Sales Tax: Best practices to stay compliant
Sales tax varies by geography, time, product, and customer.
Disclaimer: Nothing we ever write is tax or legal advice. Our expertise is in technology (and increasingly in paint & hardware retail!). Ask your accountant for help on your specific situation.
Sales tax is complicated! Much more than we realized when we started building Rundoo. Its complexity arises from varying on four key dimensions:
Vary by geography: There is no federal sales tax, but states, districts, counties, and other local governments can levy sales tax. And even though there are five lucky states with no sales tax—Alaska, Delaware, Montana, New Hampshire, and Oregon—localities within these states can still levy taxes! For example, Alaska has 108 local jurisdictions that levy sales tax.
Vary over time: If you’ve been in business for even a short amount of time, you know that tax rates change as new legislation is passed. In our home state of California, tax rates are published every quarter because they change that frequently.
Vary by product: Certain products may not be taxable in certain jurisdictions! For example, in many jurisdictions, groceries, foods, prescription drugs, or clothing may be non-taxable. Labor is non-taxable in most states, but it is taxable in Wyoming!
Vary by customer: In many jurisdictions, non-profit organizations, such as religious groups, may be non-taxable. Similarly, businesses that are re-selling products are usually non-taxable.
When you combine all four of these factors, you end up with a crazy table! The key is understanding the laws in your location and then making it seamless to comply. So how can Rundoo help?
1 & 2) Rundoo keeps your location’s tax rate up-to-date.
To solve changing by geography (#1 above) and time (#2 above), Rundoo will check government databases every night to ensure your physical addresses have the correct tax rate applied to them. Because our locations are linked to Google Maps, Rundoo knows the exact location and can ensure it is the correct tax rate.
You may have noticed that the location-based tax rate isn’t even editable—it is simply the sales tax rate at that address. So, let’s say you have a location in Redwood City, CA and a location in Menlo Park, CA—the adjacent town. Rundoo will keep their tax rates up to date.
3) Mark tax-exempt products.
Let’s move on to tax varying by product (#3 above).
Unfortunately, we don’t know precisely what each item in your system is, but we do have a way for you to mark products as non-taxable.
To determine which products are non-taxable, we encourage you to look at the laws in your local jurisdiction by simply Googling “tax-exempt products in XYZ.” Things that are often tax free in paint stores are labor (eg, paint match fee, restocking fee) and food (eg, water bottles, snacks).
For each product you identify as tax free, simply toggle taxable off and then tax won’t be charged during a sale.
4) Tax-exempt customers need proof.
In order to be tax-exempt, your customers must present certification. To make this simpler, 38 states use the same form: the Uniform Sales & Use Tax Certificate developed by the Multistate Tax Commission. You can see which states and download the form here. Read more about exemption certification here.
The key part of certification is the ID number that classifies the customer as exempt from sales tax. Because certification is required, Rundoo won’t let you mark a customer non-taxable unless you indicate their exemption ID.
Notably, Rundoo does not check the validity of this code! If this field is blank, Rundoo will include sales tax. If it is not blank, Rundoo will exclude sales tax.
What else? Custom tax rates.
Unsurprisingly, the complexity doesn’t end there! For example:
Delivery taxation — If you are delivering to an address in a different jurisdiction from your physical location, you usually have to use that tax rate.
Partial tax — Some customers may owe partial tax. For example, California has a law that allows farmers to subtract 5% from the sales tax that would otherwise be paid.
Probably more… ¯\_(ツ)_/¯
To handle these cases, the solution in Rundoo is to create a “Custom tax rate” in Admin > Locations. You can then apply this tax rate on any sale, and both you and the customer will see the rate that was applied.
What about remitting tax? Tax reporting.
Most jurisdictions collect sales tax monthly. To see the sales tax you have collected and owe, you can go to Analytics > Tax and see the taxable revenue, non-taxable revenue, and tax owed by jurisdiction.
What are your thoughts?
We’d love any thoughts you have! Some things on our mind that could make the product even better are:
Allowing clients to upload scanned exemption certificates to a customer profile.
Allowing clients to apply the tax rate of the job site on the fly. Because the job site field on Rundoo is linked to Google Maps, we could warn you if the tax rate at that address is different from your location.
What else?
As always, I’d love to hear any thoughts you have! Have a great weekend 👋