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How to automate sales tax calculation in your shopping cart

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Collecting sales tax in your state for the items that must be charged sales tax is very important. Not doing so can have a huge negative impact on your business. This includes, but is not limited to, tax liability by you having to pay back all of the taxes you should have collected but did not. You may also have to pay a heavy penalty fee and interests to the government in addition to the payment.

In a nutshell, you should be collecting sales tax if you ship a product within the state it is being shipped from. Example: You have a  warehouse filled with shoes in San Francisco and sold a pair of shoes and shipped it to a client in Los Angeles. You have to charge the client sales tax based on his ZIP code which you then must give to the Board of Equalization. If you ship the shoes outside of California, then no sales tax shall be collected. Of course, the tax code is complicated so make sure to seek advice from a tax accountant. This blog post is not intended as legal or accounting advice.

The good news is that most reputable eCommerce solutions offer automated sales tax calculation for your state. If you use an established eCommerce engine like BigCommerce, you should use the Avalara program. It is easy to install and free of charge. If your eCommerce platform does not include it in your plan but asks for a fee to add sales tax calculation, pay for it. Again, not doing so will impact your business negatively.

If you had a custom shopping cart developed for you, hopefully your webmaster included an integration with a 3rd party vendor who handles the sales tax calculation for you. In older carts, an upload function was added where a site owner could upload the newest tax table for their state (usually in a CSV file) and it automatically updated the database and us new tax rate. The issue here is that it is not automated and you must stay up-to-date with new tax percentage changes in your state. Then you have to remember to upload the file.

If you are unsure if your shopping cart is correctly calculating and collecting sales tax, contact our team. We are happy to check for you.


Questions about this subject?

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