Could 2014 be the Year of Online Sales Tax?
By Guest Contributor
Sales tax compliance should be taken seriously—here's how to save money while staying compliant.
Sales tax has become more burdensome over the past few years. When the Supreme Court issued the Wayfair Decision in 2018, the cost and complexity of sales tax compliance increased significantly. Since then, retailers have had many new tax obligations to meet: registering in new states, calculating the correct sales tax on orders, and filing returns in those states.
As states began creating economic nexus laws, retailers discovered a rise in the cost of sales tax compliance. Jurisdictions are complicated and do not follow more well-known boundaries such as ZIP Code or state borders.
The need for third-party sales tax calculations services has grown. Many retailers who could previously manage their sales tax calculations internally can no longer do so. Now, they have to factor in the cost of sales tax calculation software. Additionally, there are higher costs due to the need to register and file in more states.
Fortunately, there is a way that merchants can save money while still meeting their tax obligations.
Streamlined Sales Tax (SST) is a consortium of 24 states who have agreed to simplify certain laws and processes related to the calculation, reporting, filing, and remittance of sales tax. It is led by the Streamlined Sales Tax Governing Board, and their combined goal is to make tax compliance easier for retailers of all sizes.
You may have heard an older name for the consortium, the Streamlined Sales Tax Project, or SSTP for short. The word “project” was dropped, and the currently-used acronym is SST.
In the United States, 45 of the 50 states—plus the District of Columbia—collect sales tax. Of the tax-free states, Alaska allows local jurisdictions to implement sales tax, even though there is no state-level sales tax. That means that participating as a seller with SST gives your business benefits in roughly half of the states where you may need to collect sales tax. And those benefits can directly translate to money saved.
The most immediate and obvious savings come in the use of subsidized sales tax software.
To properly calculate the correct sales tax for orders shipping to different locations, containing products that have different taxability rules, most retailers need to rely on third-party sales tax software.
The software provider maintains the data needed to determine the appropriate tax rate for a given order, as well as the taxability of the items being purchased. The dataset consists of over 10,000 jurisdictions and hundreds of tax classes per state. Because of the size and the frequency with which the data changes, it is difficult for all but the largest retailers to manage it in-house.
Like any software, SaaS or otherwise, there is a cost associated with its purchase or use. But for retailers who do not have a physical presence in an SST member state, the use of SST-approved software is subsidized for all facets of the sales tax lifecycle: calculation, reporting, and filing. That means there is no direct cost to use that software in these particular states. Instead of the retailer paying for the software, Streamlined Sales Tax covers the costs.
Retailers still have to pay to use the software in non-SST states and any SST member states where they have a physical nexus. But while there are still some costs, there can be a significant reduction in service fees for SST sellers.
While the cost of sales tax compliance may be high, the cost of non-compliance is even higher. Miscalculating sales tax, or not collecting in a location where you have nexus, can cost you quite a bit of money. If a taxing authority determines that you should be collecting sales tax in a given jurisdiction but aren’t, the burden of paying that tax falls to your business.
Even when it is a small mistake that you catch yourself, there are costs associated with re-filing. There may be a fee from the taxing agencies, and it will also take your time and resources to find and correct the mistake. It costs less to get it right the first time than to fix it after the fact.
If you make significant sales tax errors, it likely won’t go unnoticed. The tax authorities will contact you to defend your actions and to make any needed corrections. Such defense can waste your valuable time and, if you are not successful, can cost you additional money in fees, penalties, and interest.
However, if you are contracted with an SST Certified Service Provider (CSP), then for all SST member states, your CSP will work directly with the state to resolve any issues on your behalf and only involve you if necessary. Should the state(s) decide to audit your sales tax processes, your CSP will also be the first line of communication with the taxing authorities. This intercession can save you both time and money and may help speed resolution with the state authorities.
Is participation in Streamlined Sales Tax the right approach for your business? Clearly, there are several benefits to being a seller with Streamlined Sales Tax. And those benefits are only available for Model One sellers—those who are contracted with a Certified Service Provider.
Whatever provider you choose, whether CSP or not, you should take sales tax compliance seriously. Delaying the decision can end up costing you much more in the long run.
Contributed by the Editorial Team of Miva Partner NetBlazon.
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