Sales tax is due by retailers each month (for some states). This is quite a burden, because you have to analyze each transaction and make sales tax calculations. It is not only time-consuming, but could also be redundant work if you or your team already did it. Therefore, business owners should look into sales tax software. Here’s an article on sales tax software for ecommerce business owners.
Are you curious about sales tax software for ecommerce? Or about best sales tax software for ecommerce? When a customer makes a purchase using your services, they have to pay taxes on the goods. If you don’t have any ideas or insights into the best way to calculate and charge these taxes, then purchasing sales tax software is an idea that could help.
It can be tough to know what sales tax software is best for your business. With so many options out there, it’s important to find the software that works with your unique needs. This article will break down the top sales tax software options for ecommerce businesses and help you easily decide which option works best for your needs.
Sales Tax Software for Ecommerce Merchants. If you’re an online seller, you probably know a thing or two about managing sales tax. But if you’re like most businesses, we know it can be hard to figure out what exactly is the best software for you. That’s why the team decided to create this ecommerce sales tax software buyers guide!
How Does Ecommerce Sales Tax work?
A sales tax is a consumption tax that is charged as a percentage of the sale of a taxable product.
Typically, you need to charge sales tax in states or regions where your business has a physical presence or significant connection.
The general rule for ecommerce sellers when collecting sales tax is:
- If your business has a nexus in a state (legal jargon for significant connection), you are obligated to collect sales tax from online customers in that state.
- If your business does not have a significant connection or physical presence, you typically do not have to collect sales tax for online sales.
Having said that, a US Supreme Court ruling in June 2018 has made it easier for states to make it obligatory for all businesses, regardless of physical presence, to collect sales tax.
Also, through some business activities (especially in cases of ecommerce business), a nexus is often created outside your home state too. This might include a location, inventory, affiliates, personnel, a dropshipping relationship, or an economic nexus where the sale exceeds the transaction amount set by the state.
Do I Need To Charge Sales Tax When Shipping Out Of State?
In the US, most states collect sales tax based on destination. In other words, each sale is considered to occur at the place where the product is ultimately being used.
How Do I Charge Sales Tax For Online Sales?
With all these legal intricacies, collecting sales tax can feel a bit overwhelming. Do not fret. You can use sales tax software that will automatically calculate the right sales tax rates based on rules and rates of different jurisdictions. The list of software I will share today will make collecting sales tax for your ecommerce businesses a breeze.
Read on.
1. Avalara – Best eCommerce sales tax software for companies of any size and industry
The tool I wish Nicholas Cage knew about. With the highest number of ratings on G2, Avalara is one of the leading apps that helps ecommerce companies to get their tax compliance right. Avalara’s Avatax removes the no.1 pain point of accounting overwhelm by supplying sales tax calculations and rules based on geolocation and product classification.
It offers more than 700 integrations. Use it to manage your data across various apps connected with your ecommerce platform. Apart from that, it removes tax from exempt sales and skillfully manages and organizes exempt documentation (no more tedious googling at the 11th hour!).
Avalara offers flexible volume-based pricing starting at $25 per month.
Pros
- A simple and clean interface
- Up to date tax rates and rules
Cons
- Customer service needs improvement
- Corrected transactions take a considerable amount of time to update
2. TaxJar – Best for auto-filing sales tax returns for companies of all sizes
TaxJar is a great tool for ecommerce companies to arrange and organize sales tax data and fetch return-ready reports. Covering over 14,000 tax jurisdictions, TaxJar ensures that you ask for and collect the right amount for your product. Also, with companies like Coca Cola, Microsoft, and CBS as clients, TaxJar resonates reliability.
TaxJar pricing starts from just $19 per month for up to 200 orders/month.
Pros
- Auto-filing capabilities
- Smooth integration with platforms like Amazon and BigCommerce
Cons
- Support only available by email unless you upgrade to TaxJar Plus
- Additional rules for specialized product types would be helpful
3. Vertex – Best tax management SaaS for small and medium businesses
Vertex helps you steer away from manual processes and eliminate audit risks with the help of their powerful content and technology. It sorts and takes care of the end-to-end tax lifecycle. It automates calculation, exemption certificate management, and tax returns, all with a single interface.
Use this tool to stay on top of the latest economic trends, audit activity, and regulations in over 11,000 state and local jurisdictions.
Vertex can help users streamline their workflow and processes through capabilities for centralizing, automating, and improving tax accuracy across all transaction billing systems that you use. Vertex Cloud indirect tax simplifies computing and reporting of sales tax and consumer use tax in the US and value-added tax abroad.
Pricing for Vertex is available upon request.
Pros
- Easy to navigate, very user friendly
- The Help option updates you about new tax laws
Cons
- Calculations stored differently than as represented on screen
- Customer service available by email only
4. Taxify by Sovos – The best tool to avoid tax gaps for online retailers
Taxify is a product of the Sovos brand, one of the world’s leading voices in tax for the last 30 years. With over 14,000 tax jurisdictions spanning across 50 states, Taxify will keep the overburdened ecommerce sellers tension-free with accurate rates. It helps you automatically comply with tax changes and offers an easy way to auto-file tax returns. Also, it has readily available tax experts that will cater to your nuanced needs and questions.
Taxify is priced at $47 per month with an option of a free trial.
Pros
- Helps avoid late fees by automating tax calculation and filing
- Automatically complies with changing tax laws
Cons
- Feature-lite compared to other software on this list
- More expensive compared to other software on this list
5. LOVAT – The best tool to manage global VAT liabilities for companies of all sizes
LOVAT promises to solve the problem of tax reporting within minutes. LOVAT is light and fast, while still being robust enough to serve as an all-in-one solution for global VAT liabilities. Unless you are feeling generous, I highly recommend their VAT calculation system that makes sure you never overpay.
