An e-commerce entrepreneur was explaining how he handles sales tax. “I just use the highest sales tax rate in the state,” he said cheerfully. That way, he figures, he will never collect too small an amount.
He doesn’t worry about collecting too much. If there’s something left over, he figures it’s a little windfall and he probably deserves it.
That’s not actually how sales tax works. If you over-collect you are legally required to refund the extra amounts collected to the customers you collected them from.
That might be fine if you’re selling airplanes, but a retail shop will have a hard time identifying or contacting the people they overcharged. Of course, it will be equally hard to identify people they’ve undercharged. Over-collecting can seem like the safest option.
The alternative to refunding over-collected taxes is to return any extra funds to your state. A consumer who believes that he has been overcharged for taxes can then apply to the state for a refund.
Of course, he can also sue you. This happens more often than you’d think. One famous case turned on 12 cents which were charged by a drug store even though they accepted coupons that made the final total too small for the 12 cents. The computer or the cashier was confused (and who wouldn’t be?) by the coupon’s reduction of the total after the sales tax had already been computed.
In a world where people actually bring lawsuits for things like this, over-charging may be more dangerous than our entrepreneur friend thinks.
The larger issue? Sales taxes are complicated and the system can be confusing, but coming up with a casual workaround can get you in big trouble. SalesTaxDataLink can save you from yourself.