There’s debate about whether there should be a new law requiring online merchants to collect sales tax in states where they don’t have a physical presence. But the reality is, sellers must deal with sales tax in their own states and states where they store inventory through fulfillment services such as Fulfillment by Amazon, and some desperate state governments have enacted laws compelling ecommerce pros with no nexus to collect and pass along those taxes.
Sellers of handmade and vintage goods are not exempt from the tedious chore of keeping track of sales tax.
A company called TaxJar, which help sellers keep track of sales tax on their ecommerce transactions, has now integrated with the Etsy platform. Merchants and artisans can add their Etsy Direct checkout to TaxJar to aggregate sales and tax data and simplify their sales tax reporting.
TaxJar’s Mark Faggiano said dealing with the issue of sales tax may cause some fear for online sellers, who may worry about doing the right thing yet running afoul of some tax authority. Faggiano said, “While we don’t often hear sellers are afraid to ask states for information/guidance because of being flagged for audit risk, we do hear merchants who just can’t get the simple answers from states. For that reason, we’ve been investing heavily in creating helpful content for our merchants.”
TaxJar has weekly webinars, has published whitepapers, and are very active in providing things like easy to understand explanations on nexus laws by state on the TaxJar blog, he said. “We’re also creating reports in the product that answer questions like “How much SHOULD I have collected based on my actual sales” (versus how much I actually collected).”
For sellers who still have questions, Faggiano further recommended those sellers should consult a CPA with specific sales tax expertise.
The company has been developing their product for more than two years, with the goal of easing small and medium online sellers into sales tax compliance. TaxJar helps with identifying the salient aspects of sales tax – how much does the business owe, and to whom.
Without a software solution, identifying such aspects manually presents a real challenge. As Faggiano has noted, going through sales one by one and searching out zip codes is time consuming. That would be followed with figuring out the relevant tax authority for each locale.
Regarding the arduous work required to be up to date, Faggiano also said, “Keeping up with tax laws is a nearly impossible task. We are building processes so we can quickly receive any updates from states as laws change, and apply those changes to our products on a monthly basis, which are typically rate changes but sometimes can be more complicated. We also believe that if merchants in good faith are doing the best they can to file sales taxes accurately and on time, states will be more receptive to errors given the complexity.”
One thing that’s important to note: TaxJar is focused on post-transactional compliance – for now. Faggiano said how the seller collects depends a lot on the platform. “With most platforms, if you enable tax collection in a state, it includes local rates (eBay is the biggest exception). We’ve worked really hard to help educate sellers on the right settings.”
TaxJar features a back taxes reporting function, to allow a business to determine if they have properly collected sales taxes on prior orders. The tool will help ecommerce pros figure out if they need to register and file with locales for tax purposes, based on previous sales.
The company highlighted one particular eBay and Amazon seller as a success story. Charlene Anderson’s “All Things Creative” was affected by multiple state sales tax laws due to using Fulfillment by Amazon, as Amazon does have physical presences in a number of states. Then she also had to consider eBay sales data as well.
In addition to eBay, PayPal, Amazon and Shopify, Etsy’s Direct Checkout becomes the fifth channel that TaxJar users can connect to for sales tax compliance features, with other channels to follow. TaxJar offers plans that start at $9.95/month for up to 1,000 transactions/month.