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Too many startups caught by hidden sales tax nightmares

Too many startups caught by hidden sales tax nightmares

By VB STAFF

In life, there are three things you can always count on: death, taxes, and the unexpected sales tax your business must pay without ever knowing why. While Benjamin Franklin may have coined “death” and “taxes” as the certainties in life, the laws of sales taxes are anything but. Just ask Erik Roach, a Seattle taekwondo instructor who will be forced to charge sales taxes in 2016 when his martial arts business is classified as “retail” instead of “service.” A move that could alienate all of Roach’s 130 students studying taekwondo.

This is not an anomaly. Businesses — big and small — are constantly caught off guard when it comes to issuing sales taxes for their products. They’re often oblivious to situations like properly charging music concerts or sporting events online — which varies from state to state. Or accidentally creating a Nexus when a sick executive retreats to his home office; a 20-minute drive from a neighboring state. And with these confusions comes costly mistakes that could seriously damper revenue.

How should businesses address the complexities of sales taxes? VentureBeat spoke to Scott Cohn, Vice President of eCommerce at the major fashion footwear brand Chinese Laundry, about these issues.

“Paying the correct tax and charging the correct tax is critical,” Cohn said. “You can’t get around it and customers deserve to pay the right amount and not something that’s kinda close. For brick and mortar stores, it’s not that horrifically challenging other than all the various holidays and various tax-free holidays and managing those things. From an ecommerce perspective, it’s really challenging.”

By working with a tax compliance platform like Avalara by using Celerant Technology’s e-commerce platform, Chinese Laundry is able to collect and pay the right sales tax for every transaction, no matter the complexities involved. They’ve been able to avoid bad customer experiences such as charging the maximum tax in a state — a big no-no for the ever-cautious credit card user who needs to pay exactly as planned and not be surprised by an unexpected decimal rounding of $10, instead of $9.75.

 

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