TaxJar is a new, cloud-based company that’s taking a fresh approach to helping online business owners succeed. The company’s passion and mission is to eliminate the complexities of sales tax compliance that ecommerce businesses face.
Online business owner entrepreneurs are taking advantage of the cloud, global shipping, virtual employees, and modern resources to create dynamic businesses. They’re successfully running these businesses with minimal staff (sometimes by themselves) and have many responsibilities, including building vendor relationships, sourcing products, managing inventory, coordinating shipping and receiving, handling returns, addressing customer feedback, managing shopping carts, developing SEO and social media – not to mention dealing with sales taxes, accounting, and technical support. It’s pretty amazing what technology combined with the right attitude can make happen.
Unfortunately, managing all of the above-listed responsibilities is challenging. Ecommerce business owners should be outsourcing the accounting and sales tax aspects of their business, because dealing with those areas isn’t the best and most valuable use of their time as entrepreneurs.
TaxJar – Built for Accountants
TaxJar understands that many businesses look to their accountants and CPAs for compliance guidance and support. The company’s cloud-based solution enables accountants to manage multiple clients, provide centralized billing, and optimize the sales tax filing process so they can manage more clients with less effort.
If you have current online business owner clients for whom you are filing sales tax returns, TaxJar provides a potential solution for collecting the data from Shopify, Amazon, PayPal, Etsy, eBay, Big Commerce, and WooCommerce and consolidating the data into a usable format.
TaxJar provides a single login and dashboard to access each client’s data (similar to Xero’s dashboard). You’ll be billed for individual clients in a single monthly bill, so you can mark up services to your clients as you see fit.
You can easily invite your clients to TaxJar so they can connect to their online channels (Amazon, Shopify, Magento, etc.)
Data Import and Export
TaxJar provides import functionality. If your clients have sales outside of the online channels, you can import the data and have a single solution that totals up the sales tax liability.
Export functionality is also provided. TaxJar is great at pulling data from Amazon and the other platforms, plus there are lots of useful reports. However, you might need to analyze the data in an Excel pivot table (i.e., figuring out each state’s total sales for franchise taxes).
Deeper Dive into TaxJar
The primary value to an accountant and/or online retailer is saving time. By collecting all the data and presenting it in the proper format, sellers save time downloading transactions, entering them into spreadsheets, and building the reports to file the returns properly.
TaxJar automates the data collection process by pulling data from Amazon, eBay, Etsy, PayPal, Shopify, Magento, Big Commerce, and WooCommerce. Reports necessary to complete each jurisdiction’s sales tax form, such as the one shown in Figure 1, are provided for each tax jurisdiction.
City and county breakouts are included, as shown in Figure 2.
Figure 2: Taxes are broken out by city and county
Amazon doesn’t make it easy to break out the sales tax collected in the payments that are made to sellers, and many accountants are unknowingly recording the deposits from online sales as gross revenue instead of breaking out the sales tax collections and Amazon fees. Fulfillment by Amazon (FBA) Sellers can check a single box, and TaxJar will report on all the states where Amazon has warehouses.
Sales Tax Analysis (Quantifying the Sales Tax Liability)
This is my favorite feature! One of the challenges for online sellers is understanding their total liability in each state and how much tax they should be collecting. For example, if online sellers aren’t registered in a state but have nexus (e.g., an Amazon warehouse in California establishes nexus) and they’re selling $10,000.00 per month, they would owe $750.00 (assuming 7.5% tax rate) per month to California that they would need to collect. When they decide to register, file, and pay sales tax, they will have to pay the previously uncollected sales tax, and it comes out of their cash flow and profits. TaxJar helps determine where to collect and remit sales tax and what the current liability is.
Figure 3, a TaxJar Detail Sales Tax Analysis report, is a typical example of what a successful Amazon seller would owe when the seller is only collecting sales tax in two states (the state the business is located in and its primary pick/ship warehouse), but not the other 12 Amazon states where its products are stored by Amazon. (Note: Amazon FBA creates nexus in 15 states; 13 of which have a sales tax.) The report also shows if the seller is under- or over-collecting in a specific state.
Figure 3: TaxJar Detail Sales Tax Analysis report
Another key item in the report is the sales tax established date, the date that nexus was created for the business (and no sales tax should be collected before that date). For example, if you are an Amazon seller and you weren’t already in Texas, Amazon started shipping from the Texas warehouse in September of 2013, so your business wouldn’t have nexus before that date.
Through its clean integration with Xero, TaxJar sends an email on the first of each month letting the accountant or business owner know that the Xero bills for that month’s sales tax liability are available to be imported into Xero. This allows plenty of time to review the data; import any data from outside the standard TaxJar connections (Amazon, Shopify, etc.); and process bills before their due dates.
The sales tax liability information is automatically posted and broken out by state on bills (Figure 4).
Figure 4: Bills show sales tax due by state
Xero’s Bills page lists what taxes are due and the dates they’re due (Figure 5).
Figure 5: Xero’s Bills page
The integration is unique in that it creates a liability account for each state in your Chart of Accounts, as shown in Figure 6.
Figure 6: Xero Chart of Account shows tax liability for each state
TaxJar Now and in the Future
Here’s what TaxJar doesn’t do (although it’s continually evolving):
- Identify where your business has nexus from Amazon FBA inventory movements.
- Register for sales tax licenses.
- Generate the actual sales tax return forms or file electronically. The system is currently built to provide the right data to make it easier to complete the forms, but you’ll still need to file the data for each state online or complete the forms and mail them in.
Nonetheless, TaxJar is already a great tool that simplifies the sales tax compliance process for online sellers as well as for accountants who manage multiple clients. By managing the data collection and organizing the per-state, per-month reporting, it substantially reduces the time needed to get to the numbers for preparing sales tax returns.
Overall, I’m a big fan of TaxJar. The team is constantly updating the product based on its clear vision and customer feedback, and there isn’t a week that goes by that I don’t see improvements and enhancements. TaxJar is expanding the platforms it pulls sales transactions from, expanding its API, and growing partnerships. If TaxJar doesn’t meet your sales tax needs today, keep a close eye out as it might in the near future.
Catch Scott’s presentations at Solutions14, November 9–12 at Caesars Palace in Las Vegas!
The best education, the best networking, and the most fun you can have and still get a tax deduction . . .
Join The Sleeter Group for Solutions14. Read More…