Eliminating the costs associated with online sales tax

July 25, 2013
TaxCloud

TaxCloud: Sales Tax at the Speed of Commerce

One of the most frequent concerns we hear from online retailers about collecting sales tax is that it will simply be too costly. We’ve heard estimates that range up to $400,000 per year—which is insane. We don’t think that anyone should have to spend that kind of money simply to collect sales tax.

In fact, we don’t think that anyone should have to spend money to collect sales tax, full stop. That’s why we created TaxCloud, to give online retailers a free way to manage sales tax. Instead of charging to use TaxCloud, we receive a commission from states based on the amount of sales tax we help retailers collect.

That’s also why the Marketplace Fairness Act requires states to provide free sales tax software for retailers.

But even with the promise of free sales tax software and services, concerns about costs remain. Nothing is really free, the argument goes; there must be hidden costs somewhere.

So let’s look at the most common arguments we hear on why collecting sales tax online would be too expensive.

Keep in mind, we can only speak to how TaxCloud works, so all the information here pertains to TaxCloud and not to any other sales tax management software or service.

Training employees to use sales tax software is costly and time-consuming. TaxCloud was designed to be easy for anyone to use. From registration to going live takes as little twenty minutes. What’s more, once TaxCloud is activated for a store, there’s next to no upkeep. If we’re filing the store’s sales tax returns, we ask that they review their returns once a month. Other than that, retailers don’t need to think about it—they can just set it up and forget it. There’s no training involved, and anyone who can manage an online store won’t have any trouble using TaxCloud.

Necessary software upgrades cost money. Because TaxCloud is a real-time web service, not software that’s uploaded or downloaded, there are no upgrades. Tax rates are updated and new features are added behind the scenes, so retailers see those results automatically, without doing anything extra. And as always, there’s no charge for the service at all.

It’s too expensive to hire developers to set up software to work with existing systems. TaxCloud is integrated directly with the e-commerce platforms that most online retailers use to run their shops. That means that our developers work with the platform’s developers to make TaxCloud available to users. Retailers using e-commerce platforms that are integrated with TaxCloud don’t need to hire their own developers. If your e-commerce platform doesn’t support TaxCloud yet, then call them and ask when TaxCloud will be available—TaxCloud is free for platforms as well.

We’d have to hire an accounting staff just to keep track of everything. This is the beauty of sales tax management services: It’s all automated. There’s no need to calculate anything, or look up sales tax rates, or fill out sales tax returns, or even write a check to remit the sales tax that’s been collected. TaxCloud handles all of that.

We completely agree that there shouldn’t be any compliance costs associated with online sales tax, and we’ve worked hard to create a free service that handles every aspect of sales tax for retailers. Cost simply shouldn’t be a factor, and with TaxCloud, it isn’t.


How sales tax management services handle audits

July 8, 2013

Congress is currently considering legislation to allow states to require online retailers to collect sales taxes. The bill that was passed by the Senate in May, the Marketplace Fairness Act, has raised concerns about how it could affect the way businesses are audited.

At TaxCloud, we handle not only sales tax calculation and collection but also filing and audits for many of our merchants. While we don’t know exactly what future legislation may say about audits, here’s what our experience dealing with audits has been like.

First, a little background: The 24 states that have designated us a Certified Service Provider (CSP) have agreed not to hold our merchants liable for any tax calculation errors, and in the event of an audit, these states deal first and primarily with us, not the business itself. So how does this work?

When one of our merchants is audited, the state begins by contacting us. We act as the intermediary between the state and the merchant. The state lets us know that it will be reviewing the merchant’s transactions and conducting an audit beginning on a particular date, and we in turn notify the seller.

The merchant doesn’t need to provide any additional information at this point, as long as we have complete transaction data. If there is transaction data that we don’t have, the merchant needs to supply it.

