A frightening number of businesses use free sales tax calculators and ZIP codes to get sales tax rates for customer addresses. For instance, if you need to know how much sales tax to charge a California customer, you might be inclined to take the ZIP code from their address and use a sales tax calculator or free rate table to find the rate. This method can give you inaccurate rates, landing you in trouble with customers and states.
The U.S. Postal Service developed Zone Improvement Plan (ZIP) codes in the 1960s, so mail could be delivered more efficiently. What many people don’t know is that these “zones” can not only overlap each other, they can be adjusted and, sometimes, they might not represent a geographic region at all. In any given year, the USPS makes numerous boundary changes to ZIP code areas, making them an unstable data source. Most importantly, tax jurisdictions do NOT correspond with ZIP code regions. That means basing sales tax rates on a ZIP code risks applying not only an incorrect sales tax rate, but remitting it to the incorrect jurisdiction. This can increase your company’s risk of audit and result in penalties, fines, and fees.
Using geolocation technology to find the right sales tax rate, on the other hand, now that’s a different story.
Here are three tips to live by to make sure you’re using the right sales tax rates:
Don’t use scissors to trim your lawn
Why use scissors to trim your lawn, when the latest and greatest self-propelled mower is only feet away? Identifying the taxing jurisdiction associated with your company’s taxable transactions is one of the key components of sales tax compliance. Don’t waste your time with ZIP codes, when a pinpointed methodology is available.
Compliance is as compliance does
Guessing and estimating sales tax rates increases your audit risk. Why take a chance, when better, faster, more efficient technology to get sales tax right is available? Geolocation technology validates addresses and matches them to a current, nationwide database of tax regions. That means accurate tax rates at the rooftop level.
Education is the key
Take the first step to being truly tax compliant by getting educated by checking out this handy infographic “The Perilous Path to Sales Tax Compliance.”
Contact us today if you want to learn more about Sales Tax Automation.