US sales tax is complex for many reasons: there are 47 different states, each with their own rules. There are over 13,000 local taxing jurisdictions, each with their own rates, and there are an infinite number of potential products to sell, each of which will have unique taxability. After you have done the nexus research and understand your registration obligations, the fun only begins…
Once you have registered with the relevant state tax offices, you must start calculating and collecting sales tax. Doing so is impossible without intelligent, rules-based automation. The main problem is that no general rules can be applied: there is no country-wide consistency. Not only do each of the 13,000 local tax jurisdictions have different tax rates, they also have different rules on product taxability. Some products may be exempt in one jurisdiction, taxable in another, and taxable at a higher rate down the road! It is fundamental to get the correct tax rate to avoid underpaying the authorities or over-collecting from your customers – and this can only be achieved using software.
The software should be able to automatically work out the latest rate to apply to a transaction, cross-checking thousands of state rules and regulations to improve accuracy. The importance of having an automated reporting system is fundamental.
Once the correct rate has been applied to every transaction, you still have the not-so-small job of creating and filing the tax returns to each state. Populating tax returns can be simple in some states, but in others, they have multiple localities, each of whom wants your sales broken down to a very granular level.
Your sales tax platform needs to build your returns and then file them to the appropriate state tax office. All a seller should need to do is get their sales data into the software, tell it what products they sell and where they are registered, and the system should be able to do all the heavy lifting.
The USA eCommerce and digital markets are massive opportunities for online sellers, but sellers will need an automated solution so sales tax doesn’t spoil the party.
In summary, a good US sales tax software for eCommerce should:·
- Integrate with website or systems for simple importation of data·
- Produce automated and accurate sales tax rates for all transactions·
- Be user-friendly and simple to use and update (i.e. for new products being sold)·
- Automatically prepare and file tax returns·
- Monitor your sales across the USA to determine if economic nexus thresholds are breached