During the audit, the state sends any information or document requests directly to us. Occasionally we may need the seller’s help to respond. For instance, if an item was classified as tax-exempt but it’s not clear in the transaction records exactly what the item is, we’d ask the seller to provide a description of the item. The state contacts the merchant directly only if there is evidence of fraud.

If future legislation follows this pattern for audits, it’s good news for businesses: It means that states will go to sales tax management services for data that businesses have traditionally had to supply, so businesses won’t be faced with hosting an audit.


Why the number of sales tax jurisdictions doesn’t matter

April 1, 2013

Illustration by Cory Thoman - http://clipartof.com/1087428

So what does all that mean?

First, let’s be clear: It would never mean a sales tax return or an audit for each jurisdiction. The Marketplace Fairness Act says that there has to be just one central authority in each state that handles sales tax returns and audits. So no matter how many tax jurisdictions are in a state, there’s just one return to file, and if a retailer is audited, there’s just one audit from the state. And retailers who use state-certified sales tax management services don’t need to worry about audits in general—but more on that in a moment.

So what about sales tax rates, which can vary by jurisdiction?

The good news there is that the Marketplace Fairness Act requires states to provide sales tax management software or services (such as TaxCloud) for free. These programs check and update rates and product definitions for every tax jurisdiction, and it all happens behind the scenes, so sellers don’t need to worry it.

In the end, for online sellers, collecting sales tax is much like handling shipping. There’s a program or service to set up with the online store, and then the program handles everything—no matter how many tax jurisdictions there are.

Back to audits: When retailers use sales tax management programs from state-approved Certified Service Providers (CSPs), they never have to host an audit. The CSP deals with the state instead, so the retailer doesn’t need to worry about dealing with state officials and coming up with transaction records.

Rates, audits, returns, the number of tax jurisdictions—with sales tax management services, retailers don’t need to worry about any of them. It’s all taken care of.


Debunking 3 myths about internet sales tax

March 8, 2013

The reintroduction of the Marketplace Fairness Act has resulted in the reintroduction of myths and half truths about its impact on businesses. In this post, we counter the three main fears about collecting internet sales tax.

Fear: Collecting sales tax is too difficult.

Some point to the fact that, nationwide, there are over 9,600 tax jurisdictions, and they argue that online sales tax collection would be so difficult that online retailers would have to hire additional staff to handle it.

Fact: Fortunately, technology provides an easy answer. Sales tax rates are easily stored and maintained in a database—it doesn’t matter if there is 1 rate or 100,000. Databases easily handle tax exemptions, too, for every location. Everything needed to figure out the correct tax rate is already present during an online sale: the purchaser’s address, the sales price, and the type of item being purchased.

Sales tax management services, which offer retailers an easy way to manage sales tax, have already been integrated with most e-commerce platforms, so starting to collect sales tax can be as easy as checking a box.

The proposed legislation is doing its part, too, to make collecting sales tax easy. It requires that states simplify their sale tax laws before online retailers start collecting, lets retailers file one sales tax return per state, and centralizes the registration process. It also requires states to make available free sales tax software for retailers that can work with all states.

So much for the concern over difficulty; what about cost? Sales tax management services are available at every price point—including free. So collecting sales tax doesn’t need to cost an online retailer anything.

And it’s also worth noting that most online retailers won’t have to collect sales tax at all. Only retailers with over $1 million in annual out-of-state sales will be affected.

Fear: This will give local stores an advantage over online stores.

Fact: Actually, it will correct an artificial advantage that online stores currently have, creating a more level playing field for all retailers.

Right now local stores have to collect sales tax while online stores don’t, which gives online stores the appearance of a price advantage of up to 10%. Even when bricks-and-mortar retailers also sell online, it doesn’t change the basic fact that in their local stores, they have to collect sales tax, while online stores don’t.

If the law doesn’t change to keep up with the way people shop, the logical conclusion is that many businesses will elect to only sell online—which would mean no local shopping. Picture your community without a bookstore, clothing store, or electronics store. That’s not what anyone wants.

