With the holiday shopping season in full swing and the New Year quickly approaching, the time for reporting and planning is limited. While any growth driven by holiday sales is exciting, it is also critical to collect the relevant data and start 2020 off right.
Likewise, if your sales tax management capabilities aren't up to speed, you can find yourself spending days of labor documenting sales, recalculating sales tax due, identifying if you have nexus in each state, and filing reports. In fact, almost every ecommerce business will need to file in January in states where they have nexus. Monthly and quarterly deadlines both fall during this month, with the added bonus that most states’ annual deadlines also occur in January.
With the Wayfair ruling pushing businesses to consider how sales tax is applied to their businesses and 2019 coming to a close, it’s important to understand the impacts on your sales tax compliance and filing requirements in 2020, and whether using an automated solution is right for you.
Understanding Nexus Requirements
Nexus can be a complicated issue, but simply put, it describes whether or not a business has enough activity in a state to require responsibility for remitting sales tax. There are two types of nexus: physical and economic. Physical nexus is a measurement of having a physical presence in the state, while economic nexus applies to the sale of a certain value of goods or completing a set number of transactions in a region.
The challenge with nexus is that laws are constantly evolving, and not only on the state level. Organizations must also consider county and even local government laws that adjust nexus.
If you sell digital goods, including a SaaS solution, the issue becomes even more complicated. In general, digital goods do qualify for sales tax in many states. Usually, you need to use the billing address of the purchaser since you aren't physically shipping a good.
The other complication around SaaS and subscription products is that each subscription charge can be considered a distinct transaction, potentially impacting nexus. Make sure you either research nexus laws across states yourself, especially if you have recurring billing, or use software with built-in nexus checklists to help you maintain compliance.
Optimizing Transaction Management Operations
Reporting on transactions can vary highly for different sales models. Implementing processes around sales tax allows you to efficiently manage collection and remittance, so you can focus on profit-generating activities.
If your business sells physical products, primarily in one-off purchases to consumers, then you need to track specific sales individually, getting that data to relevant stakeholders in the business. If you run on a subscription model, then you need to track sales as part of ongoing client relationship management programs, not necessarily separate entities. But then when it comes time to collect and remit sales tax, each subscription renewal is its own transaction.
These types of sales nuances highlight the importance of integration between your web platform, ERP (enterprise resource planning software), and marketplaces. Trying to gather sales reports from all of your sales channels, and consistently and accurately aggregating data, can be time-consuming. Not to mention frustrating. An integration with an automated sales tax solution can help solve these problems.
Using Digital Tools to Deal with Complexity
As you try to handle post-holiday, end-of-year reporting, this kind of easy integration between solutions makes it much easier for modern ecommerce businesses to track sales and handle sales tax issues. Today's solutions, like TaxJar can:
-Connect to all of the places that you sell, and automatically configure your tax settings within your ecommerce platform.
-Organize accurate, return-ready reports that break down sales tax by jurisdiction, so your sales tax filings are all ready for you.
-File your state sales tax return for you every month, quarter or year, so you never bother with sales tax filing again.
Automating sales tax collection can save as much as five hours per state return, which gives valuable time back to your IT teams to focus on more important tasks.
Learn more on the TaxJar blog.
Written by: Jennifer Clark, Content Marketing Manager at TaxJar
Jennifer aims to simplify sales tax for everyone through enjoyable, engaging content. She enjoys tackling complex subjects, researching sales tax and SaaS industry news, and interacting with the digital TaxJar community through social media.