Online sellers are now required to collect sales tax on purchases made by residents of states that impose sales taxes. If you’re an online retailer or a small business owner who sells products or services over the internet, then you need to become familiar with sales tax laws for your home state and for every state that has a sales tax.
Sales tax preparation and filing services keep growing in popularity. Some online sellers are even using them to help with sales and use tax compliance, along with their annual income tax filings. There are many benefits of using sales tax software for online retailers and accountants. Learn more about these benefits on a sales tax filing service .
If you run your own online retail shop then you need to be aware of sales tax filing services. It’s not something that you want a surprise bill for in the mail. There are a number of online software solutions that help you outsource this aspect of your business or take care of it on your own. In this article we touch on what these solutions are and offer our recommendation.
Sales and use tax is more technical than it’s ever been before. Tax jurisdictions around the world are actively leveraging technology to spot tax fraud and buckle down on compliance. As a result, it’s critical that small businesses understand sales and use tax and have a manageable system and sales tax software in place, to make sure their efforts go where they’re best needed—in growing their revenue.
Know the sales tax requirements for your business
For many small business or home-based companies, keeping track of sales tax can be a monumental task. However, before you can fully optimize the way you organize and ultimately pay your sales and use tax, you need to know the requirements for your specific business and begin to map out a solution for paying sales tax and filing tax returns.
Common questions include:
- Does your state have a sales tax? Sales taxes are state-driven. Most states collect taxes on products or services, based on whether your business has a sales tax presence, such as a store front or a home business. Five states – Alaska, Delaware, Montana, New Hampshire, and Oregon – do not collect state sales tax.
- Are your products taxable? The laws on what is a “product or service” are constantly in flux. Certain products are taxable in one state, exempt in another, and reduced rate in depending on the jurisdiction.
- Is your customer exempt? Taxes vary from state to state. However, there are a few consistent products or services that are exempt. These include certain types of food, prescription drugs, and a few other specific products.
- How do I keep track of sales tax rate changes? Managing sales taxes is a challenge. Finding a trusted sales tax software solution to help do the heavy lifting can help keep the focus where it needs to be—on your clients.
- Am I managing sales tax correctly? Once you’ve determined the sales tax rates for your business, the best way to manage sales tax is to invest in processes that will bring expertise and guidance in the places you need it most.
Avalara Tax Compliance Suite
First examine the Avalara Tax Compliance Suite. Avalara designs its eCommerce sales tax software to enable U.S. businesses to efficiently and accurately manage the demanding tax obligations imposed by State. Or manage requirements by other local tax authorities.
The whole package consists of three modules. They include Avalara AvaTax, Avalara Returns and Avalara CertCapture. All three combined provide complete solutions for a variety of transaction taxes. These include sales and use, VAT, excise and communications. The Avalara Tax Compliance Suite also enables businesses to calculate taxes. Then it lets you file and remit return. And it helps you comply with all manner of document management requirements.
Vertex Cloud Indirect Tax
Global powerhouses such as Starbucks and Proctor and Gamble Use Vertex Cloud Indirect Tax. It makes up one of two Vertex eCommerce sales tax software packages. This Vertex Cloud version enables tax calculations and returns in a single, cloud-based solution. So it meets the sales and use tax automation needs of growing businesses.
The flexibly-priced software includes returns-only processing. And it also features signature-ready PDF returns and outsourcing services. These include returns filing and payment processing. And it also features comprehensive tax calculations, remittance and compliance.
Vertex Indirect Tax O Series
The Vertex O Series combines tax research tools with the very latest software technology. This should equip your business with the tools to provide accuracy and consistency in every transaction.
The O Series of Vertex’s eCommerce sales tax software helps to reduce audit exposure. And it enable efficient and effective management of tax on both sales and procurement transactions. The data management tools and custom reporting capabilities also support audit preparation. And they also assist in strategic financial decision making.
Sovos Intelligent Compliance Cloud
The International Data Corporation (IDC) MarketScape recently identified the software as a leader in sales tax and VAT automation. The Sovos tax compliance and regulatory reporting software includes sales and use tax and VAT determination. But it also includes exemption certificate management, sales and use tax filing and invoice reconciliation.
Additionally each business using this Sovos eCommerce sales tax software will benefit from VAT reporting, electronic invoicing compliance along with tax information reporting for 10-series forms and ACA. Oracle tax compliance, SAP tax compliance, Netsuite tax compliance, Magento and much more are also all part of Sovos.
Taxify Sales Tax Software
Sovos also offer a simplified and streamlined eCommerce sales tax software service called Taxify, which promises to save online sellers time and money by keeping them in compliance with sales tax reporting and remittance. The easy-to-use and self-service Taxify software has the ability to make reports for every State and local tax jurisdiction and they have easily contactable tax experts always on hand to answer your questions.