Use it to file tax returns automatically and be audit-ready.
Pricing for LOVAT starts at around $43 USD (35€) per month.
Pros
- Great live support with a short waiting time
- Provides notifications to ensure you don’t miss deadlines
Cons
- Limited options for payment methods
- Can be a bit overwhelming in the beginning
6. Webgility – Best tax management tool for online retailers
This is a perfect sales tax solution for businesses that use QuickBooks, Xero, or Netsuite. Use it to map sales tax to specific items in QuickBooks, Xero, or Netsuite, and improve accuracy. Webgility supports both single and multiple tax jurisdictions. The integration with Avalara for advanced sales tax rate validation and automated filing makes it all the more lucrative. Being a BigCommerce certified partner, it provides ecommerce accounting management solutions to 60,000 BigCommerce shopping cart customers.
Webgility pricing starts at $15 per month with a free version to get you started.
Pros
- Helpful assistance
- Ensures 100% accuracy when downloading data provided by customers
- Easy integration with QuickBooks
Cons
- May need to manually redo configuration settings after software updates
- Initial setup can be confusing
- Download times can be a little slow
7. Thomson Reuters ONESOURCE – Best tool for sales tax policy configuration
Though it may sound like an old school news bureau, Thomas Reuters packs a massive punch in the world of ecommerce tax software. It uses the latest rules and rates to ascertain sales tax, use tax, VAT, and GST.
It makes managing sales and use tax a breeze, with GST and VAT compliance done in a streamlined way through one system.
The team also provides step by step sales tax guidance and answers, all in a single place.
Pricing for Thomas Reuters ONESOURCE is available upon request.
Pros
- Streamlines workflow by connecting departments internally
- Saves time by automating processes that would otherwise be time-consuming
- Does a great job of maintaining up-to-date tax information
Cons
- Takes time to gather data
- Difficult to zero-in on the right support team to solve your query
- Feels a little clunky when handling hundreds of tax forms, entity data, and more
8. Canopy – Best comprehensive practice management solution for tax professionals and mid-size accounting firms
Canopy is a tax resolution and practice management software. Boasting smart tax analytics and a dynamic client portal, Canopy is spearheading tax technology. No wonder it got awarded the K2 quality award for tax technology in 2019.
Canopy pricing starts at $89 per month with a free starter option.
Pros
- A highly customizable and branded client portal
- Provides good research on what to include in IRS response letters
Cons
- Customer support needs improvement
- Obtainment of the transcript feature does not work properly
9. DAVO – Best sales tax allocation software for brick and mortar businesses
DAVO collects sales data from the point of sale system so that it sets aside the sales tax amount collected daily. It helps with auto filing and payments of sales tax. DAVO integrates with QuickBooks online, Clover, Square, Revel, and all the other major POS software.
DAVO sales tax pricing starts at $39.99 per month. They do not have a free version but do offer a free trial.
Pros
- Auto-filing and payment capabilities
- Visualize and manage your sales tax data in an organized way
Cons
- Has a few technical glitches
- A bit expensive for small businesses just starting out
10. TaxCloud – Best sales tax management service for online retailers selling on marketplaces
TaxCloud is the only sales tax tool with a free state-paid option that’s available for 25 states. It helps determine the applicable sales tax rate based on product or service and collects sales tax at the point of transaction. Use it to file and pay tax returns to appropriate state and local jurisdictions. The team also provides hands-on support for audit-related matters and state notices.
TaxCloud is extremely affordable, with pricing starting from $9 per month. It also has a free version and a free trial.
Pros
- Superior sales tax reporting
- An easy customer interface with multiple tools
Cons
- A bit of a learning curve when it comes to the API
- System has a few bugs at times
Ecommerce Sales Tax Software: Key Features
What features make the best ecommerce sales tax software? I specifically scanned tools for these important features:
Up To Date Rates And Rules
Does the software have up to date sales tax rates and sales tax compliance rules for different jurisdictions? Sales tax can be a very complicated world. The no.1 criteria was selecting software that makes the life of ecommerce managers easy by getting accurate rates and rules for different tax jurisdictions. I selected tools that fetch tax rates and rules based on geolocation and product classifications.
Automated Tax Filing
Does the tool enable automation when filing taxes? I focused on software that reduces the accounting workload and does most of the heavy lifting with automation. Tax filing can be a burden when done manually. I looked for tools that simplified this process the most.
Exemption Certificate Management
Does the tool help in the verification, storing, and managing of exempt tax certificates? Exempt tax certificates are incredibly valuable for an organization. The sellers need to produce it during an audit for each tax-exempt purchase. Maintaining them is crucial but often difficult and manual. I looked for software that made managing and maintaining exempt certificates a breeze.
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CONCLUSION
If you are an online retailer, you need to keep track of the sales tax in your business. Sales tax is a government-imposed fee that is levied on the sale of goods and services in a certain region. It is a burden on every business (regardless of whether they sell online or have physical presence in that region). However, if you are an ecommerce business, it becomes difficult to handle sales taxes and keep track of the same without the assistance from sales tax software for ecommerce.
Sales tax software for e-commerce is an application promoted and applied to sales tax matters in the e-commerce. This kind of specialized software is generally developed by governments that are attempting to levy/collect online shopping sales when e-retailers are located in different markets from their target consumers.