Most states have economic nexus laws in place, which means online sellers are required to register to collect and remit sales tax once their sales surpass a certain threshold (e.g., $100,000 in sales or 200 transactions in a given state annually). Therefore, online sellers need an ecommerce platform that applies the correct sales tax rate to every transaction and supports timely filing and remittance.
Many ecommerce platforms rely on tax rate tables. Yet rate tables often align rates to ZIP codes, and ZIP codes don’t map to sales tax jurisdictions. Furthermore, frequent changes to rates and product taxability rules can quickly render rate tables obsolete: In 2019 alone, there were more than 34,000 tax rate and taxability changes in the U.S., along with 115,000 sales tax holiday rule updates.
After calculating and collecting sales tax, online sellers need to file returns and remit payments on a monthly, quarterly, or annual basis. Companies with sales tax obligations in multiple states typically have to manage multiple deadlines, multiple forms, and a host of filing rules and requirements.
It's possible to look up sales tax rates based on a street address, but when tackled manually, sales tax collection, filing, and remittance is both time consuming and error prone. Implementing a seamless solution that pulls transaction data from a POS or accounting system is more efficient and more accurate. And it’s more necessary now that 43 states and the District of Columbia enforce economic nexus.
Online sellers must monitor sales to all states with economic nexus laws to know how close they are to meeting the economic nexus threshold: Some states require remote sellers to register for a sales tax permit and start collecting sales tax as soon as the threshold is crossed (i.e., on the very next invoice).
To support tax compliance, choose an ecommerce platform that integrates with software to provide:
- Real-time sales tax rate and product taxability updates
- Seamless filing and remittance
- Sales tracking to monitor economic nexus thresholds