Sales tax rounding in your report and your sales tax return

Why amounts in TaxJar might not match the sales tax return exactly?

Sellers sometimes run into a small discrepancy between the amount of sales tax you actually collected from the state and the amount of sales tax that the state wants you to report and pay. The reason why? Rounding.

How does rounding affect sales tax?

Many, though not all, states require that you round the amount of sales tax you collected, at least in part.

Let's use a very simplified example:

Say you sell three items in the same state and local area, and all cost $18.76. The tax rate is 1%.

In this case, since 76 is greater than 50, you'd round up at the item level when you charge sales tax, so you'd charge your customer .19 in sales tax on all three items, for a total sales tax of 57 cents. (.19 x 3 = .57).

However, when you file your sales tax return, you are asked to total these three sales.

$18.76 x 3 = $56.28.

Because 28 is less than 50, you'd be required to round down here. 1% of 56.28 rounded down is just .56.

In just 3 sales, we already see a discrepancy of .01 between what you collected and what the state expects to see.

Imagine when you do a high volume of sales. The amount of sales tax you actually collected, and the amount of sales tax the state expects to see, can vary quite a bit.

For a much deeper dive into sales tax and rounding, check out this blog post written by a sales tax auditor: Rounding: Why Your "Sales Tax Collected" and "Sales Tax Filed" Don't Always Match

Rounding in your reports

Rounding can cause small variances in your reports due to the following reasons.

1. If you're using our TaxJar API, calculations may be rounded as we explain here.

2 When transactions are imported into the system, the reports are built using the sales tax collected on each line item.

Rounding occurs immediately after (unit price * rate) instead of adding up all of the un-rounded sales tax and rounding the final sum.

2. Sales tax rates are also a combination of various jurisdiction rates as explained in the above scenario. Here's another example:

For example, a 7% rate may be the combination of a 4% state rate, a 2% county rate, and a 1% city rate.

At checkout, we can calculate this as (order total * .07), however, when allocating sales tax to be remitted to the correct jurisdiction, we have to report whole numbers.

The math then becomes (order total * .04) + (order total * .02) + (order total * .01)

3. Transactions are classified as penny variance when the difference between the expected and actual tax collected amounts to exactly .01.

If a transaction contained several line items and more than one line item was affected by the rounding, then the variance is greater than .01 and therefore is classified differently in sales tax reports.

As a recap, rounding is necessary at different times in different scenarios.

In TaxJar, your "expected sales tax due" report takes these rounding discrepancies into account
Rounding is why you may sometimes also see a small difference between your "actual sales tax collected" and "expected sales tax due" report in TaxJar. Check here for more about your expected sales tax due report.