How to Optimize Your Sales Tax Collection for Q4

August 8, 2017

By: Mark Faggiano,

Founder and CEO

, TaxJar

How to Optimize Your Sales Tax Collection for Q4

The holiday season is an eCommerce store’s chance for huge profits. But this also means that any fundamental problems with the way you collect sales tax in your Magento store can become much grander in scale.

If you under collect sales tax during the Q4 rush, you will end up owing a portion of your hard-won profits to the state. If you over collect sales tax during the Q4 rush, you will end up with unhappy customers who might complain or leave bad reviews just when you need them the least. Optimize your Magento store’s sales tax collection now so you can focus on more pressing aspects of your business during Q4.

Double Check your Sales Tax Nexus

As your business grows and changes, your business’ sales tax nexus can change, too. If you have sales tax nexus in a state, you are required by that state’s laws to collect sales tax from your buyers in that state. Common factors that create nexus include:

  • A location

  • An employee or contractor

  • An affiliate

  • A drop shipping relationship

  • Doing temporary business, such as a trade show or craft fair

Evaluate any business activities that may have changed recently. You can read about what each state has to say about nexus here. If you have nexus in a new state, be sure to register for a sales tax permit and collect sales tax from buyers in that state on all your sales channels. Forgetting this could mean being required to pay the sales tax you didn’t collect out of pocket later.

Check the Taxability of your Products

Clothing is not taxable in Pennsylvania. Groceries are not taxable in New York. Textbooks are not taxable in Minnesota. If you sell any of these product categories, or other product categories that are non-taxable in various states, you’ll want to make sure that you have assigned the correct product tax codes to your products. Otherwise, you may overcharge a customer who doesn’t expect to pay sales tax on your product. This could mean an upset customer, or someone who simply moves on to a competitor who handles sales tax correctly.

Ensure You’re Charging Sales Tax on Shipping Correctly

Do you charge your customers for shipping? If so, it’s important to note that some states require you to charge sale tax on shipping charges while others don’t. Be sure that you have your sales tax on shipping set up correctly, or you might yet again end up owing out of pocket or accidentally charging extra sales tax to an unhappy customer.

Here’s a list of states that do and do not require sales tax on shipping charges.

Other Sales Tax Considerations

Here are a few more things to double check before Q4 hits:

  • Has your business address changed? If so, be sure to change it in your Magento store sales tax engine. In some cases, the amount of sales tax you charge your customer depends on your business address.

  • Do you have any custom rates set up? Sales tax rates can change. This includes city rates, county rates, state rates, or other rates. If you have any custom rates set up in your Magento sales tax engine, be certain that these rates are still correct before you head into the holidays.

Put Your Sales Tax Filing on Autopilot

Q4 means all hands on deck when it comes to keeping the store stock, orders fulfilled and customers happy and coming back for more. With tax automation, you can automatically report and AutoFile your sales tax returns so you don’t have to worry about killing your holiday momentum, by doing tasks such as stopping to figure out how much sales tax you collected from buyers in each county in California and then logging in to file a sales tax return.

Find out more about how to AutoFile your sales tax here

About Mark and TaxJar

Mark Faggiano is the founder and CEO of TaxJar, the service that makes sales tax collection, reporting, and filing simple for more than 9,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!