Understanding the Complexities of Online Sales Tax

The most common argument for requiring online merchants to collect sales tax is fairness. Making consumers rather than online merchants responsible for sales tax compliance, the argument goes, gives online merchants an advantage.

A Salt Lake City businessman begs to differ. “I wonder how brick-and-mortar retailers might respond to the following concept,” Doug Kitt wrote in a letter to the Salt Lake Tribune. “They should identify the home address of every walk-in customer and collect sales tax on behalf of that customer’s local municipality, according to the current rate in that community, no matter whether that customer lives in Murray, Utah, or perhaps Maybell, Wis. They should then file a quarterly sales tax return in each state from which they had a walk-in customer that quarter.”

Kitt’s description of how the proposed online sales tax would work if it were used in brick-and-mortar stores gives a clear picture of the level of complexity that many remote merchants would encounter if they had to cope with online sales tax. The argument heated up in the comments, where some suggested that free software was readily available to cover the hardships Kitt was describing.

Just “plug it in,” one commenter suggested, and his computer could take care of the whole thing through the magic of zip codes. Another commenter had already looked into that possibility. “There are multiple sales tax rates even within a zip code,” he pointed out. What’s more, “Every district in the country will require a quarterly or minimum annually issued tax return. That’s more than I could do with the computer.”

Kitt should look into SalesTaxDataLINK, which simplifies and automates the process of sales tax compliance.

Other comments brought up the question of where the transaction takes place. The customers in a physical store, one said, are all making the transaction there in the physical store. Those who buy goods online, however, are making the transaction in their homes or on their phones, in another location. But the goods are at that point still in the seller’s tax jurisdiction, and they are not mailed to the buyer until they become the buyer’s possession because they have been paid for. Commenters didn’t mention the fact that fulfillment — the shipping of the goods from the warehouse to the buyer — can actually happen in a different state from either the buyer or the seller. And of course, the buyer is free to have the goods shipped to another location, in a completely different tax jurisdiction.

The physical location gets slippery. It’s an interesting situation, and right now the Utah Legislature is deeply engaged with the question of online sales tax. We can’t predict how it will turn out, but we can say for sure that sales tax compliance is complicated. It makes sense to have good software to help you out, and SalesTaxDataLINK’s patented solution is the best: accurate, user-friendly, and much more powerful than free software using zip codes to estimate tax rates. Let us show you, with your own data, just how it works. Contact us today for a free demo


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