates and regulations.
If you want to go straight to the source, each state has its own website detailing sales tax rates, changes, registration procedures, filing frequencies and due dates, forms, e-filing portals and more.
Websites such as taxrates.com can provide the information you need to comply with sales tax no matter where you are. Here you can download state tax tables, figure out tax rates by geolocation and stay updated on the latest news affecting sales tax rates.
2. Get professional help
While hiring a sales tax professional to help is probably the most expensive option, it can be a great choice if you want the most personalized service. However, not all sales tax professionals are created equal. When you are looking to hire a professional sales tax expert, here are some things to consider:
Accounting is a broad field, and your expert should specialize in sales tax specifically.
You should also find out whether the expert has experience working with eCommerce businesses, and whether they can easily work with your Ecommerce or accounting system.
Make sure you are clear on the total budget, what kinds of services are covered and exactly how much extra services may cost.
Another way of keeping up with sales tax changes is sales tax automation. Using software to take care of sales taxes can be less expensive than hiring an expert but, of course, more expensive than doing everything yourself. It can, however, save you a lot of time and is far less error-prone than manual processes.
Here are some questions to ask when choosing an automated sales tax solution:
Does the solution integrate easily with your Ecommerce or accounting system?
What is the total cost, what services are covered and how much do extra services cost?
Is support available in case you have questions?
Can you rely on the solution to be error-free and prevent audit trouble?
Will the solution scale with your company’s growth if you expand within the United States or even internationally?
Prepared for change
Nothing is certain but death and taxes – but you can be certain that sales taxes will change. Being prepared and choosing the right resources to help can ensure that you stay one step ahead.
About the Author
Whitney Williams is a Partner Alliance Manager for Avalara. In her role, Whitney supports eCommerce and accounting partners, as well as their clients understand how to navigate the sales tax hurdles. Avalara helps businesses of all sizes achieve compliance with sales tax, and other transactional tax requirements. Avalara’s integration for X-Cart is designed to effectively manage complicated and burdensome tax compliance obligations imposed by taxing authorities in the United States and internationally. Learn more about Avalara’s integration modules for X-Cart 4 and X-Cart 5!