Sales tax laws and calculations have always been a difficult topic for businesses of all sizes. But in these times where brick-and-mortar establishments are becoming outmoded and online stores become more popular, the complexity of sales tax compliance in all 50 states has become something of an insurmountable problem.
Recognizing the dilemma, 24 states got together and created the Streamlined Sales Tax that standardized and simplified sales tax law. While this is a step in the right direction, it does not solve the problem of compliance in all 50 states.
Bookkeepers and accountants constantly scratch their heads trying to sort through the various tax codes to ensure their clients are properly charging on the correct items at the precise rates for the accurate districts.
But no matter how hard professionals try, something always comes up in audit: “Well, of course, milk sold by the pint not the quart mind you, every other Saturday is taxable at an eighth percent higher rate in 12 of the 25 districts. Didn’t you know this?”
And like any tax law, changes are fluid and hard to keep up with. Years ago, updates to sales tax rates and laws were sent via agency newsletter along with the tax forms that business owners completed and filed. Most of my clients never opened the envelopes and relied on me to keep them updated on changes.
Nowadays, most states don’t send a tax form and therefore there is no newsletter. Users must go to the agency’s website where they file and pay the sales tax return electronically. Staying on the website to search out updates is hardly something most business owner can find the time to do.
And now that Amazon (AMZN) and other online retailers have acquiesced to reporting and paying sales tax for their online sales, it’s likely that sales tax law may become more congested with rules and regulations.
It’s time for a solution to this madness. Enter exactor.com, a company founded in 2006 by CEO Jonathan Barsade, that sells software that offers complete sales tax processing--for, in most cases, only several hundred dollars per year. This service, available also to brick-and-mortar small businesses, is especially handy for the online store that must understand and comply with sales tax law in all 50 states. Exactor adds a sales tax line to the order form on the vendor’s website.
“The ramification on sellers is negligible,” says Barsade. “Automated sales tax compliance technologies are integrated into the shopping cart that the seller uses to sell their goods on the Internet. These technologies are inexpensive, and do not require any level of sophistication to integrate or to use, definitely not more so than what the online seller has already exercised when first creating their ecommerce storefront.”
Exactor’s program recognizes a taxable sale and calculates sales tax when necessary. Not only that, it tracks the sales tax liability for the store, files the sales tax return, and distributes the sales tax liability to the states in question. While they do not engage in audit representation, Exactor will provide all needed data required to carry out a sales tax agency audit as well as proof of filing and proof of payment.
With regard to online stores, Barsade states, “Once New York passed the first so-called Amazon law back in 2009, Amazon has been engaged in a losing battle with states passing similar rules. They have recognized that the states will not go back on their intent to collect taxes on ecommerce transactions, and have leveraged the changing landscape to create a new business opportunity. They are negotiating agreements with the states to collect, but postpone collection, in return for the building of local distribution centers. These local distribution centers will serve as the foundation of their new same day delivery services. This is an example of where the requirement to collect sales tax is creating a new business opportunity even for companies like Amazon.”
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.