Once quoted by Albert Einstein “The hardest thing to comprehend in the world is the Income Tax”. Considered as an obvious challenging practice, Sales tax for E-Commerce can be critical for even the savviest minds.
While the concept of the sales tax is simple, staying up to date on constantly changing sales tax policies requires understanding and evaluation. E-Commerce platform enables retailers to communicate with consumers near and far. Whether your potential customers are situated three states over or down the street, your ecommerce store surely requires managing the complexities of sales tax compliance. Going by the book of economics, administering tax is an art. Thus, streamline sales tax compliance is imperative for E-commerce platforms.
The pandemic of Covid-19 has developed selling online significantly for several businesses and therefore, many marketplace facilitator laws and economic nexus put obligations to many online sellers in terms of registration across the states. To weather it, an E-commerce platform does need to optimize four sales tax compliances to manage an online business where it has no physical presence.
1. Administering Tax rates
In the United States, there are more than 1300 sales tax jurisdictions, and subject to city, state and county for operating jurisdiction sales tax rates. Surely, this is a monumental task, and often gets updated as per constitutes. However, to avoid vulnerable errors, it is pertinent for the online platform owners to ensure a specific rate of transaction based on ‘Geolocation technology’. To maneuver into an online shopping cart, the Geolocation technology brings the perfect sales tax solution. Hence, it helps to determine the changing rate in the system, automatically, depending on the location of the sale.
2 . Selling across states and beyond boundary lines
As an owner of an online platform, managing a transaction threshold or state’s economic nexus sales is sometimes difficult. For example, the total amount of sales within a state must be registered with the concerned tax authority. Moreover, you also need to comply with the respective sales and practice of tax laws. As there’s no particular one-size-fits-all set of tax-rules — the policies of economic nexus thresholds vary from state to state.
On the other hand, E-commerce businesses that operate across international borders require considering import taxes and customs duty. Therefore, such a principle adds a whole unique level of challenges. To have a cross-border capability motivates international-based business selling opportunities into the U.S., as a U.S.-based brand.
3. Product Taxability
Policies for Product taxability also vary like sales tax rates and also, subject to change. To elaborate more, let’s take an example of ‘feminine hygiene products’ that are again subject to vary as per the rate generation of local and state sales tax in Virginia, Texas or California. For many businesses, determining the taxability of shipping charges is a complex part. Therefore, it needs to be addressed accurately. Having authentic sales tax measures ensures a properly categorized taxable system, which includes exempt transactions to determine where you have to initiate a program such as sales tax economic nexus.
4. Administering exempt of Sales
For any taxable goods or services, all exempt sales must be endorsed with a resale certificate or an exemption program. Furthermore, verifying these certificates is pertinent for the business as it validates the accuracy and also: updates the integration of the exemption certificate to the company for developing a management solution; if required. In any audit event, this exempt transaction gets validated easily, encourages for the digital collection, and ensures a smooth checkout every time.
The Final Word
Considered as a complicated task, selling with the help of more than one channel needs tax compliance. Therefore, as an owner, you need to realize and ensure all sales are documented through sales tax management software. Focus on optimizing e-commerce platform footprint through sales tax compliance optimization and ensure managing exempt sales, calculating sales tax and facilitating returns. Make sure to perform sales tax filing correctly and efficiently to manage a successful business online.
To read more on topics like this, check out the Business category