Taxjar Reports
Currently used by over 15,000 businesses including Coca-Cola, Dell and Doordash, TaxJar Reports is another source of industry leading technology for eCommerce companies of all sizes. TaxJar is a web-based reporting tool that allows you to organize sales tax data into return-ready reports by State according to the varying tax obligations.
The TaxJar software also includes AutoFile which automatically files sales tax returns, and SmartCalcs API which operates as a modern, robust application programming interface for developers. Integration with online platforms such as Amazon, Shopify, Paypal and many others is also possible with just a single click.
Thomson Reuters ONESOURCE
Thomson Reuters ONESOURCE is an indirect tax sales and use tax compliance solution that aims to streamline the tax return process. It is end-to-end web-based software providing complete control and improved efficiency while reducing costs and eliminating software maintenance. As one of the most powerful portfolios of tax and accounting technology for corporations, ONESOURCE lets you boost collaboration with departments and partners while guaranteeing problem-free tax compliance regardless of what State your business operates out of.
CSC Corptax Compliance
The CSC Corptax Compliance tax system software helps businesses meet local-to-global compliance obligations. This includes estimates, extensions and returns, as well as audits, RAR and exploration and production analyses in a single, secure system. It has been specifically designed to be very easy to use with a one-step process with cross-functional data utilization that provides a complete and accurate tax return prepared and ready for review in less than a day.
Macola Sales Tax Management
The software offered by Macola provides a cloud-based end-to-end sales and use tax management solution, enabling businesses of any size – though especially new businesses – to create accurate sales records and use tax calculation along with simple exemption certificate management and effortless filing and remittance.
From product taxability and tax-exempt transactions to sales tax holidays and other tax compliance tasks, Macola’s software makes the whole process a lot simpler.
Canopy Tax Practice Software
The eCommerce sales tax software provided by Canopy Tax aims to make taxes as simple as possible for small businesses across the United States. It is a simple but robust tax resolution and practice management software, introducing online client surveys for auto-population of IRS forms, smart tax analytics in combination with a dynamic client portal.
Expanding your business wisely
For many small businesses, growth is an exciting opportunity. However, expansion doesn’t come without questions of how to manage your sales tax burden. As your business grows, being aware of the complexity of your new business, as well as the tax impact to your bottom line, is crucial.
Typical expansion questions include:
- Multistate businesses. If your company conducts business in multiple states (i.e., outside the state of your incorporation), you will need to register your business in those states and determine whether to file for a foreign qualification.
- Adding legal entities. Whether you’re adding an LLC, C corporation, or S corporation, there are significant tax consequences that can flow from each of these entities. Determining how the addition will help your continued growth and operation should be weighed against relevant tax issues, such as reaching a nexus threshold.
- Expanding line of business. Expanding a product line is an important step for small businesses. Including the correct product taxability on an invoice is key not only for customer experience but it can have a direct impact on spend management. It’s essential to investigate these opportunities early, before deciding on a location for expansion.
- Drop shipping. Drop shipping is a useful tool for small businesses. However, questions of nexus, product sourcing, customer location, and the location of the drop shipper can all contribute to sales tax errors.
How the right sales tax software can reduce time and increase efficiency
With the growing complexity of sales and use tax, it’s more important than ever for small businesses to take advantage of software solutions that can make their work more productive. Switching to a comprehensive sales tax solution can help a growing business become more efficient in many ways.
- Assistance managing complex business processes. Business is challenging enough. Spending time untangling complex and changing tax laws is not only a burden; it increases the opportunity for mistakes. Comprehensive tax solutions use the latest technology to not only anticipate challenges but help find a way through.
- Save time and reduce tasks. Not all jobs need a personal touch. Some can – and should – be automated to save you time and reduce the number of tasks you have in a given day. These can include technical support, assistance from an in-house tax team, and various business insights.
- Reduce errors. User errors used to be an inevitable part of running a business. Using a comprehensive tax solution allows business owners to house all their information in one place, allowing that information to be accessible across a variety of applications.
- Better tax planning. Put simply, knowing how much tax you owe can help avoid unhelpful surprises.
- Painful or unfavorable sales tax internal audit. Get tax right with accurate rates and product taxability to avoid surprise over and underpayments in an audit
Conclusion
Sales tax is a tricky thing to figure out. No matter how much you read online, you still might not get it right. Sure, the IRS has the Sales Tax Deduction Calculator but even then, it’s not 100% accurate. If you run an online retail business and live in America, there’s a chance that you need to worry about sales tax on your sales (check with your state department of revenue for more information). If this is the case for you and you also have to file sales tax returns, then it might be time for you to learn about sales tax software for online retailers.
Sales tax is a very important aspect of running an online business. Whether you’re just starting out with a small storefront and lots of questions about sales tax or if you are an established business owner looking for resources on sales tax filing, this article can be your go-to source.