THE BLOG
06/26/2013 01:25 pm ET | Updated Aug 26, 2013

Let's (NOT) Panic About the Online Sales Tax

Bought anything online lately? So have millions of other U.S. customers, to the tune of $61 billion in the first quarter of 2013. And thanks to a 30-year old Supreme Court ruling--made when the Amazon was in South America not in South Seattle--most of those transactions do not include sales tax.

But if it passes, the Marketplace Fairness Act of 2013 (MFA) will change all that.

MFA has raised the hackles of many online businesses, which have reacted with cries of "This will drive me out of business!" or "Another compliance hurdle?? What a pain in the ass!" Whether or not you agree with MFA, there is one thing these businesses have right: sales tax IS a pain. There are 11,000 tax jurisdictions in the U.S. alone; each state has its own tax rules; and businesses that don't get it right can face stiff penalties. Trying to manage sales tax in multiple states can be like trying to steal a kiss from the meter maid: it's hard to do and it's risky.

But here's what many businesses don't realize: there is an antidote to the sales tax headache, and it's baked into the bill. MFA actually gives FREE software to businesses to help them manage new sales tax requirements.

It may not be as exciting as getting free tax software from Oprah--"You get tax software! And you get tax software! Everyone gets tax software!!"--but it's still miles better than having to do sales tax without it.

WTH is MFA?

Here's how it would work: If the bill passes, states get the option of making businesses that aren't physically located within their borders collect sales tax. In exchange, states have to simplify their tax codes. This includes providing certified tax management software free of charge to any businesses that have to collect tax because of the bill.

What can tax software actually do for you (or your spouse, employee, accountant)?

Like so many other software solutions, tax software makes life easier for businesses.
It cuts down on the amount of resources they have to spend on sales tax compliance. Executive Envelope, a provider of printing and manufacturing services, estimates that sales tax software saves the company "8-10 employee hours a week, which is over $36,000 employee resources annually." In many cases, the savings can be far greater, since the amount of hours companies spend on compliance varies.

Not only that, but a single sales tax audit with negative findings can cost far more than a year of manual sales tax compliance. Software can dramatically reduce a company's audit risk.

How exactly does that work?

The best tax management software systems make tax decisions automatically on every transaction, based not just on specific local rates but taxability rules as well. They also are able to manage exemptions, file returns, and even make the payments to the states. They do all of this by integrating directly with your shopping cart, accounting software, or ERP. This means you don't have to spend tedious hours manually downloading tax rate tables, keeping track of rate changes, sending in . . . zzzzzzzz. You get the point.

With or without MFA, sales tax software makes life easier.

The fact is that sales tax obligations will likely increase for out-of-state businesses whether or not MFA passes. However, the same type of technology that allows Amazon and thousands of other online sellers to rock ecommerce can help reduce the risks associated with multi-state tax compliance.

Imagine if you could automate boring meetings or cleaning out the office fridge--wouldn't you take advantage? In today's world it just doesn't make sense to stress over manual sales tax processes (spreadsheets and downloads) when software can do it for you.