Sales Tax Software for E-commerce Businesses

Key Takeaways

E-commerce businesses must comply with sales tax laws. And if you are an e-commerce business owner, navigating varying tax rates across different shipping locations can be overwhelming. But not to worry. E-commerce sales tax software is here to simplify the process and ease your concerns.

In this blog, we discuss why sales tax software is essential for e-commerce businesses and provide a guide to help you choose the best solution for your needs.

Why Do E-commerce Businesses Need Sales Tax Software?

Post-South Dakota vs Wayfair (2018), e-commerce businesses and online sellers in the US are required to collect and remit sales tax if they have what is known as a sales tax nexus in a particular state. Non-compliance with sales tax laws invites monetary penalties and audits. Hence, managing sales tax is critical for e-commerce businesses.

Sales tax compliance is increasingly complex for e-commerce businesses, due to cross-border transactions, multi-state nexus, and varied tax rates. In fact, according to a study in 2023, accurate tax calculation poses a significant challenge for many e-commerce businesses.

To deal with the increasing complexity, e-commerce businesses have begun using sales tax software. According to a study by Vertex in 2022, around 46% of small e-commerce platforms (with annual revenue between $20 million and $50 million) and 61% of medium and large-sized e-commerce platforms (with annual revenue between $200 million and $300 million) use a third-party tax software.

Use of an e-commerce sales tax software like Commenda helps determine tax nexus, automate tax calculation and collection, handle multi-state operations, and simplify sales tax compliance.

Benefits of Sales Tax Software For E-commerce Businesses

If you run an e-commerce business and are looking for a third-party sales tax software, it is important to understand what the benefits are. Here is the list of them.

Automation of sales tax calculation saves time and minimizes errors caused by manual processes.
Automation of sales tax collection and remittance ensures on-time compliance and helps them avoid monetary penalties and audit risks.
They are able to scale faster as sales tax software can handle increasing complexity of sales tax compliance as their businesses expand to more states and international locations.

How To Choose the Right Sales Tax Software

Choosing the right sales tax software depends on key factors like features, integration capabilities, and scalability. Affordability might also be considered, especially when a business is in the early stages.

Features

A good sales tax software must help automate the sales tax process as much as possible, with minimal interference from the businesses. This saves time for businesses to focus on their core offerings and improve compliance. Some of the key features include nexus tracking, exemption certificate management, sales tax calculation, automated sales tax filing, handling multi-state operations, and international compliance.

Integration Capabilities

A good sales tax software must integrate seamlessly with other platforms a business uses to conduct its operations—like its Enterprise Resource Planning (ERP) systems. For an e-commerce business, this software must also be compatible with other platforms such as Shopify, Amazon, etc.

Scalability

A good sales tax software must be flexible and adapt to handling the increased volume of sales as the business grows. This could mean handling sales tax obligations across many states in the US, or even other countries.

Comparison Between Leading E-commerce Sales Tax Software Solutions

As you now know, choosing the right sales tax software goes a long way. In this section, we compare the current solutions available in the market by key features they offer, pricing models, suitability for small businesses, and ease of use.

Comparison Table

Features	Commenda (Basic Plan)	Commenda (Enterprise Plan)	Stripe Tax	Avalara
Nexus Analysis and Identification	✔	✔	✔	✘
Sales Tax Automation	✔	✔	✔	✔ (through AvaTax)
Exemption Certificate Management	✔	✔	✘	✔ (through Exemption Certificate Management)
Automated State-Specific Sales Tax Filing	✔	✔	✘	✔ (through Avalara Returns)
Multi-Platform Integration	✔	✔	✔	✔
Fees for Multi-Platform Integration	✘	✘	Additional fees based on level of integration	✘
Pricing Model	Subscription pricing	Subscription pricing	Subscription pricing + pay-per-use pricing	Pay-per-use pricing
Suitability For Small Businesses	✔	✘	✘	✘
Ease of Use	⬆ High Performs all tasks from nexus determination, sales tax calculation, collection, remittance and filing in one platform	⬆ High Performs all tasks from nexus determination, sales tax calculation, collection, remittance and filing in one platform	⬇ Low Works better for Stripe payments, not others. Need to integrate with Stripe for multiple functionalities	⬇ Low Need to purchase different products to comply with sales tax - AvaTax, Avalara Returns, Avalara Exemption Certificate Management

Key Features of Commenda’s Sales Tax Software

Commenda offers a wide range of features through its sales tax software for e-commerce businesses like:

Sales Tax Automation

We automate the process of sales tax calculation, managing exemption certificates, and filing sales tax returns. This helps businesses save time and reduce errors caused by manual processes.

Handling Multi-State and International Operations

We can track the nexus status, file sales tax returns, and ensure compliance for businesses operating in many states in the US, and also with international presence all in one platform.

Nexus Analysis and Management

The determination of sales tax nexus has become complex with thresholds that vary with state. We track your transactions and alert you if your business approaches a threshold limit. This helps you identify your sales tax nexus in time and avoid penalties for failure to collect and remit sales tax.

