Wondering if you really need sales tax automation? Not sure what I’m talking about? Read our introduction to sales tax automation.
It’s true that not every business needs sales tax automation, if they have nexus in a single state that either doesn’t have sales tax, or has a single state-wide rate. (Although, even a business whose tax calculations are simple can benefit from the streamlined bookkeeping, reporting, and payment options provided by sales tax automation.)
But businesses that have nexus in multiple states, or who operate in a state with destination-based sourcing and multiple rates, may find that the cost of not having sales tax automation is much higher than the cost to implement it would have been.
You don’t want to find that out too late. So if you’re not already automating your sales tax collection, here are our top 5 reasons you should start.
1. Accurate Tax Rates Build Trust
Some shoppers don’t really pay attention to sales tax during checkout.
Others scrutinize every penny. And those shoppers will catch you in a heartbeat if you’re charging them the wrong sales tax rate, even if it’s only off by one-quarter of one percent.
Like everything on your website, your tax rates need to be accurate to convey professionalism and trust. But the wrong sales tax rate tells customers that there’s an error, making them wonder, How many other errors are affecting your website?
You can even make it easy on customers by displaying not only the sales tax dollar amount, but the actual sales tax rate, too.
2. Scrubbed Addresses are Better for Delivery, Too
Our service, as well as most others, includes a feature where the customer’s shipping address is “scrubbed” – a fancy name for standardizing the address and validating it against a known set of data. AccurateTax scrubs addresses against the US Postal Service data.
Accurate and standardized addresses not only help us determine the right sales tax rates, but it helps your package delivery, too.
People use a variety of abbreviations and conventions when it comes to mailing addresses. But an address that’s hard or impossible to find may result in a returned package, costing you money and a frustrated or lost customer.
Additionally, some carriers charge an address correction fee – and these aren’t trivial amounts, either. For instance, the UPS correction fee is a whopping $14 per correction, as of this writing.
Think that’s high?
3. Avoid Mistakes to Avoid an Audit
The less sales tax errors you have, the lower your chance for an audit.
Taxpayers that file consistently on time and accurately are the least likely to raise red flags for auditors.
Sales and use tax audits are no picnic. They can be costly if you’ve made gross errors, but sometimes the time wasted is a bigger cost. Imagine your busy schedule being taken up by a tax auditor going through your business and asking questions about everything you do?
Not fun. Or productive.
4. Collect Too Little and It Comes Out of Your Pocket
If you do get audited, and they find out you under-collected (and therefore under-paid) your sales and use tax, guess who’s responsible for that money?
Sure, you can try to explain the situation, and then collect the missing money from your previous customers, but that doesn’t exactly paint a picture of a professional business. Would those customers be willing to shop with you again after such an exchange?
Not to mention, this could be a very time-consuming process. The return on investment of your time might be worse than paying the remaining sales tax due (plus penalties and interest) out of your own pockets.
The worst part: Once you’ve been audited, your chances of being audited again in the future are higher, especially if you ended up owing a significant amount of money as a result of the audit.
5. Collect Too Much and You May Get in Trouble
On the flip side, what happens if you collect too much?
In part, this depends on what you do with the extra money. If you keep it, there can be extreme penalties. Chron.com reports that the penalty for overcharging can be as high as 100% of the overage, plus any other penalties or interest due.
It’s true, however, that some states will allow you to overcharge the customer, as long as you remit the money to the state.
But the customers may not like this.
Case in point: Papa John’s, the famous pizza delivery chain, was hit with a class action lawsuit over their alleged taxation of non-taxable delivery fees.
And in case that wasn’t enough, a customer in Illinois has recently called them out on the same issue.
If you’re still on the fence about whether to add sales tax automation, consider your risk tolerance (for an audit) as well as the amount of time you spend each year dealing with sales tax-related issues. Sales tax automation need not be expensive, and AccurateTax is designed to be affordable for almost every business, small or large.