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E-Commerce and Tax Rates

Published 06/24-2013

Someone recently asked me how to compute accurate tax-rates in an e-commerce solution.

There is essentially no way to implement this without massive amounts of work - not because of any technical limitation, but simply because tax rates are defined, not computed, by various authorities around the US. Every state has it's own laws and regulations, and they all publish their tax rates in different formats, via different channels, and some don't publish in any useful electronic format at all.

Our clients usually opt for one of the following solutions:

  • Larger clients pay a subscription fee to use a service from a vendor that has gone through the trouble of building and maintaining an accurate tax-rate database. Usually, these services simply require an address and the type of goods sold, to provide an accurate tax-rate.
  • Given the alternative, smaller clients are usually okay with a "tax estimate" on the page, and so we use the average/maximum tax rate for each state to compute estimated tax - making the customer aware that the tax is an estimate. Given that they have smaller order volumes, they're usually okay with manually finding the tax rate after the order has been placed.
  • Clients with a medium order volume often simply commit to a fixed per-state tax rate and bill for that - they adjust internally and cover the difference, which is usually small.
  • Other clients simply cover the tax, and cover the average overhead by adjusting the product price - for clients that ship many small orders, this is usually the least desirable solution.

My experience with American clients, is that they pretty much all handle their taxes in different ways. Hence, we don't ship a single standard solution for taxes - we address the issue on a per-client basis to best meet the needs of their business.

We do not offer sales tax handling advice. We build the methods our clients select. Methods should be reviewed first by a qualified tax advisor, although experience indicates that no two will give the same advice. There is much need for judgement in setting up sales tax handling methods.


Rasmus Schultz Application Developer
Rasmus Schultz

Application Developer

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