Your business can really benefit from using ecommerce sales tax software. Ecommerce sales tax computations are notoriously tricky. Plus, making mistakes can bring costly consequences.
Why eCommerce Businesses Need Sales Tax Software
Complexity of Sales Tax Laws Across Different States
Ecommerce businesses all need to deal with the complexities of sales tax laws. They differ across different states, which is only the first challenge. The rates and laws are also subject to change.
Ecommerce sales tax software offers automation that calculates sales tax accurately based on the product category and customer’s shipping address. Some can also identify in which states you have a sales tax nexus.
Most sales tax software can pull in current tax rates and provide collection and remittance reports, too.
Risks of Non-Compliance and Penalties
Not complying with sales tax laws can result in severe financial penalties. It also often means damage to the reputation of your ecommerce business.
Sales tax software helps you avoid this by:
- Calculating taxes accurately
- Keeping track of different sales tax nexus obligations
- Automating timely tax filing
- Preparing detailed reports and records in case of an audit
Benefits of Automating Sales Tax Calculations and Reporting
Automation helps you complete complex calculations and tax filing efficiently and accurately. This mitigates risks and frees up your time for other tasks. Some tools also integrate with other software for streamlined data flow.
The drastic reduction in manual errors, real-time tax rates and rule updates, and nexus management means a reduced risk of audits.
In addition to everything already mentioned, automation produces accurate financial reporting that facilitates better financial management. You can more easily optimize your cash flow management and make data-driven business decisions.
Key Features to Look for in eCommerce Sales Tax Software
Integration with eCommerce Platforms
Always prioritize tools that can integrate seamlessly with the ecommerce platforms you use. Consider also which marketplaces you would eventually like to expand into.
Most of the popular ecommerce sales tax software options offer integrations. Some have direct integration while others use third-party integration tools.
Integrations should streamline automated data transfer, real-time calculations, nexus management, financial reporting, and tax compliance.
Real-Time Tax Rate Updates
Sales tax rules and rates change frequently alongside legislative updates, local ordinances, and other economic influences. Software that pulls in updates in real-time ensures that you are always making the correct calculations.
Compliance is vital, but accuracy also means better customer satisfaction and trust.
Multi-State Compliance and Nexus Management
Multi-state compliance can be a significant challenge for online businesses especially. Using ecommerce sales tax software helps you manage the complexities of sales tax differences by state. It also helps with the evolving concept of economic nexus.
All of these factors combined would be significantly challenging to handle manually. Furthermore, the risks and consequences of making mistakes are too high. Automatic updates save you from potential audits, substantial penalties, and reputational damage.
Automated Tax Filing and Reporting
Because tax filing and reporting can be so tedious, business owners often delay these tasks. Manual computation is already error-prone, and rushing adds to the disastrous mix.
Automation completes tax preparation and filing quickly, accurately, and on time to prevent penalties and free up your valuable time.
Then, you can take advantage of all the detailed reports for better decision making.
Scalability for Growing Businesses
Ecommerce sales tax software is almost essential for growing businesses, even if you decide to hire a bookkeeper. When you process more orders, software can handle the load efficiently without increasing the risk of errors.
Expansion means a wider product range, which often leads to dealing with different tax classifications and rates. Software can handle these more complex computations smoothly and accurately. The same goes for new complexities involved in doing business in additional states and countries.
As you grow, so will your team. Software can help in two main ways here. It reduces the number of people you need to take on, and accommodates multiple users with different roles and permissions.
User-Friendly Interface and Customer Support
Easy navigation makes it easy for anyone using the software to learn it quickly. Ecommerce sales tax software is supposed to optimize the process, not make it difficult.
Look for a clean interface, simple language, data visualizations. If you can customize features, that’s great.
Look for tools that come with a comprehensive knowledge base and easy access to reliable customer support. If the team has in-depth knowledge of sales tax laws, too, that’s an amazing bonus.
Top eCommerce Sales Tax Software Solutions
Avalara
Avalara is a big name in ecommerce tax compliance software. It’s known for helping with sales tax compliance. It takes care of sales, use, and consumer use taxes across different jurisdictions.
With Avalara, you benefit from their tax experts who stay updated on complex tax laws and regulations. The tool is highly scalable and provides excellent customer support as well as robust data security to protect sensitive financial information.
TaxJar
TaxJar ecommerce sales tax software simplifies compliance by handling all the basic tax tasks efficiently, including tax-exempt purchases. It also integrates with popular ecommerce platforms and accounting software, and offers API access for custom applications.
TaxJar is known for its user-friendly interface and scalability. Their customer support is responsive and knowledgeable.
Vertex
Vertex is a leader in tax technology and services. Their software is a top solution for complex ecommerce sales tax challenges. Vertex takes care of a wide range of taxes, including sales, use, and consumer use taxes.
This tool provides solutions for international sales and businesses operating in multiple states. You get accurate tax calculations for complex scenarios, exemption certificate management, audit defense, and all the other usual stuff.
Vertex offers deep tax expertise and can handle businesses of all sizes and complexities. It integrates with different ecommerce platforms and accounting software, and allows customizations to meet specific business needs.
Sovos
Sovos is known for robust sales and use tax compliance for all business sizes. This ecommerce sales tax software offers comprehensive coverage even for complex challenges. For example, it efficiently manages tax-exempt purchases and certificates.
Sovos provides solutions for businesses that operate in many states and countries. It offers you access to extensive tax knowledge and experience. The company also prioritizes data protection and compliance with industry standards.