Fear: This is a new tax.

Fact: If you live in a state with sales tax, you already owe sales tax on your online purchases. If the retailer doesn’t collect sales tax, the purchaser is supposed to pay the tax due directly to the state. In other words, this isn’t a taxation issue, it’s a collection issue.

Most people don’t know that they owe sales tax when they buy online, and states find it almost impossible to enforce their own sales tax laws online. That’s why the Marketplace Fairness Act is needed: to allow states to enforce their own laws and end the sales tax loophole that favors online retailers over local retailers.


Why don’t online retailers collect sales tax?

January 9, 2013

We’ve tackled the perennial question of why online retailers don’t have to collect sales tax in a guest blog post for Spree Commerce. Check it out!


TaxCloud in the news!

October 11, 2012

TaxCloudWe’re happy to report that TaxCloud and FedTax have been in the news quite a bit lately.

An end to the free online tax ride nears: In this ComputerWorld article, TaxCloud user Ken Knezek, owner of Bandals Southwest, talks about how his small company has handled online sales tax

What the end of tax-free online shopping means for small businesses: Our CEO, R. David L. Campbell, was interviewed for this Reuters article on how small businesses will be affected by online sales tax

How you can prepare to collect online sales tax: And in an article in Independent Retailer, David offers some tips for online retailers who are thinking about starting to collect sales tax

It’s great to see so much attention being paid to the practicalities of what online sales tax really means for online retailers. As we move closer to federal legislation on the issue, we hope to see more articles like these!


What wasn’t said at yesterday’s Senate hearing, but should have been: Free!

August 2, 2012

At yesterday’s Senate Commerce Committee hearing, numerous senators voiced their support for the Marketplace Fairness Act, which would close a loophole that allows online retailers to avoid collecting sales tax.

Several senators, among them Senator Lamar Alexander (R-TN), said that they were particularly concerned about states’ rights. Under the current system, states cannot enforce their own sales tax laws; the bill would allow states to decide if they want to require online retailers to collect sales tax from state residents. Others cited concerns about simple fairness: Local small businesses—particularly those that sell high-end goods such as cameras, jewelry, and electronics—often serve as showrooms for customers who then buy online to avoid paying sales tax. The inequity is hurting local small businesses across the country.

Opponents of the bill were primarily concerned with the costs and complexity of collection, saying that it would be too difficult and expensive for small online retailers. Several supporters responded that if the bill is passed, more sales tax management services will be created and the market will act to bring down costs.

Scott Peterson, Executive Director of the Streamlined Sales Tax Governing Board, testifies before the Senate Commerce Committee, and even shows off to the members of the committee how easy and accessible sales tax has become – that you can even do it on a common device, like this iPad (and yes, that’s TaxCloud).

Which brings us to what wasn’t said: The market has already acted. A completely free sales tax management service is available right now. TaxCloud calculates the sales tax due for any region of the county, collects and remits sales tax, files sales tax returns, creates detailed records of sales tax transactions for shop owners, and even provides indemnification and audit relief—in short, it resolves every concern raised by Senator Kelly Ayotte (R-NH). It does all this at absolutely no cost to the business.

It’s too bad that this wasn’t mentioned by any of the bill’s supporters, because it directly counters opponents’ primary objection to the bill. We don’t have to wait for the market to act to bring down the costs of collecting sales tax. That cost can range from zero to as much as a business wants to pay, depending on the service a business chooses—there are multiple options already on the market today, including Accurate Tax, ADP TaxWare, Avalara, CCH SpeedTax, Exactor, and TaxCloud. Importantly, a no-cost option is already available.

Overall, the hearing showed a great display of support from many senators—and, we were pleased to note, except for only a few instances (which we will resist detailing here), an atmosphere of professionalism, courtesy, and collegiality reigned, even among those who disagreed on the issues.

You can view a video of the hearing on the Senate Commerce Committee website.