If you’re a business that sells to a customer in the US, sales tax should be on your radar and at the top of your priority list. However, it’s not always easy to prioritize something critical, yet simultaneously highly challenging to understand.
Nevertheless, understanding sales tax calculations is still crucial in determining your overall obligations and compliance. Fortunately, you can take a break from crunching numbers, and mitigate human-error in one fell swoop. Here’s what you need to know.
Sales tax calculations: How do they work?
Naturally, it’s essential to understand how the process works to avoid sales tax mistakes and rate errors. Simply put, US sales tax is not a national policy. Instead, it is administered at a state and local level. This means that states and local jurisdictions (11,0000 of them to be exact) have the right to determine their laws and rates.
Being that there is no standardized rate – the most challenging part is determining whether you’re applying the correct rate to the correct transaction. Although US sales tax is levied in almost all 50 states, the rates (and their associated rules) differ depending on local and state jurisdiction. Apart from that, it also depends on the type of product or service you offer.
How to error-proof your US sales tax calculations
When it comes to sales tax calculations, there is no ballpark figure. You’re either charging the correct rate, or you’re non-compliant. As a result, basic calculations can pose a significant risk to your business and signal to auditors that there’s a need for an extensive audit. So, to avoid any unnecessary fines, penalties or exposure, here are four ways to error-proof your sales tax calculations.
Double check sales tax type per state
When applying sales tax to each transaction, the rate depends on each state’s sales tax type and the relevant rules per type. The type of tax will determine whether you need to apply the rate of your nexus state or the rate of your customer’s location.
So when applying a tax to each transaction within a state, you must confirm whether or not the state has an origin or destination-based tax rule.
Stay up to date with current laws and legislation
Changes in rates, rules, and boundaries are common in the sales tax world. However, keeping track of the countless changes per year, per jurisdiction, and per product is a time-consuming process. Moreover, it is only a matter of time before something slips through the cracks or gets misinterpreted. Therefore, finding accurate information regarding the sales tax rate changes is pivotal to your overall compliance.
Automate your sales tax obligations
Eliminate the risk of human error and remove the work and worry from the entire sales tax process. Automated sales tax solutions calculate your sales tax directly on your billing platform, ERP, accounting software, or payment gateway. In addition, it provides real-time monitoring to ensure all rates reflect the most current rules regarding state rates, product taxability, nexus regulations, and sales tax news.
Perfect sales tax calculations with Complyt
Refrain from relying on trial and error or damage control; get it right the first (and every) time. We provide an all-in-one automated sales tax solution, helping you manage all your sales tax obligations on auto-pilot for absolute compliance.