What this means for you is that charging sales tax is not a simple process. After talking to several of my Oklahoma clients in the past, I discovered that most of them were charging origin-based sales tax, meaning they figured up the state, county, and municipal taxes for their location and charged everyone the same rate.
This is not legal in Oklahoma.
So I started researching better options for my clients. Several of the common options include:
- Charge taxes manually. If you have tons of time and/or only make a handful of sales per month, you can notify your clients that their sale is pending, manually figure the rate via the Oklahoma Tax Commission sales tax rate calculator and then send the client an updated invoice. This may work for custom products in which you need to communicate with individual clients already regarding the details of their orders. It defeats the purpose of automation for anyone who needs the customer to make his purchase with minimal hand-holding.
- Use the tax calculator included with Paypal. This is the solution most of my clients used in the past. They would just enter their local state, county and municipal tax rate based on their zip code and then charge everyone from Oklahoma the same thing. Others entered a flat rate for the entire state. We’ve discussed the problem with this in the paragraphs above. Unfortunately, the Paypal sales tax calculator seems to be designed for those in origin-based sales tax states.
- Including taxes in the price of the products. One of my current clients attended a small business tax seminar in Oklahoma City, where an OTC representative essentially stated that taxes must be charged separately from the price of the product. That said, the woman who answers the OTC business information line a few days later said that it didn’t matter, as long as the merchant paid correct taxes. In either case, tracking how much you need to pay in sales taxes will be much more difficult if you build taxes into the price, and you will be over- or under-charging some of your customers. Overcharging could be considered tax fraud, and undercharging could leave you footing the bill with your profits at the end of the year.
- Charging an average tax rate and just making up the difference out of the business’ own profits. While this might sound like a simple solution, you open yourself up to significantly diminishing your profits. In many retail categories involving physical products, profit margins are already razor thin. If you have failed to factor in something as simple as the gasoline you need to replenish your supplies, the cost of electricity at your location, or the amount of money your credit card processor charges per transaction, you could end up paying everyone else for the privilege of selling your products.
- Using a service to charge and track the precise tax rate. This is the most accurate, legal and efficient way to charge state sales taxes. Services like Avalara and Tax Cloud do the heavy lifting associated with tracking sales tax updates in each county, municipality and special district, and enable you to charge precise sales tax for each customer based on their complete address, on the fly.
Think of these services like the USPS or UPS rate calculators that allow you to charge precise shipping for your customers.
WordPress + WP-Ecommerce + TaxNow for WPEC Plugin + Avalara
Avalara provides services that not only takes care of sales tax collection, but also integrates with your accounting software so that you can view and manage tracking those collections and reporting to the state. Additionally, Avalara enables you to manage customers who are exempt from paying taxes, such as churches and 100% disabled veterans.
If you’re a WordPress user with the free WP-Ecommerce plugin, you can download the TaxNow plugin that connects you to the Avalara service. While the plugin is free, the Avalara service is subscription based, starting at $50 per year with a $25 startup fee and up to 50 transactions. The next subscription level is $190 per year and includes up to 350 transactions.
While this service looks incredible, if you already have razor thin profit margins and per-transaction credit card fees, you may want to consider the next service.
WordPress + Shopp Plugin + TaxCloud Plugin
Another option is TaxCloud, a free tax calculation and reporting service. My first questions when I heard about this service were: How can it be free? What’s the catch?
The service, provided by the private company FedTax, is paid for by several states who are working together to make charging sales taxes easier for their merchants. These states are members of the Streamlined Sales and Use Tax Agreement and have created the Certified Service Provider program. As a CSP member, TaxCloud is compensated by the member states for providing the services to their merchants.
TaxCloud not only calculates accurate and updated taxes on your website, but also files your sales tax returns in Oklahoma and provides you with monthly reports and manages your exemption certificates.
Merchants can take advantage of the TaxCloud service along with the power, flexibility and ease-of-use of WordPress by using the Shopp storefront and shopping cart plugin and the TaxCloud plugin developed for it. While neither plugin is free, at $55 and $50 respectively, this system is still reasonably priced.