The post 5 Reasons You Need Sales Tax Automation appeared first on AccurateTax.
]]>It’s true that not every business needs sales tax automation, if they have nexus in a single state that either doesn’t have sales tax, or has a single state-wide rate. (Although, even a business whose tax calculations are simple can benefit from the streamlined bookkeeping, reporting, and payment options provided by sales tax automation.)
But businesses that have nexus in multiple states, or who operate in a state with destination-based sourcing and multiple rates, may find that the cost of not having sales tax automation is much higher than the cost to implement it would have been.
You don’t want to find that out too late. So if you’re not already automating your sales tax collection, here are our top 5 reasons you should start.
Some shoppers don’t really pay attention to sales tax during checkout.
Others scrutinize every penny. And those shoppers will catch you in a heartbeat if you’re charging them the wrong sales tax rate, even if it’s only off by one-quarter of one percent.
Like everything on your website, your tax rates need to be accurate to convey professionalism and trust. But the wrong sales tax rate tells customers that there’s an error, making them wonder, How many other errors are affecting your website?
You can even make it easy on customers by displaying not only the sales tax dollar amount, but the actual sales tax rate, too.
Our service, as well as most others, includes a feature where the customer’s shipping address is “scrubbed” – a fancy name for standardizing the address and validating it against a known set of data. AccurateTax scrubs addresses against the US Postal Service data.
Accurate and standardized addresses not only help us determine the right sales tax rates, but it helps your package delivery, too.
People use a variety of abbreviations and conventions when it comes to mailing addresses. But an address that’s hard or impossible to find may result in a returned package, costing you money and a frustrated or lost customer.
Additionally, some carriers charge an address correction fee – and these aren’t trivial amounts, either. For instance, the UPS correction fee is a whopping $19.50 per correction, as of this writing.
Think that’s high?
FedEx is even more at $22.50 per correction!
The less sales tax errors you have, the lower your chance for an audit.
Taxpayers that file consistently on time and accurately are the least likely to raise red flags for auditors.
Sales and use tax audits are no picnic. They can be costly if you’ve made gross errors, but sometimes the time wasted is a bigger cost. Imagine your busy schedule being taken up by a tax auditor going through your business and asking questions about everything you do?
Not fun. Or productive.
If you do get audited, and they find out you under-collected (and therefore under-paid) your sales and use tax, guess who’s responsible for that money?
You are.
Sure, you can try to explain the situation, and then collect the missing money from your previous customers, but that doesn’t exactly paint a picture of a professional business. Would those customers be willing to shop with you again after such an exchange?
Not to mention, this could be a very time-consuming process. The return on investment of your time might be worse than paying the remaining sales tax due (plus penalties and interest) out of your own pockets.
The worst part: Once you’ve been audited, your chances of being audited again in the future are higher, especially if you ended up owing a significant amount of money as a result of the audit.
On the flip side, what happens if you collect too much?
In part, this depends on what you do with the extra money. If you keep it, there can be extreme penalties. Chron.com reports that the penalty for overcharging can be as high as 100% of the overage, plus any other penalties or interest due.
It’s true, however, that some states will allow you to overcharge the customer, as long as you remit the money to the state.
But the customers may not like this.
Case in point: Papa John’s, the famous pizza delivery chain, was hit with a class action lawsuit over their alleged taxation of non-taxable delivery fees.
And in case that wasn’t enough, a customer in Illinois has recently called them out on the same issue.
If you’re still on the fence about whether to add sales tax automation, consider your risk tolerance (for an audit) as well as the amount of time you spend each year dealing with sales tax-related issues. Sales tax automation need not be expensive, and AccurateTax is designed to be affordable for almost every business, small or large.
The post 5 Reasons You Need Sales Tax Automation appeared first on AccurateTax.
]]>The post What is Sales Tax Automation? appeared first on AccurateTax.
]]>Exactly what is this sales tax process?
The first thing that needs to happen, while a customer is checking out on your website, is determining what tax rate should apply to each item being purchased.
At first glance this may sound simple.
But if you operate in multiple states, or in a state with destination-based sourcing and multiple tax rates, it can get complicated pretty quickly.
Did you know that two buildings across the street from each other can have two different tax rates? Even if they are in the same zip code?
The combined tax rate for a given location is usually a sum of multiple taxes. The state often (but not always) charges the largest percentage, but counties, cities, and other authorities (transit, shopping districts, etc) can have an additional sales tax rate that gets added to the state rate. The boundaries for each rate generally differ from each other.
So how do you figure out the rate for a given address?
This is where sales tax automation first comes into play. Our servers can determine all of that information in under a second, and return it to your website for calculation within your checkout process. The customer doesn’t even know you’re communicating with our systems.
Think about your shipping rate calculation and payment processing. In many cases, these processes contact other systems, such as UPS and FedEx for shipping, or Paypal or Authorize.net for payment processing. (Among many others.) It’s seamless, and the customer doesn’t leave your site. AccurateTax’s sales tax automation works the same way, only with sales tax.
Even once you’ve pinpointed an address, the sales tax may not be straightforward, depending on what you sell. If you have food items, they may be tax-exempt, or even taxed at a lower rate. Clothing may be taxed, but only if the price of the item is above a certain amount.
What about shipping charges? Are they taxable? In some states they are, and in others, they aren’t. Sometimes a shipping charge changes the taxability of the entire order (for instance, if the customer chooses to pick up their items in your store).
Then what do you do with coupons and gift certificates?
Sometimes, a coupon will reduce the amount of tax due, but other times it won’t. A gift certificate usually does not change the tax due, because it’s simply a method of payment. (But remember if you sell gift certificates, that you usually shouldn’t charge sales tax on the purchase of the gift certificate itself.)
Sales tax automation takes all of this into account, too.
The next step is actually charging the customer for the sales tax due. This is done by adding the sales tax charge to the order, so that it gets collected at the same time the money for the rest of the order is collected.
Pretty straightforward, actually.
At the end of a reporting period, it’s essential to know how much money you need to remit with your sales tax return. The reporting capability of sales tax automation is a key factor in this process.
In general, the process is to add up all sales tax collected, making sure not to include any cancellations, and then to subtract out any sales tax refunded when an order is refunded. It sounds easy, but nothing about bookkeeping is easy unless there’s a good process in place that’s followed consistently.
You also need to know where the funds need to get sent. If you collect sales tax in more than one state, it needs to be broken down by state. And often, it needs to get broken down further, by county, city, and other authorities.
Automating this bookkeeping and reporting:
Finally, the money collected from sales tax on your orders must be sent to the right place, with the right forms, and at the right time.
Late filings can lead to penalties and a higher chance for an audit.
When you automate this process, you know that the money will be sent on time, helping you avoid those pitfalls.
Hopefully this overview has helped to explain what exactly sales tax automation is. Please let us know if anything isn’t clear so that we can expand on the topic as needed.
The post What is Sales Tax Automation? appeared first on AccurateTax.
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