Overcollecting and Undercollecting
There are a few reasons why TaxJar Reports may tell you you have overcollected or under-collected sales tax from customers.
You enabled tax collection after the start of the filing period
TaxJar's Expected Sales Tax Due estimate looks at all sales in the filing period. If, for example, you have a Quarterly filing period, but you didn't enable tax collection on the first day of that filing period, the Report will continue to suggest that you didn't collect enough for this period, as tax can't be applied retroactively to past untaxed sales.
- Once a new filing period begins, you should see a closer match between your Actual Report and the estimate in your Expected Report.
Wholesale orders and sales made to a tax exempt entity
Because your cart doesn't share details to explain if an order was wholesale or sold to an exempt entity, the Expected Sales Tax Due Report will assume that those untaxed orders should have been taxed.
- You can exclude those orders from the Expected Sales Tax Due calculation by marking those individual orders as exempt as we describe here.
Tax Exempt or Reduced Tax Items
The "Should Have Collected" figure you see in the Expected Sales Tax Due Report in your TaxJar account is an estimate based on your Gross Sales Total--but this estimate also (at this time) assumes that all of your sales are taxable. This means this Report will also suggest you are under-collecting if you are selling a lot of exempt or non-taxable items.
If you sell tax exempt items*, you can tell TaxJar more about which items are exempt so both the Expected Report (and AutoFile) will recognize which sales should be exempt.
- You can do this by selecting a specific product category for all items you sell on the Exemptions tab here.
- Once you've fully set this up, your Sales Tax Reports will exclude the exempt or reduced tax items from the Expected Sales Tax Due Estimate.
* The product categorization feature to exclude exempt items is available for sellers who are using Amazon only, Shopify only or SmartCalcs API only (or a combination of Amazon, Shopify and SmartCalcs.) Stay tuned for a solution to this issue for sellers with other carts who sell non-taxable items!
- If you make sales on platforms outside of Amazon, Shopify and SmartCalcs and you sell exempt or reduced tax items, and you have tax collection set up correctly, we recommend that you stick with the totals on the "Actual Sales Tax Collected" Report for the time being.
If you charge sales tax on shipping in a state where our rules tell us shipping is non-taxable, the report will suggest you are over-collecting, while if you don't tax on shipping and we think it's taxable, the report will suggest you are under-collecting.
Incorrect Product Tax Codes in Amazon
For Amazon sellers, over-collecting can also sometimes be a result of incorrect taxes being applied to the items that are being taxed.
One thing that can cause this in Amazon is applying A_Gen_Tax to all items because it may cause Amazon to collect taxes on those items even in states where that item may not be taxable.
The more accurate your Amazon tax settings and Product Tax Codes, the closer you'll be to collecting the "Should Have Collected" amount. We have tips to help with getting these settings more accurate:
2) On our blog, we discuss How to Code Your SKUs for Sales Tax in Amazon
3) We also show you How to Change Your Product Tax Codes in Amazon