How do you calculate sales tax? If you use ZIP codes, there’s a good chance you sometimes charge the wrong sales tax rate. ZIP codes are the wrong tool for the job.
Consider the case of John Martellaro of The Mac Observer. In a recent trial order of a Mac from Apple, Mr. Martellaro noticed that the estimated sales tax for his order was based on his Colorado ZIP code. Unfortunately, there is more than one sales tax rate associated with his ZIP code.
Some areas in the ZIP code have a sales tax rate of 6.81%. Where Mr. Martellaro lives, however, the rate of sales tax is 5%. The Apple online store failed to take this into account and overcharged sales tax.
Not helpful: the sales representative
When he called Apple to inquire about the rate of sales tax, the representative told him that “the sales tax is derived solely from my ZIP code and that I had no recourse. Period. End of discussion. He did not offer a workaround.”
Helpful: the tax lady
A woman working in the sales tax department of Mr. Martellaro’s local government was considerably more helpful. She explained that sales tax is based upon the “point of possession.” Since Mr. Martellaro (theoretically) took possession of his new Apple computer on his front porch, via delivery, the point of possession is his street address—where the rate of sales tax is in fact 5%.
Unfortunately, the incorrectly assessed 1.81% could not be refunded by her office because there is “no way to know how the money gets partitioned” between the state and local governments. However, since Apple charged too much sales tax, Apple is responsible for refunding the over-collected amount. The tax lady offered to write a letter explaining the proper amount of sales tax for Mr. Martellaro’s address.
It turns out that Apple does have recourse for situations like this. Emails explaining why a collected sales tax is wrong should be sent to salestax@apple.com. Someone should let the sales representative who took Mr. Martellaro’s call know about this.
The bigger picture
There are thousands of tax jurisdictions in the United States—more than 10,000, in fact. It’s possible for next-door neighbors to have a different rate of sales tax, and for one city to have multiple rates. In short, sales tax is complicated.
Complicated or not, businesses that collect sales tax in multiple states are responsible for charging the correct rate of sales tax for each transaction. Auditors look for this sort of thing and penalize companies that charge incorrect rates.
An automated sales tax solution helps you apply the correct rate to each and every transaction--and keep customers like Mr. Martellaro happy.
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