State & Local Tax Blog

Ecommerce Sales Tax Automation: 3 Steps for Getting Started

Sales tax automation has made it easier than ever for ecommerce sellers to get compliant. Here’s everything you need to know to get started.

Understand the Benefits

Sales tax automation technology provides very accurate tax rate calculations and taxability determinations for online transactions. In addition, it can do it at staggering speed.

Providers like Avalara and TaxJar offer these services in real-time and can connect directly to your accounting system. This brings better efficiency and accuracy to every transaction, and makes the confusing world of sales tax easier to understand.

As a result, sales tax automation has saved ecommerce businesses millions of dollars and countless hours each year.

If you’d like to streamline your sales tax compliance, save thousands in expenses and make compliance easier than ever, then you can’t go wrong introducing automation to your sales tax compliance efforts.

But before getting started, there are some limitations you’ll need to be aware of:

What Sales Tax Automation Won’t Do

Automation simplifies the process of getting (and staying) sales tax compliant. But it can’t solve all of your problems.

The complexity in state sales tax is staggering. Compliance requires staying on top of complicated laws in 46 states (including DC) that are constantly changing.

Because of this, there are limitations to the nuances automation platforms can account for. (And they can’t fight an audit for you.)

For example, ecommerce businesses that cook and sell food can often qualify for manufacturing tax incentives in Arizona. An opportunity like this could save your business thousands of dollars, but an automation platform would never be able to identify it.

In practice, most ecommerce sellers benefit from hands-on consulting and assistance beyond the software’s recommended steps. If you have significant liability, and/or unpaid taxes, you’ll need the creative problem-solving and domain knowledge that only an expert can provide. This allows you to make the best possible decision for your business.

While this might seem like a small distinction, it has a huge impact, saving many companies between five and six figures.

For example, last year we worked with an ecommerce seller that received a $1 million liability assessment from an automation platform. The problem was the automation had failed to account for the tax exemptions and marketplace sales that could reduce their liability. By working with a sales tax specialist, they were able to reduce their liability from a million dollars to almost zero.

To leverage the benefits of sales tax automation – and work around its limitations – many ecommerce sellers work with both an automation platform and a sales tax specialist. This allows you to combine the time savings and efficiencies of automation with the expertise and guidance of a compliance expert.

Setting Up Your Account

The process of setting up sales tax automation is very easy. Most automation platforms are user-friendly, making it simple to get started:

  1. Create and activate your account.
  2. Configure company settings and smaller details like certificates and product taxability.
  3. Integrate the platform to your online store with an API.
  4. Run test transactions to identify and solve errors.
  5. Depending on your service level, you can also set up sales tax returns. This involves entering a lot more information but saves time.

These five steps serve as a general overview of getting registered. Each automation platform will have its own detailed instructions. And most will provide helpful guides on how to integrate with the ecommerce platforms you’re using.

One more thing to note: Conducting test transactions and accuracy checks is critical. A small error during configuration can lead to big downstream effects.

Conclusion

Sales tax automation offers a number of benefits to ecommerce sellers. Understanding the capabilities and limitations of the system is key to ensuring ongoing compliance.

Need help getting started with sales tax automation? We’re here to help. Fill out our short What’s Next questionnaire to get in touch for a free 45-minute consultation.

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