The Business of Sales Tax is Bizarre!

The Business of Sales Tax is Bizarre!

I’m not an economist, neither am I an accountant. The only exposure I have to the concept of accounting or economics were when we were forced to take these classes in college, but I’ve learned a ton while working for Avalara.

I’m also brought up in a simpler (tax wise) economy in Malaysia, where sales tax is pretty much straightforward. Even with the recent changes of their existing sales & service tax laws to a value-added tax system called GST, it is still not as complicated and bizarre as the ones we have here in the United States.

How complicated is it, Loke? I hear you say. Well let me show you. I’ll be posting  a series of  weird and wacky sales-tax edge cases for your amusement starting with this one. Did you know that

    taxing _jurisdictions != zip_code

Here’s why :

There are over 12,000 taxing jurisdictions in the United States, each with their own taxing rules and amounts. The following posts you’ll see some of these taxing rules in action.

Each of these jurisdictions are marked by boundaries which aren’t “geometric” per se but and are usually determined by the local municipality, city or state. Take for example this map from the state of Colorado.

As you can see

  • Taxing Jurisdiction #1 for Arapahoe County has a tax rate of 3.25% for a generic tangible personal property item.
  • Taxing Jurisdiction #2 for the Aurora City District has an additional 3.75% tax rate added to the State's rate to bring it up to a total of  7.0%.
  • Taxing Jurisdiction #3 on the other hand, covers only a small squarish area that has an additional 1% tax for the Greater Denver area for a total of 8.0%.

If you look at Google Maps, you’ll see that the small squarish area contains only one building and it looks like a communications relay station.

Perhaps that’s why it was actually hand-marked to be handled differently from the other areas around it.

So, imagine if you’re an online retailer selling products all over the country, it will be insanely ludicrous to keep track of every single rule and tax rate for every single jurisdiction in this country without automation.

And that’s why Avalara is here to help.

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