TAX CALCULATION, COLLECTION & REMITTANCE: HOW TECH HELPS
In our continuing series of reviewing the issues around compliant direct sales and shipping, we review the topic of tax calculation, collection, and remittance which are perhaps the most important considerations for state regulators in the alcoholic beverage industry at all levels of government.
Wineries and other producers must navigate a complex maze of sales and excise taxes. With more than 3,800 individual tax rates across local, state, and federal jurisdictions, with a maze of over 2.6 million zip codes, there is a lot to manage. This means there are endless ways to incorrectly calculate what is owed to stay legally compliant. Being delinquent in tax payments is a serious threat to any enterprise and can lead to nightmare scenarios that push the most honest, well-intentioned business owners out of business.
Many states are now moving to destination-based sales tax and that can cause numerous reporting and business issues, as it did in Colorado, that continue to impact online sellers. With more localities adding in their own special district taxes, the problem is only going to get worse for businesses to stay up to date and compliant. Also, in some states, there are alcohol specific sales tax rates and possibly “other taxes” that are required to be collected at the time of sale. For example, Maryland has an additional 3% sales tax add-on for alcohol, New Hampshire requires the seller to pay an 8% markup fee, and Kentucky requires both sales and excise tax to be charged and shown separately on the invoice.
Often software providers require their clients to provide the tax tables to be used. Many of the tables available only calculate to the five-digit zip codes, are not regularly updated, and only calculate at the state level. Checking regularly with your provider to see that the rates are updated is always a prudent thing to do.
States are moving towards electronic reporting to help speed up the process of reporting and collection of taxes. Ensuring accurate real time reports is vital for the quick reporting required. More states are moving to monthly rather than quarterly and annual reporting and so having all the data quickly and efficiently in one place is crucial.
States have implemented marketplace facilitator rules for the collection and remittance of sales tax, making it efficient for the states to collect sales tax and cutting down on the work and worry of the seller. These rules exist in over 35 states currently and apply to businesses such as Amazon, Etsy, Vinoshipper, and others.
It would not surprise us to see states extend the collection and remittance of taxes to excise tax as well. Some states like California have already extended the responsibility of marketplace facilitators for the collection and remittance of other fees and taxes. Vinoshipper is one of the first marketplace facilitators to manage sales tax under these rules in the alcohol industry and the savings in time and worry to our clients has been substantial. The states acknowledge this new system is far more efficient for the collection of fees and taxes than previously existed.
The good news, technology is making it easier for both producers and regulators to keep track of sales and apply the proper taxes, regardless of how complicated the rates are across political boundaries. In fact, using a robust e-commerce platform such as Vinoshipper, transactions include accurate, real-time calculations and tax payments which dramatically enhance compliance and eliminate risks for all parties.
With the use of technology, tax collectors and other regulators have data and tools that are more powerful than ever, which instill confidence throughout all levels of government, including the many enforcement and benefit programs that depend on taxpayer funding.
Our conclusion is that utilizing integrated technology smooths the collection and remittance of taxes and provides states with an easily auditable system and assurance of full tax compliance.