Does the national debate on Internet sales tax reform leave you feeling anxious? Is your company prepared to manage and remit sales tax for all states where you do business? Audit penalties average $23,000, so you can’t afford to be wrong when it comes to sales tax. Cimbura.com can help integrate accurate sales tax calculations into your FileMaker solution. Arnold Palmer once said golf was “deceptively simple and endlessly complicated.” The same can be said for state and local taxes.
There are many ways to calculate sales tax in FileMaker. This article will review the options that range from the least expensive, simplest method to the most expensive, most automated method for complex tax calculations.
There are over 600 individual tax laws across the US in different states, which makes keeping up with sales tax rules very difficult. This includes:
- City, district, transit, county, state, country, and other taxes based on location.
- Categories of products that are affected differently. For example, in MN food (groceries) and clothing are not taxed, but restaurant-prepared food is taxed.
- Sometimes services are taxable and other times they are not.
- There can be maximums and limitations to how much of a particular item is taxed. For example, only the first $1,000 of an item may be taxed.
- Sometimes shipping is taxable, other times it is not.
Not calculating the tax correctly can also leave your business in a situation with a potentially great tax liability. So it is important to collect accurate taxes from your customers and pay those collected taxes promptly to the proper government organizations.
(1) Calculate Manually
The first and simplest method of calculating sales tax is somewhat manual.
A. Find the full 9-digit zip code of your shipping destination. This can be found by entering the address into the US Postal service site at http://www.usps.com/zip4/
B. Go to your particular state web site to enter the zip code and get the sales tax breakdown. For example, in Minnesota, the tax calculation site is http://www.revenue.state.mn.us/businesses/sut/Pages/SalesTaxCalculator.aspx
C. Record this set of values in FileMaker on your current invoice and use it to calculate the sales tax on each line item.
(2) Use a Web Service
A second option would be to use a simple web service to calculate the tax based on the zip code location. StrikeIron is one web service that provides this information. They also have many other services available such as address verification that can automatically look up the 9-digit zip code for you. Some other helpful web sites are: Tax Policy Center and Tax Foundation
Sales Tax Clearinghouse would be another option. In addition to a manual sales tax calculator and subscription services, its website shows the several dozen cities, counties and districts that have changed their tax rates in just the last six months.
(3) High End Web Service
The third option also utilizes a web service that provides the highest end sales tax calculation engine available. One of our clients had an extremely complex sales tax situation. They drop-ship different types of products all over the U.S. from multiple locations to many locations. They are a high-revenue business, so even a minor error in sales tax calculation could create a great liability. So in this case it is worth the extra cost for an extremely accurate service.
Enter Avalara. Avalara’s AvaTax is a service that keeps track of all of the individual sales tax laws and their changes. Avalara boasts that the AvaTax™ sales tax decision engine delivers 100,000+ taxability rules across 11,000+ jurisdictions. (AvaTax is actually the system used behind the scenes at the Apple Store.) By providing critical information about your sale such as the location, types of product, etc. to the service, AvaTax will provide you with the appropriate tax information for your invoice. As you post your invoices to AvaTax, it will also track everything so that you can get the appropriate reports directly from their system at the times necessary to file your sales taxes.
Because AvaTax calculates tax at the line-item level, not just at the invoice level, each item you sell needs to be coded appropriately according to Avalara’s rules to map it to the particular rules governing those types of products and services. Product/service types include liquor, computer software, new construction vs. renovation, etc.
To implement AvaTax with FileMaker, we built a custom PHP interface that talks to the AvaTax web service and passes the FileMaker data to AvaTax. Tax information is returned to FileMaker so we can calculate the correct invoice price and print. In the meantime, AvaTax tracks each item. We then built this as an option into fmIgnite.
According to Avalara, Cimbura.com, Inc. is the only vendor that has successfully integrated Avalara’s web services with FileMaker. Avalara’s web service is pretty complex. Since we have completed the integration of this solution before, the implementation cost to you will be significantly less expensive than a developer who has never worked with Avatax before. Contact us if you have this high-end need for accurate sales tax calculations and we can assist.