Thomson Reuters ONESOURCE
Thomson Reuters ONESOURCE is a storing solution to help with sales tax compliance. It offers strong features for managing complex sales tax challenges, and has a global reach.
ONESOURCE offers a powerful platform that covers all the usual tax considerations, plus automated tax filing, audit support, exemption certificate management, and more. This tool leverages deep tax expertise to handle complex tax situations to ensure security and compliance.
How to Choose the Right eCommerce Sales Tax Software
Assessing Your Business Needs and Nexus
The bigger and more complex your business structure is, the more features you need in your software. This includes the ability to handle large sales volume and a wide range of product types.
Consider, also, how many payment and shipping methods you offer across the country and globally. Think about your expansion plans, too. This will involve physical and economic nexus considerations.
If you need specific systems integrations, match those up to your options.
Cost is also a consideration for most small businesses.
Evaluating Software Features and Integration Capabilities
The most important features in any sales tax tool include:
- Precise tax calculations based on product type, shipping address, and updated taxability rules and rates.
- Accurate economic and physical nexus threshold determination and calculations.
- Efficient tax exemption purchase and certificate management.
- Accurate tax adjustments for returns and refunds.
- comprehensive reporting and analytics on sales tax collections and remittances as well as what’s still owed.
- Comprehensive documentation for potential audit preparation.
- Integration with various platforms, systems, and tools
- Ecommerce marketplaces
- Business management software
- Accounting software
- Customer relations management software
- Payment gateways
- Shipping carriers
Understanding Pricing Models and Budget Considerations
Different You’ll see a range of pricing with commerce sales tax software based on factors like features offered and ease of use.
Some tools have different pricing models, which can make comparison tricky:
- Transaction-based software charges a fee for each transaction processed.
- Subscription-based tools charge monthly or annually depending on plans with different levels of feature sets.
- Hybrid models have some transaction-based bees within subscription sets.
- Tiered pricing software charges based on sales volume, number of states, or other factors they outline.
You’ll need to do sample computations to see where you’re getting the most value. Ask providers if they offer free quotes – this can help a lot. You also want to factor in any setup fees, implementation costs, and data migration expenses. Make sure you ask about hidden charges.
If you like a tool but the features and pricing is not the best fit, try negotiating. Most companies can accommodate some customizations, especially if you’re willing to commit long term.
Testing Software During Free Trials and Demos
Take advantage of free trials and demos to test each tool before committing.
Start with testing how easy it is to import existing sales and tax data. With sample addresses and product information, test the accuracy of tax rate calculations.
Check if the tool can identify a potential nexus and handle tax-exempt purchases and certificates. Check how the tool processes returns and refunds and the corresponding tax adjustments.
Test the generated reports for customizability, clarity, and comprehensiveness.
Look into what integrations you can run, including your ecommerce platform, accounting software, and other business tools. Then test customer support with a few questions to assess their responsiveness and knowledge.
Making the Final Decision: Factors to Consider
Whatever software you choose needs to meet your needs. The core functionalities are non-negotiable. Then, look into the extra features that you find most helpful.
For example, scalability is important if you plan to grow. Customizations are important if you have a complex business structure.
Pick the best few options and create a comparison table to look at key features side by side. Ask other ecommerce users for their feedback.
Finally, choose the best option, but keep the others in mind in case you need to switch.
FAQs
Can I use eCommerce sales tax software for international sales tax compliance?
Most sales tax software primarily handles domestic compliance, but many solutions have features that can manage international tax obligations. Understand that international sales tax (or VAT) can be significantly more complex. Always ask the provider about your specific needs.
What should I do if my sales tax software fails to calculate the correct rate?
If you’re getting incorrect rate calculations, check that you have:
- Correct tax codes for products and locations.
- Accurate tax jurisdiction settings.
- Updated tax rates.
- Correct transaction details – shipping addresses, product categories, applicable exemptions, etc.
- Contact support with details and specific examples of incorrect calculations.
If you can’t find a solution, although it’s time-consuming, you can make manual adjustments in the meantime. Look at alternative software solutions if the issue persists or significantly impacts your business.
How do I handle tax exemptions with eCommerce sales tax software?
Sales tax software should allow you to collect, store, and validate tax exemption certificates from customers. Some tools also define specific exemption rules and verify certificate authenticity.
Is there a way to automate sales tax refunds through the software?
Most sales tax software will automatically calculate correct refund amounts based on your set return policy. You should also get refund documents or automatic customer account adjustments.
How often should I review and update my sales tax software settings?
We recommend that you review and update your settings at least quarterly. If you operate in multiple states, have large translation volumes, or face changing tax laws, do it monthly.
What Is EcomBalance?
EcomBalance is a monthly bookkeeping service specialized for eCommerce companies selling on Amazon, Shopify, Ebay, Etsy, WooCommerce, & other eCommerce channels.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
- Monthly Finance Meeting Agenda
- 9 Steps to Master Your Ecommerce Bookkeeping Checklist
- The Ultimate Guide on Finding an Ecommerce Virtual Bookkeeping Service
- What Is a Profit and Loss Statement?
- How to Read & Interpret a Cash Flow Statement
- How to Read a Balance Sheet & Truly Understand It
Conclusion
You can choose from a variety of ecommerce sales tax software. Most of them will give you all the basic features that you need. Focus on booking at the more intricate features specific to your business needs. Sometimes, it’s the interface, custom options, or technical support that makes all the difference.
