We just passed the April 17 filing deadline for tax returns in the U.S. The deadline got us thinking about taxes, and being retail minded, that got us thinking about sales taxes and the pain that many eCommerce merchants go through trying to figure out the logistics. Every order that comes into your store needs to fall under a specific tax rate.
Not only does a store have to keep track of tax rates per state, per city, and per county but they are also expected to comply with any tax changes implemented during the year. To top it off there are international sales to factor in as well. The silver lining is that if you are feeling overwhelmed by the sales tax issue you are probably selling a lot of products (good!) but you are spending hours and hours trying to figure out how to manage all the different rates (not so good).
Montee Fiely, Director of Sales at Storefront, owned and later sold a successful printer ink Magento store (www.PrinterExperts.com). We spoke with him about his experiences with sales tax compliance. “I used to file taxes every quarter and it literally took me hours and hours to get everything squared away and ready to submit”, he told us, “Most of my clients were in Ohio so you would think that the tax requirements would be easy to handle, right? No way! I quickly learned there are vast rate differences across counties and cities in the same state.”
Growing Your Business With Automation
Feeling limited by sales tax concerns and compliance issues often constricts the ability of your business to grow. According to a 2010 Aberdeen Group report, “In a dynamic regulatory environment, where tax rate changes are numerous and frequent, it becomes apparent that human capabilities are at a disadvantage over software automation.” In addition to removing a burden and increasing the amount of time staff can productively work on business development activities, applying the right automation tools can greatly improve your odds of successfully handling a sales and use tax audit—particularly in e-commerce. The Aberdeen Group report, in support of automation, went on to clarify that Internet businesses should seek sales tax solutions that easily integrate and interoperate with their existing e-commerce platforms. This type of automation in a cloud-based solution provides real-time calculations with up-to-date, applicable rates, facilitating the consumer buying process.
Magento Sales Tax Calculation
The Magento platform has built in functionality for sales tax calculation. Magento even includes rudimentary reporting functionality, which can be used to generate the reports you will need to file sales tax returns with states. Magento will let you input sales tax rates by city and state or by zip code and will even let you import rates from a spreadsheet. This functionality all works great in really simple cases, where the state’s you sell in have a unified sales tax rate that doesn’t change, where the filing process is easy, where rates don’t change mid-year. As soon as it gets more complicated though, you’re in for a lot more manual work and more hassle.
Avalara and Magento
To automate sales tax compliance, StoreFront recommends Avalara (www.Avalara.com), specifically their AvaTax product, integrated directly with Magento. We recently implemented this solution for our client, Original Works (www.originalworks.com), drastically reducing their effort to handle sales tax on their web store.
“We are very happy with our Avalara / Magento integration. Avalara allows us to keep track of 12 different state’s sales tax with innumerable jurisdictions. Before, when tax rates would change, we would need to manually update them to match. This could happen as little as every quarter, but can also happen any time costing hundreds of man-hours. Now, they are automatically updated. Avalara also will cover the cost of any error they make in tax rates so it’s a win/win from our perspective.”
Not only can Avalara provide rate calculations in real time for your Magento store, but they also provide an interface which tracks your tax collections, and they can even file all your sales tax returns for you automatically, the whole time providing a money back guarantee that their numbers are correct. For any merchant who has more than one simple state in which to cover sales tax, it’s almost a no brainer to use a service provider like Avalara.
Choose What is Right for You
eCommerce merchants understand the importance of having a sales tax compliance plan that works for them. Avalara is a great option because it seamlessly integrates with Magento. There are also other Magento integrated solutions out there, and other service providers to work with. At the end of the day, integration, and automation are the key.