3 Tips for Keeping Up With Ecommerce Sales Tax Laws

The ecommerce sales tax landscape has undergone major changes in the last few years, leaving both new and experienced sellers with their heads spinning.

Relatively new sales tax laws impact all ecommerce operations, but it’s the small businesses that feel the biggest pinch. Catch up on the biggest changes to sales tax laws, and review practical tips for keeping up with them confidently.

Recap: South Dakota v Wayfair and sales tax

The United States Supreme Court changed the sales tax landscape with South Dakota v Wayfair, Inc in a massive 2018 decision. Previously, businesses were required to have a certain level of physical presence in a state before collecting sales tax from customers in it. 

Now, online sellers are subject to economic nexus laws, which make it possible for states to collect sales tax, even if they don’t have any physical presence in the state.

The Wayfair decision also phased out inconsistencies sellers had regarding their sales taxes: giving customers notice, collecting taxes, and standardizing tax practices. 

While these nexus laws have been adopted by much of the country, the courts left states with the ability to set their own revenue and/or sales volume nexus thresholds. The open-ended nature of the ruling means it’s likely the laws will continue to change and adapt to an ever-shifting marketplace. 

How to keep up with sales taxes laws

Economic nexus laws can have a severe impact on smaller online businesses that don't usually have the same level of accounting support as their bigger competitors. So they can easily become overwhelmed by changing sales tax legislation.

What’s more, startups often also don’t have as much financial back-up, which means any tax fines or penalties incurred are going to pack a greater punch.  

As sales tax laws fluctuate, businesses of all sizes need to monitor the changes implemented across different states, understand the thresholds, and learn the correct filing protocol. 

The good news? There are several ways to keep up with confidence.  

1. Educate yourself on sales tax laws

The best way to defend your business from tax-related penalties is to be aware of the most up-to-date nexus laws. A solid foundation of sales tax knowledge and accounting basics can improve your financial literacy and inform your pricing strategies. 

There are two ways to get educated: You can teach yourself and learn from an accounting professional. Whether you prefer an interactive guide to state-by-state tax laws or short-form courses from CPAs like Hector Garcia, there's a wealth of resources available.

Otherwise, ask an accountant or bookkeeper to give you an overview. Chances are you already work with one.   

2. Automate order and sales tax data

With so many accounting software choices on the market, it’s more important than ever to pick one that best fits your company’s unique needs.

Software like QuickBooks Online or QuickBooks Desktop can help organize your books, but they often require hours of manual data entry as you sync data from your online sales channels. And many small ecommerce businesses can’t afford to outsource this busywork, especially when they’re growing.  

Accounting automation can bridge the gap between your stores and sales channels and your accounting solution. Whether you calculate your sales tax manually, use your store’s calculations, or use a third-party tax calculator, automation can map taxes you collect to clearing accounts or your chart of accounts in your QuickBooks.

If you use a solution like Avalara AvaTax, automation can validate that you've charged the correct sales tax by jurisdiction.

3. Work with accounting pros for best results

Keeping track of sales tax requirements for each state can be mind-boggling, so it’s useful to have accounting experts on deck to answer questions and keep your business compliant. 

Good accounting professionals want you to be engaged and informed throughout your time with them. The more knowledge you have about your own business and the sales taxes you're subject to, the more effectively and successfully you’ll be able to collaborate.

After that, be sure to keep a proactive mindset. Be involved and take action when it’s required. Your willingness to get ahead of any potential compliance issues can ensure consistent business growth.

Manage sales tax with confidence

Sales tax laws are constantly changing to adapt to an ever-evolving marketplace. By staying up to date on changes, working closely with your accounting professional, and maintaining detailed records, your business can stay sales tax compliant — securing your future business health.

Finally, consider taking advantage of technology that removes the guesswork and manual labor that comes with complicated shifts in economic nexus laws.

Leveraging these resources can help you and your accountant keep your business compliant, avoid unnecessary fines, and foster growth, no matter where your future customers live.