With COVID-19 restricting physical businesses, more companies are opting to sell their products online. This has led to an expansion of ecommerce divisions and an unprecedented number of transactions online.
But with the aspect of selling online also comes the complicated world of sales tax.
As an expanding ecommerce business, you just want to engage your customers and sell more products. The last thing you want in a COVID-affected economy is to rack your brains about sales tax laws and rates (as if 2020 didn’t give you enough headaches already!).
This is where ecommerce sales tax software comes into the picture.
These sales tax tools simplify the complications related to calculating sales tax and use tax rates, using the latest rules for different jurisdictions. Apart from that, they also help in filing returns, making a business audit-ready, and maintaining exemption certificates.
To help you in selecting your ecommerce sales tax tool, I have compiled a list of the best ecommerce sales tax software. I have outlined their different qualities, along with various aspects to consider.
So stop being your own accountant and use this cherry-picked list of tools that will take care of all your sales tax needs and help you focus on growing your business.
The Best Ecommerce Sales Tax Software List
Here’s a shortlist of the best ecommerce sales tax software:
Now before I go deeper into each tool, I want to discuss some of the most frequently asked questions related to ecommerce sales tax software.
How Does Ecommerce Sales Tax work?
A sales tax is a consumption tax that is charged as a percentage of the sale of a taxable product.
Typically, you need to charge sales tax in states or regions where your business has a physical presence or significant connection.
The general rule for ecommerce sellers when collecting sales tax is:
If your business has a nexus in a state (legal jargon for significant connection), you are obligated to collect sales tax from online customers in that state.
If your business does not have a significant connection or physical presence, you typically do not have to collect sales tax for online sales.
Having said that, a US Supreme Court ruling in June 2018 has made it easier for states to make it obligatory for all businesses, regardless of physical presence, to collect sales tax.
Also, through some business activities (especially in cases of ecommerce business), a nexus is often created outside your home state too. This might include a location, inventory, affiliates, personnel, a dropshipping relationship, or an economic nexus where the sale exceeds the transaction amount set by the state.
Do I Need To Charge Sales Tax When Shipping Out Of State?
In the US, most states collect sales tax based on destination. In other words, each sale is considered to occur at the place where the product is ultimately being used.
How Do I Charge Sales Tax For Online Sales?
With all these legal intricacies, collecting sales tax can feel a bit overwhelming. Do not fret. You can use sales tax software that will automatically calculate the right sales tax rates based on rules and rates of different jurisdictions. The list of software I will share today will make collecting sales tax for your ecommerce businesses a breeze.
Ecommerce Sales Tax Software Comparison Criteria
What did I look for when I selected the best ecommerce sales tax software? Here’s a summary of my evaluation criteria:
User Interface (UI): Is the ecommerce sales tax software clean and attractive? Is it easy to view and calculate the different tax rates?
Usability: Is it easy to learn and master? Does the company offer good tech support, user support, tutorials, and training? Is it easy to launch and update sales details and compute taxes quickly?
Integrations: Is it easy to connect with other tools? Any pre-built integrations? Is it easy to connect with various Point of Sale software, ecommerce CRM software, or other ecommerce tools?
Value for $: How appropriate is the price for the features, capabilities, and use case? Is pricing clear, transparent, and flexible?
Ecommerce Sales Tax Software: Key Features
What features make the best ecommerce sales tax software? I specifically scanned tools for these important features:
Up To Date Rates And Rules
Does the software have up to date sales tax rates and sales tax compliance rules for different jurisdictions? Sales tax can be a very complicated world. The no.1 criteria was selecting software that makes the life of ecommerce managers easy by getting accurate rates and rules for different tax jurisdictions. I selected tools that fetch tax rates and rules based on geolocation and product classifications.
Automated Tax Filing
Does the tool enable automation when filing taxes? I focused on software that reduces the accounting workload and does most of the heavy lifting with automation. Tax filing can be a burden when done manually. I looked for tools that simplified this process the most.
Exemption Certificate Management
Does the tool help in the verification, storing, and managing of exempt tax certificates? Exempt tax certificates are incredibly valuable for an organization. The sellers need to produce it during an audit for each tax-exempt purchase. Maintaining them is crucial but often difficult and manual. I looked for software that made managing and maintaining exempt certificates a breeze.
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Overviews Of The 10 Best Ecommerce Sales Tax Software
Here’s a brief description of each of the ecommerce sales tax software on my list.
1. Avalara – Best eCommerce sales tax software for companies of any size and industry
The tool I wish Nicholas Cage knew about. With the highest number of ratings on G2, Avalara is one of the leading apps that helps ecommerce companies to get their tax compliance right. Avalara’s Avatax removes the no.1 pain point of accounting overwhelm by supplying sales tax calculations and rules based on geolocation and product classification.
It offers more than 700 integrations. Use it to manage your data across various apps connected with your ecommerce platform. Apart from that, it removes tax from exempt sales and skillfully manages and organizes exempt documentation (no more tedious googling at the 11th hour!).
Avalara offers flexible volume-based pricing starting at $25 per month.
A simple and clean interface
Up to date tax rates and rules
Customer service needs improvement
Corrected transactions take a considerable amount of time to update
2. TaxJar – Best for auto-filing sales tax returns for companies of all sizes
TaxJar is a great tool for ecommerce companies to arrange and organize sales tax data and fetch return-ready reports. Covering over 14,000 tax jurisdictions, TaxJar ensures that you ask for and collect the right amount for your product. Also, with companies like Coca Cola, Microsoft, and CBS as clients, TaxJar resonates reliability.
TaxJar pricing starts from just $19 per month for up to 200 orders/month.
