New York State Sales Tax headaches for a clothing retailer

October 11, 2012 1:05 PM

How do you handle the labyrinth of New York State sales tax? I'm launching an online business that sells goods (some clothes, some non-clothes). We're located in New York State. We need to collect tax in New York State... gorey details inside.

New York State does not charge sales tax on clothing under $110.

Certain municipalities do - usually around 4%, but it varies by county, there's a list of about 50 counties that you can get from the NYS taxation website.

Non clothing items are taxable at the rate of the municipality, plus the NYS rate.

If we're selling (for example on eBay) we can set the tax on a per-state basis, but not a per-county basis. Our own online store, the web developers tell us, is also on a per-state basis. eBay is even worse because we can't change the tax rate on a per-item basis.

So how do people do this? We cannot over-charge people for tax, that wouldn't be correct (or legal). Do we simply eat the tax in New York State and pay it out of revenue? What do people do in this situation? We expect a significant portion of our customers to be located in New York (since we have a bricks & mortar store here) and would prefer not to reduce our profits on so many of our customers.

We have consulted with an accountant, they simply made us aware of the issues and how we solve this problem is up to us.

posted by Muffy to work & money (8 answers total)

It's a huge pain in the ass, really. I'm in NYS and sell clothing and accessories on Etsy. Etsy lets you configure by ZIP code (I think) but the problem is that some tax municipalities cross ZIP code lines, so someone on one side of the ZIP code could be subject to a different rate that someone on the other side.

Etsy recommended that people put a note in their item listings for specific checkout instructions for NY State buyers, and then the seller is supposed to add the correct local tax amount and send an invoice. It totally sucks, but if eBay has an option for the seller to adjust the invoice total before finalizing the order, I'd just do that.
posted by bedhead at 1:11 PM on October 11, 2012

The easiest answer for you is to have an accountant manage your taxes. Most accounting software will deal with this.
posted by dfriedman at 1:13 PM on October 11, 2012

I have never had to deal with this, but in theory you can treat it as a custom item ("NY State residents: due to the complexities of NY State tax, we must add it to your order at the time of shipping.")

And then you use this site to come up with the rate for their address and apply it.
posted by zippy at 1:16 PM on October 11, 2012

Some hosted ecommerce software (including the one I work for) automatically handle NY state's weirdo taxes.
posted by dripdripdrop at 1:17 PM on October 11, 2012

You can get better web-developing software. You might be able to build in Vertex, which is the pricey Cadillac option. Or get them or a different fulfillment company to manage your order management.

If you're still small enough, the most cost-efficient method would be to estimate tax and shipping, and then update the order at time of shipping.
posted by politikitty at 1:18 PM on October 11, 2012

If you are willing to use a new system, you could check whether popular hosted online shopping systems such as Yahoo! Store, Volusion, or Shopify can handle this. Or you could look at whether hosted accounting programs like Netsuite and Interprise Suite can handle it. Or maybe even Quickbooks.
posted by Dansaman at 1:24 PM on October 11, 2012

We're locked in to this web dev agency, we signed with them weeks ago. They've been in the business of developing clothing e-commerce sites for the past decade. We're handling fulfillment in house.

Charging the maximum tax rate and then reducing it at shipping is an option that is being discussed. It's a huge pain in the ass. There's a lot to calculate - clothes, not clothes, etc.

http://www8.tax.ny.gov/STLR/stlrHome - this looks like a great tool, though we're combined clothing / non-clothing, which is another headache.

I think Shopify can handle this, I remember Shopify's tax options being incredibly in depth.

That doesn't help us for our eBay store though.
posted by Muffy at 1:40 PM on October 11, 2012

There are third-party tax companies like Avalara that allow e-commerce sites to query for tax rates on specific items, based on your nexus and the item shipping address (and an item database that you create to identify things as clothing, services, handling, etc.). Avalara also has a web interface for manual querying, and they can even manage your tax transactions, pay the franchise boards, and bill you monthly.

The services are great because they update their tax tables as local laws change.
posted by hammurderer at 1:46 PM on October 11, 2012