Sales and Use Tax Rates SolutionsFrom fast, easy rate lookups to a complete tax rate and boundary database, AvaRates provides the tools you need for accurate sales and use tax calculation AvaRates includes address validation and standardization for superior accuracy and the desktop version integrates easily with your financial application.
To streamline the collection of sales tax for online retailers, some have suggested just charging online businesses the state tax rate. Forego the local tax collection. To exclude local tax jurisdictions because the system is “too complicated” means there will be no financial incentive to support such an arrangement with the local tax jurisdictions.
“Too complicated” is something credit card processors would say.
If you want fair collection of sales taxes for online and offline, then you have need a system that determines the correct tax rate for every ship to address.
Of course, there will be a small percentage that may need further research, but you can try to make educated guesses based on assumed tax rate location of the ship to address.
1) you could default to state tax rate collection only. this leaves local tax regions without any tax collection from online businesses. this then again, put online stores at a financial advantage. B&Ms will complain: Why do we have a to pay a local rate while online businesses do not?
2) a flat rate collected on top of the state for “questionable” addresses which would be put in a general fund. These funds would be distributed back to local regions based on dollar amount of taxes collected from each region.
3) figure out a more accurate way to tax accurately. If the ship to address and/or zip code brings up several possible tax rates, what is the most likely tax rate? Can we assume the tax rate for the questionable zip code based on the tax rate of surrounding zip codes?
4) can you utilize map technology (GIS) or GPS as a layer you place on top of addresses to figure out what tax rate the address needs to pay?
If the charged rate is questionable, these transactions can be flagged. Most buyers will not care unless it is a big discrepancy. As long as the collection favors the state, states will do nothing. If they are collecting less than they should get, certain transactions can be cherry picked for investigation since the dollar amount may be worth the effort.
I don’t know much about Avalara and how they would work in this scheme, but I have read they charge small sellers $0.25 per transaction, while they might charge bigger companies $0.02 to $0.05 per transaction. That seems like an awful lot of money to get an appropriate tax rate.
One has to do the cost/benefit analysis, but there is some merit then to collecting only the state tax rate since the cost for third-party services may outweigh whatever local tax dollars are lost from online transactions.