Smooth integration with platforms like Amazon and BigCommerce
Support only available by email unless you upgrade to TaxJar Plus
Additional rules for specialized product types would be helpful
3. Vertex – Best tax management SaaS for small and medium businesses
Vertex helps you steer away from manual processes and eliminate audit risks with the help of their powerful content and technology. It sorts and takes care of the end-to-end tax lifecycle. It automates calculation, exemption certificate management, and tax returns, all with a single interface.
Use this tool to stay on top of the latest economic trends, audit activity, and regulations in over 11,000 state and local jurisdictions.
Vertex can help users streamline their workflow and processes through capabilities for centralizing, automating, and improving tax accuracy across all transaction billing systems that you use. Vertex Cloud indirect tax simplifies computing and reporting of sales tax and consumer use tax in the US and value-added tax abroad.
Pricing for Vertex is available upon request.
Easy to navigate, very user friendly
The Help option updates you about new tax laws
Calculations stored differently than as represented on screen
Taxify is a product of the Sovos brand, one of the world’s leading voices in tax for the last 30 years. With over 14,000 tax jurisdictions spanning across 50 states, Taxify will keep the overburdened ecommerce sellers tension-free with accurate rates. It helps you automatically comply with tax changes and offers an easy way to auto-file tax returns. Also, it has readily available tax experts that will cater to your nuanced needs and questions.
Taxify is priced at $47 per month with an option of a free trial.
Helps avoid late fees by automating tax calculation and filing
Automatically complies with changing tax laws
Feature-lite compared to other software on this list
More expensive compared to other software on this list
5. LOVAT – The best tool to manage global VAT liabilities for companies of all sizes
LOVAT promises to solve the problem of tax reporting within minutes. LOVAT is light and fast, while still being robust enough to serve as an all-in-one solution for global VAT liabilities. Unless you are feeling generous, I highly recommend their VAT calculation system that makes sure you never overpay.
Use it to file tax returns automatically and be audit-ready.
Pricing for LOVAT starts at around $43 USD (35€) per month.
Great live support with a short waiting time
Provides notifications to ensure you don’t miss deadlines
6. Webgility – Best tax management tool for online retailers
This is a perfect sales tax solution for businesses that use QuickBooks, Xero, or Netsuite. Use it to map sales tax to specific items in QuickBooks, Xero, or Netsuite, and improve accuracy. Webgility supports both single and multiple tax jurisdictions. The integration with Avalara for advanced sales tax rate validation and automated filing makes it all the more lucrative. Being a BigCommerce certified partner, it provides ecommerce accounting management solutions to 60,000 BigCommerce shopping cart customers.
Webgility pricing starts at $15 per month with a free version to get you started.
Ensures 100% accuracy when downloading data provided by customers
Easy integration with QuickBooks
May need to manually redo configuration settings after software updates
Though it may sound like an old school news bureau, Thomas Reuters packs a massive punch in the world of ecommerce tax software. It uses the latest rules and rates to ascertain sales tax, use tax, VAT, and GST.
It makes managing sales and use tax a breeze, with GST and VAT compliance done in a streamlined way through one system.
The team also provides step by step sales tax guidance and answers, all in a single place.
Pricing for Thomas Reuters ONESOURCE is available upon request.
Streamlines workflow by connecting departments internally
Saves time by automating processes that would otherwise be time-consuming
Does a great job of maintaining up-to-date tax information
Takes time to gather data
Difficult to zero-in on the right support team to solve your query
Feels a little clunky when handling hundreds of tax forms, entity data, and more
8. Canopy – Best comprehensive practice management solution for tax professionals and mid-size accounting firms
Canopy is a tax resolution and practice management software. Boasting smart tax analytics and a dynamic client portal, Canopy is spearheading tax technology. No wonder it got awarded the K2 quality award for tax technology in 2019.
Canopy pricing starts at $89 per month with a free starter option.
A highly customizable and branded client portal
Provides good research on what to include in IRS response letters
Customer support needs improvement
Obtainment of the transcript feature does not work properly
9. DAVO – Best sales tax allocation software for brick and mortar businesses
DAVO collects sales data from the point of sale system so that it sets aside the sales tax amount collected daily. It helps with auto filing and payments of sales tax. DAVO integrates with QuickBooks online, Clover, Square, Revel, and all the other major POS software.
DAVO sales tax pricing starts at $39.99 per month. They do not have a free version but do offer a free trial.
Auto-filing and payment capabilities
Visualize and manage your sales tax data in an organized way
Has a few technical glitches
A bit expensive for small businesses just starting out
10. TaxCloud – Best sales tax management service for online retailers selling on marketplaces
TaxCloud is the only sales tax tool with a free state-paid option that’s available for 25 states. It helps determine the applicable sales tax rate based on product or service and collects sales tax at the point of transaction. Use it to file and pay tax returns to appropriate state and local jurisdictions. The team also provides hands-on support for audit-related matters and state notices.
TaxCloud is extremely affordable, with pricing starting from $9 per month. It also has a free version and a free trial.
Superior sales tax reporting
An easy customer interface with multiple tools
A bit of a learning curve when it comes to the API
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Other Ecommerce Sales Tax Software Options
Here are a few more that didn’t make the top list.
123 Sheets – Best for accountants and bookkeepers to file HMRC VAT returns for their clients
Utility software – Best basic return-filing software for small to mid-size firms in California and NY
What Do You Think About These Ecommerce Sales Tax Software?
These are my top picks to help you solve your tax-filing needs once and for all. You may have noticed that some of these tools have limited payment options. Here’s a list of the 10 Best Online Payment Processing Software you’ll probably find to be of great help!
Now it’s your turn to chime in. What do you think about the list? What ecommerce sales tax software am I missing? Let me know what your favorite tool for ecommerce sales tax management is in the comments.
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