Almost 90% of American businesses have fewer than 20 employees, and I’d imagine that number is consistent worldwide. Most businesses out there aren’t the “Amazons of anything”; instead, they’re small businesses run by entrepreneurs with few or no employees. Based on this statistic, you most likely work for a small eCommerce company, either as owner or manager of the eCommerce store.
Small business owners or managers often end up doing it all for the business — marketing, shipping, accounting, customer service, and tons of other tasks; there simply aren’t enough people to specialize. Learning about every facet of your business can be super valuable as you grow. However, when it comes to government regulations related to your business, managing every aspect of your business can become daunting. Not only can mistakes cost you money, but they can cause legal trouble as well.
What’s the most potentially confusing, yet most common regulation that small business owners or managers deal with? Sales tax. When to assess it, when not to, how much it should be, and how it varies from item to item…sales tax can be a black hole in terms of time spent managing your business.
Since sales tax can be so onerous to navigate properly, I often refer merchants to different kinds of sales tax solutions so they can outsource this part of managing their businesses to people who deal with sales tax day in and day out.
Rather than trying to become an expert on sales tax for your state or country, let’s take a look at when you should outsouce, and some sales tax solutions that are available for WordPress eCommerce sites, along with how they can help you manage your store more efficiently.
When you first set up your eCommerce plugin, it’s typically pretty easy to set up some tax rates. In my case, my store base is in Pennsylvania, so boom, 6% standard tax rate and I’m done, right? Well, not quite.
Different items are taxed at different rates and rates may vary by services or by the purchaser’s tax status. Which items are taxed ad which aren’t also varies by location. For example, clothing may be taxed in one state, but not another. Digital products are especially difficult to manage taxes for.
Not only do the taxes you should assess vary based on the purchaser’s state and the type of item sold, but they also vary based on where you have locations for stores or warehouses. There are tens of thousands of tax jurisdictions in the US alone, and they each have their own tax rates and rules.
Sound complicated yet? We haven’t even gotten to filing returns and remitting taxes to your state / province and federal governments. Typically, most businesses end up hiring a CPA or accountant just to deal with the mess of filing and remitting tax since it can be extremely tedious and time-consuming.
When it comes to managing sales tax, you need to make sure several components of your business are functioning at 100%:
- calculating and charging the correct tax based on what the customer purchases
- ensuring the tax is correct based on your location and the customer’s location
- tracking the tax you owe over time (which can be far more difficult when refunds or cancellations are thrown into the mix)
- filing tax returns with your government
- remitting tax owed to the government
If any of these steps is incorrect, you could not only face money owed, but also fines or legal complications that could be costly.
A lot of the time, it’s comfortable to continue doing whatever you’re doing right now — change is always daunting, and it may be tempting to say, “Well I’ve gotten this far managing my own tax assessment and reporting, I might as well keep doing it.”
However, sales tax tends to be an area of “unknown unknowns” — you don’t know what you don’t know. There could be regulations with which you should comply that you’ve never even heard of. So when is a good time to start outsources your tax management to a tax solution?
- You begun to sell goods or services, but haven’t yet registered to collect sales tax yet in your state / province / country.
- You collect sales tax from customers, but aren’t sure how to complete tax returns, or have difficulty filing them (or filing on time).
- In the US, you sell across state lines to residents of other states.
- Your marketing or selling has begun to include attending trade shows, drop-shipping, or other out-of-state activities.
- You’re paying an accountant or CPA to file tax returns.
Or my personal preference: never deal with sales tax yourself. Ever.
So if you’re not going to manage sales tax yourself or with a DIY solution, what options do you have? You could look into hiring an accountant or outsourcing sales tax to an automated software. It may help to ask some questions to determine which solution is better for you when comparing accountants or software solutions:
- Can I file returns automatically, or is there any manual process on my end?
- Will this solution be error free? What’s the likelihood it prevents audit trouble?
- Does the solution integrate with my accounting software or store?
- How much management is required (in terms of my time) for this solution?
- Is this solution in budget considering time and money I already spend on sales tax?
- Can the solution scale with my growth in both order volume and physical locations?
I prefer automated accounting solutions since they tend to both (1) tick more boxes in this list, and (2) provide pre-built ways to work with existing account or eCommerce software.
If you choose to go with an automated tax software solution, you’ll need to determine what’s more important to you: the features of the tax solution itself, or availability for pre-built integrations between your accounting software and store.
Some tax software may offer great features or come in below budget, but if it doesn’t already connect to your eCommerce store or accounting software, you’ll need to hire a developer to build this connection. If you’re not okay with this, then looking at existing integrations with your eCommerce platform may be a better choice.
No matter what solution you choose, you should consider how well it will grow with your business in the future if you expand or choose to sell different kinds of products. For example, Taxamo may be a good fit for a digital-goods-only store, but if you may expand into physical product sales, it might not be the best fit.
Here are some pre-built connectors between eCommerce / membership plugins and tax services that you could use to start your search:
|Restrict Content Pro||Taxamo|
|Easy Digital Downloads||Taxamo|
|iThemes Exchange||TaxCloud (US)|
*There are some other solutions available for WooCommerce, but AvaTax (from Avalara) is my preferred one, as it offers excellent tax services and a feature-rich integration with WooCommerce.
As a small business owner / manager, you do a lot of different tasks for the business already, so managing sales tax collection and filings can be just another thing you do. However, it’s one of the most challenging things to manage as your store grows, can be very time-consuming, and the risks associated with errors may not be worth any savings over outsourcing this part of your business.
Using an accountant, or even better, an automated tax software like Avalara, can help you regain the time you spend on sales tax to invest in growing your business, while steamlining your sales tax management.