Do You Need a Sales Tax Software if Your Shopping Cart Calculates Rates?

Maybe. 

Not all e-shopping carts are created equal for online shipping sites like yours, and your cart may get the job done for sales tax calculation. But few can handle the entire compliance process – and what about calculations for sales that don’t go through your cart? 

How carts work 

An e-shopping cart must include a sales tax solution at checkout. Some of the more basic shopping carts facilitate sales in a limited geographic footprint, requiring you, the remote seller, to establish “tax codes” where a single sales tax rate applies to all purchases in that tax code’s area. These solutions can be effective if you sell into states with a flat sales tax rate or need to collect sales tax only in a few, disparate areas. 

Carts can be more complicated if you have a nationwide obligation to collect and remit sales tax at not only the state but also perhaps the county, city and district levels. For more complex sales tax requirements, many e-shopping carts can integrate with sales tax-specific software solutions. 

Carts and sales tax  

According to one of our recent surveys of financial professionals, sales tax tools provided by e-shopping carts or e-commerce platforms include integrations with sales tax providers; sales tax rates and taxability determination; sales tax rates only; and alerts to economic nexus thresholds. One sales tax problem for carts, obviously, can arise if you sell items that have different tax rules in some states. 

Other key questions when evaluating your e-cart: 

1. Do you sell products that are exempt in some states? Most e-carts will handle this, but they still need checking. Groceries and clothing are sales tax-free in a growing number of states, for instance, and your cart must account for the mushrooming number of states’ sales tax holidays on everything from back-to-school supplies to trigger guards.
   
   
2. Do you sell to exempt customers? If you sell to many exempt customers, you may need to determine whether you want to collect exemption certificates for each order or have customer accounts where the certificate is applied. Some e-cart integrations let you capture and obtain exemption certificates at checkout.
   
   
3. Will you make national or international sales? There are more than enough U.S. sales taxes to go around, but if you plan to sell outside the country your e-cart must handle the likes of the value-added tax (VAT) or Canadian Provincial Sales Tax (PST), Goods and Services Tax (GST) and Harmonized Sales Tax (HST). 

What your e-cart may not do 

Managing your overall sales tax compliance involves more than an e-shopping cart and accurate calculations. Though some e-carts can help monitor your nexus state by state and determine taxability of your products and services, they rarely help, unlike sales tax software, with: 

• managing exemption certificates; 
• registering and renewing sales tax permits; 
• preparing and filing sales tax returns and maintaining a tax calendar of your obligations and deadlines; 
• paying jurisdictions where you’re registered for sales tax; 
• developing a notice management process for jurisdictional notices. 

One major failing of carts could be one of the latest trends in ecommerce: drop shipments. These often occur when a seller uses a distributor for order fulfillment to a buyer. In such a transaction, a distributor must charge sales tax to the seller. 

Sounds simple – and in many ways it is, except that a drop shipment can often involve not two but three states) where sales tax must be considered. 

Trends can outpace e-carts 

Many companies now have an online presence for taking orders and making retail sales without maintaining an inventory. Instead, they leverage other suppliers/ distributors who “drop ship” directly to the customer. 

Though they might seem to be one transaction, drop shipments are really two: one between the distributor and the retailer and another between the retailer and the end-user customer. Understanding the parties’ sales tax obligations starts with knowing the nexus of the business/retailer making the sale to the end user and the nexus of the drop shipper/distributor. 

Historically, wholesalers have purchased items exempt from sales tax and then charged the applicable sales tax in states where they have sales tax nexus. Though still true, e-commerce has increased the number of drop shipments with the wholesaler often sitting in the middle of the end consumer and the manufacturer. Many e-carts can’t adequately handle this process. 

Not sure if your cart can keep up with sales tax rules?

Like all e-commerce tech and tools, e-shopping carts need constant attention to make sure they’re calculating your sales tax correctly. 

If you think your business may be impacted by sales tax complexities and decisions, contact TaxConnex. TaxConnex provides services to become your UPsourced sales tax department.