Do we charge Sales Tax? Simple Question, Complicated Answer.
Life used to be simpler in the realm of internet sales. A few years ago, if we shipped a product to a state other than our own, we weren't obligated to collect sales tax unless we had a physical presence in that state. This typically meant having an office, warehouse, or even a remote employee residing in the state. However, with the rise of internet sales, states recognized the substantial tax revenue they were missing out on. In 2018, South Dakota challenged Wayfair in the Supreme Court and emerged victorious, leading to a significant shift.
Now, each state has the authority to establish its own requirements for sellers to collect sales tax within that state. Unfortunately, there are no national standards, and the criteria can vary widely from state to state, ranging from sales thresholds of $100K to $500K before tax collection becomes mandatory.
In Tennessee, where our business is based, all shipments within the state are taxed at our local rate, mirroring an in-person purchase. This straightforward approach is easy to administer. However, the complexity arises when dealing with most counties, municipalities, and school districts in other states, each having its own local tax rates. Calculating sales tax for every shipment becomes a meticulous task, with overlapping cities, zip codes, and intricate tax districts that cover diverse local projects like water, mass transit, and more.
Despite investing close to seven figures in software and programming over two decades to stay current, our small business still encounters challenges, particularly in filing taxes. While we've integrated with services to calculate sales taxes, the filing process remains cumbersome. In some states, reporting must be done by county, city, and/or tax district, consuming significant time – an hour or more for a single state's data entry. Unfortunately, automation of this process has proven elusive due to peculiarities in our business operations.
Though some US congressional leaders initially acknowledged this issue, it appears to have been set aside. The problem is highly fragmented, varying based on the location of a business and its shipping destinations. Until filing requirements are standardized nationwide, businesses like ours will continue to expend substantial time and resources to ensure compliance. Notably, this issue disproportionately affects small businesses.
If you didn't see a sales tax charge on your order from us, it indicates that we haven't reached the sales volume in your state requiring us to collect it. Every year, we expand to a few more states, accompanied by a few more challenges and complexities.