The web comprised nearly 42% of the growth in the U.S. retail market last year. E-commerce represented 11.7% of total sales in 2016, but ...
One tax preparer says he no longer dreads doing e-commerce tax returns.
With the end of another year of online sales just around the corner, tax preparer George Sleeman says he’s no longer dreading the preparation of state sales tax returns for his e-commerce clients. A new software tool for collecting sales tax data for retailers selling through e-marketplaces is making life easier for both him and his client web retailers.
“In the past I’ve dreaded doing online sales tax returns because they were the hardest tax returns I had to do, because of all the work in gathering the information,” says Sleeman, a Colorado Springs, CO-based tax specialist who operates the tax-preparation service Tax Man To You. “But this year I’m actually looking forward to it.”
Sleeman has recently started using TaxJar Pro, new sales tax management software from TaxJar designed specifically for retailers who sell through e-marketplaces Amazon.com, Etsy.com and eBay.com. TaxJar Pro can also be used to manage sales tax records for sales transactions processed through the online payment system PayPal, and for transactions processed through the Shopify e-commerce platform, Tax Jar says. Amazon is No. 1 in the Internet Retailer Top 500; Etsy is No. 38.
Although Amazon, Etsy, eBay, PayPal and Shopify enable merchants to set up their accounts to figure and charge sales tax in states where the merchants are required to collect it, it’s up to merchants and their tax-return preparers to compile information on collected sales tax revenue and remit the revenue and tax returns to states. If preparation of e-commerce tax returns gets backed up because of the chore of gathering information, it puts pressure on the retailers as well as their tax preparers to meet filing deadlines, Sleeman says.
Under federal law, merchants are only required to collect sales tax in states where they have a physical presence, such as a store or distribution center. For many small web-only merchants, their only physical presence outside of their home state is the fulfillment centers operated by Amazon’s Fulfillment By Amazon service, which Amazon marketplace sellers use to fulfill orders.
TaxJar Pro was developed with network connections that pull information on sales transactions from third-party e-commerce and payment platforms and compile them into reports of sales tax collected across each of the 45 states plus the District of Columbia that have sales tax laws. Before he started using TaxJar Pro, Sleeman says he worked with huge spreadsheets from Amazon and other e-commerce companies that contained detailed records of his clients’ sales transactions, including sales tax collected, across each state where a client had a sales-tax responsibility. “It was spreadsheets galore,” Sleeman says. And each spreadsheet had so many columns and rows that it was difficult to sort and organize information into taxable sales to apply data on collected sales tax for each tax jurisdiction within a state.
It would take from 45 minutes to more than two hours to figure all the collected sales tax for each state for each client. “It could be two and half hours for just one state,” says Sleeman, who is an enrolled agent certified by the Internet Revenue Service to prepare tax returns. He adds that Kansas in particular, because of its many tax rules and jurisdictions, “is a nightmare.”
But with the new TaxJar Pro system, he says he’s traded the spreadsheets for a computer screen. He now prepares sales tax returns while facing two computer screens—one showing a state’s sales tax return web site, the other a TaxJar Pro screen showing a client’s list of sales already organized into taxable sales and collected sales tax. It now takes about five minutes to enter information from the TaxJar Pro screen onto an online state tax return for each client, he says.
TaxJar provides its Internet-hosted software for monthly fees ranging from $9.95 for up to 1,000 client sales transactions per month, to $49.95 for up to 15,000 transactions per month.
Sleeman says that, instead of dreading the annual preparation of online sales tax returns, he’s now looking to grow his number of e-commerce clients.