Exemption-Certificate Management

Managing exemption certificates is crucial while reporting tax-exempt transactions. We manage and ensure that exemption certificates are valid at time of sales tax filing.

Integration With Other Business Systems

Commenda can be seamlessly integrated with other e-commerce platforms (e.g., Shopify, Amazon) and ERP systems to ensure smooth business functioning and improved decision making.

Support

We offer tailored support to our clients through email and chat support. Businesses that avail an enterprise plan also have a dedicated account manager to assist them.

How Does Commenda Work?

Commenda adopts a simple onboarding process with few steps.

Connect to your e-commerce platform.
Set up the states in which you operate, tax rules, and nexus obligations.
Automate tax calculation and filing.

The above is a basic overview of the onboarding process we adopt. The process is customized based on the business needs after a consultation with our experts.

Platforms We Support

We are compatible with a wide range of e-commerce platforms to offer seamless integration for business owners. A few of these platforms are:

Shopify
BigCommerce
WooCommerce
Magento (Adobe Commerce)
Wix eCommerce
Squarespace Commerce
Amazon
eBay
Etsy

Who Should Use Commenda?

Commenda is designed to support businesses at every stage of their growth journey:

Small businesses navigating changing tax regulations and seeking automated solutions for tax compliance.
Mid-sized businesses expanding operations across states, requiring tracking of nexus, and managing varied sales tax rates across jurisdictions.
Large-scale online retailers with an international presence, needing robust support for international sales tax compliance.

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Pricing Plans

Commenda adopts a transparent and flexible pricing policy, with clear rates for services you choose. We cater to e-commerce businesses of all sizes, at different growth stages, and with different business needs. We offer two plans for our sales tax software solutions—basic and enterprise.

Basic Plan

This plan is ideal for small and mid-sized e-commerce businesses, who mainly operate in one country, like the US. The pricing under the basic plan is:

If you operate in 5 or less US states: $499/month
If you operate in more than 5 US states: $75/month per state

Enterprise Plan

This plan is ideal for large e-commerce businesses or ones with complex needs. Advanced features like international sales tax compliance, dedicated account manager, and full-scale tax filing are included in this plan. Enterprise plan pricing starts at $125/month per state, with custom options available for businesses with unique requirements.

Visit our pricing page or book a consultation with our team to understand more about these plans.

Customer Success Stories

Listen to what our clients have to say about us.

“Commenda’s team handles all our global regulatory and compliance needs promptly and seamlessly. This enables our team to focus solely on product development and business growth.” —Harsh Tyagi, AbleSpace

“I switched to Commenda because my previous accountants were slow and overcharging me. We love using Commenda for their transparency of work and pricing, their ability to meet deadlines, and the accessibility to ask questions to their compliance experts.” —Reiss Jones, Macro Supplies

“The experience working with Commenda has been nothing short of magical. They deliver on-time with every request and demystify and navigate the compliance and legal matters at affordable prices.” —Mihir Katiyar, WorkDuck

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FAQs

FAQ

1. Can Commenda handle international sales tax?

Yes, Commenda handles international sales tax compliance under its Enterprise Plan.

2. What happens during an audit?

During a sales tax audit, audit managers check if the correct amount of sales tax has been collected and remitted to the state by the business.

3. How can e-commerce sales tax software improve accuracy in tax calculations?

Sales tax software determines the relevant state and local rates for a transaction and automates the tax calculation, minimizing errors that arise due to manual processes. This improves the accuracy.

4. How does sales tax software aid in better decision-making for e-commerce businesses?

A good sales tax software automates the process of sales tax collection and remittance. It minimizes interference from the businesses in compliance-related issues. This leaves more time for decision making.

5. How can I assess the ease of use of sales tax software?

A sales tax software is easy to use if it handles and performs all tasks related to sales tax compliance in one platform, with lower setup times.

6. Why is integration with existing business systems important for sales tax software?

It is important for a sales tax software to integrate with existing business systems. This ensures the business operations continue uninterrupted as a new software is used for sales tax compliance.

Resources Section

These resources will help you understand more about e-commerce sales tax compliance in the US.

US Sales Tax Guide
US Sales Tax Compliance Guide
Sales Tax Exemptions
What is Sales Tax Nexus
How to calculate US Sales Tax

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Selecting the right sales tax software is vital for your e-commerce business’ success. We are here to support. Have questions about sales tax compliance or our plans? Schedule a consultation with one of our experts today.

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Article by

Sam Suechting

Sam Suechting is Head of Product Operations at Commenda, leading the development of the world’s largest index of business regulations, focusing on transaction tax, tax treaties, and transfer pricing. Previously at Silverhaze Partners, he worked on early-stage venture capital and international joint ventures in the Gulf and East Asia. He is passionate about economic development and the historical impact of corporations on societies and economies.