Hot Diggety! Leon Towns-von Stauber was rumored to have written:
> I work for an ecommerce company in Washington State, which has
> recently passed one of those streamlined sales tax laws intended to
> collect sales taxes from Internet transactions. More details here:
> 
> We'll be complying with the law's (voluntary) obligations, which means
> we need some way of calculating the proper sales tax for transactions
> in real time.
>
> We've already narrowed down some options, but it got me wondering what
> else people were using at other ecommerce sites. Do you use
> third-party software on a server in your network, an Internet-based
> SaaS, or something homegrown? Freeware (if there is such a thing) or
> commercial?

Disclaimer: I have not yet begun selling a product, so I can't directly
comment on specific tax rate calculator tools. I also can't really speak
in absolute terms as things varies based on locality. However, I'd been
looking at this topic extensively for the past few months.

I quickly came to the conclusion that I would *not* want to 'roll my
own', because tax laws are so varied with so many nuances -- you've got
to keep 'em all straight -- and they change frequently, also suggesting
keeping up with current information can be 'interesting'.

These days, with difficult economic conditions and budget deficits,
states are increasingly turning to E-commerce-generated tax revenue and
enforcement. So in some cases, not having a brick-and-mortar presence
(or affiliates) based in a state may not be sufficient reason to not
collect either a sales or use tax. This, to the states, is increasingly
looking like an easy low-hanging fruit to help in balancing budgets.

With that in mind, it does hint that you could potentially be looking at
registering with as many as 55-ish different tax authorities (one per
U.S. state, territory, and D.C.) and filing appropriate quarterly or
annual tax payment forms, each with its own deadlines and reporting
requirements. Then you'd also have to take into account things such as
tax holiday days where certain categories may be excluded from taxation.
Dates and categories varies based on state.

If you're caught selling a product without having registered with a
state's tax/revenue department, you could be on the hook for a fine
and/or criminal charges. For instance, the state of New York fines up to
$10,000 and may file a misdemeanor criminal charge.

If all that hasn't driven you crazy yet... :-) ...then consider that
sales/use tax rates often varies based on county but in some cases,
calculating the proper rate based on ZIP code alone can lead to
incorrect results because counties' political boundaries don't always
map neatly into individual ZIP codes.

ZIP codes are really a designation for U.S. Postal Service's mail
routing, rather than a reliable indicator of political boundaries --
and political boundares are what tax rates are based on.

This one-page sales/use tax rate table based on county in the state of
New York explicitly warns about this issue!

http://www.tax.state.ny.us/pdf/publications/sales/pub718_808.pdf

On top of all that, you may also be on the hook to not just simply send
a sales tax report to the taxing authority with a total amount, but also
be required to provide a more detailed breakdown of localities.

For the state of New York, you have to provide a reporting code
corresponding to the particular county of customers you collected sales
tax for. That's so they can correctly calculate the total sales tax
required. (And if you ever get audited by the state of NY, your sales
tax totals for NY had better match this calculated amount to the cent!)

Historically, you could usually get away with paying sales tax to only
states where you had a brick-and-mortar presence for your
brick-and-mortar and online sales. But there's been a major push in the
past few years to be more aggressive for revenue enforcement for online
vendors without a physical presence in a state selling to residents of a state.

New York is the most widely known state (e.g. the Amazon kerfuffle)
doing this to out-of-state vendors but there's about a dozen other
states ramping up their enforcement now -- and more are sure to follow
in short order. Already, there are several states now actively
deliberating on this very exact issue, including California and North
Carolina, to name a few.

So you're treading in a potential minefield here: you have to not just
calculate the correct sales tax rate, you also have to keep on top of
reporting requirements for potentially so many different jurisdictions
such as deadlines and which forms to use, where to mail it to (or how to
file electronically). That's also on top of registering with them!

I seriously would *NOT* want to roll my own tools for something this
complex, logistics-wise. Far too large of a time investment (both
upfront and recurring) than I'm willing to make. I also wouldn't know if
I could fully trust the free tools' quality of the underlying data or
frequency in tracking updates and changes to tax laws.

I'd personally go with a reputable provider of tax handling software.
Not just for tax rate calculation, but also to keep on top of each
state's reporting requirements and deadlines along with a breakdown of
numbers needed to file these reports. You also need to keep track of
this data in a format that is conducive to an audit, too. Myself, I'd
build in the cost of these tools into cost of the product one way or another.

While on the topic, here's a link to a list of all 50 U.S. states'
tax/revenue authorities' websites:

http://www.thestc.com/ta.cgi?STRates

The list also includes D.C. and the territories (e.g. Guam).

Isn't this fun? ;-) That... and PCI/card processing makes E-commerce
such so much fun. ;-)

Look at sales tax processing as being part of business lifecycle
management: sell product, compute tax, collect payment, document,
report, pay authorities, repeat. And being able to pull up data in an
auditable format if the authorities or hired auditors does an audit.

So you need to think about format of data, how it's broken out, how to
compute the tax rate, how to collect payment, how to document it, how to
report it, how (and when and who) to pay authorities, and also how to
audit it. Keep that in mind when selecting tools to manage this process.

I'm sure someone here will be able to pipe up regarding specific
software recommendations. It's easier to select the best tool for your
needs if you've got a big picture view of the various issues and gotchas
regarding the tax situation when evaluating tools.

-Dan

Disclaimer: DO *NOT* use any of this as legally valid tax advice as it
is possible some or any of it may contain bad advice or does not apply
to your particular situation. They are merely 'food for thought'. CPAs
or tax authorities would be a better source of legally valid tax information.
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