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Product Taxability

Top 2 Things You Need to Know About Product Tax Classification

by Kristen Cooper

The least fun part of growing your business is dealing with sales tax — we know. But, it’s a necessary evil you can’t avoid. Product tax classification is an important part of the puzzle and you should be knowledgeable about how that impacts your business and how to set yourself up for success.  

  1. Know what you’re on the hook for and where. 

Sales tax laws change constantly. New laws are introduced, and outdated taxation paradigms shift. Sales tax laws vary from state to state and often provide no consistency, making it tough to decipher. Add in determining where you have nexus, and therefore sales tax obligations, and you have a party on your hands!  

Conducting and keeping up with the research on your own can be time consuming and costly.  The same is true for determining and keeping up with sales tax nexus. The good news is, you don’t have to do it on your own. 

Here’s what to look for: 

  • A partner who can keep up with the research and sales tax law changes on your behalf. 
  • A solution that can help you determine where you currently have sales tax nexus and will notify you when you’re approaching a threshold in the states where you do business. 
  1. Product classification matters.

Certain types of products can be taxed at different rates (or might be exempt), which adds an additional layer of complexity to sales tax. Understanding and utilizing product classification determines the correct rate at which sales tax is collected and remitted — and keeps you compliant.  

Rapidly evolving technology (think the Internet of Things) and emerging products compound the challenge and can make it even more difficult to accurately classify what you’re selling. is. Digital goods are a great example. Existing, and now antiquated, taxation paradigms are having to adapt and catch up with the times, creating new expectations and new classifications.  

Ensuring that you are classifying your products correctly so you’re charging the right sales tax can be stressful and could impact you in an audit. Thankfully, there are automated solutions that do the hard work for you. 

Here’s what to look for: 

  • A solution that offers granular product tax categories that matter to your business. 
  • A solution that will provide real-time sales tax rates and calculations.

Paying attention to product tax classification helps you calculate sales tax more precisely. As a result, you’ll charge the right sales tax for the location AND the type of inventory you’re selling. Best of all, you’re officially compliant, which  makes your life so much easier.

Check out what TaxJar has to offer and schedule a demo with us today.

Interested in learning more about the ins and outs of taxation of digital goods? Check out our on-demand webinar, Keeping up with Sales Tax on Digital Goods.   

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