Cutting Costs: Online Business Simplifies Drop Shipping Tax Situation

Barbara Karpf, interior decorator, launched DecoratorsBest in 2004. The Manhattan-based e-commerce business, specializing in designer fabrics and wallpaper, has grown over the past 12 years to offer more than 200,000 products. It has expanded its merchandise categories and its reach. DecoratorsBest now ships its products across the United States and throughout the world. DecoratorsBest products have been featured on the Today Show, in HGTV Magazine and Country Living.

This growth did not come without some growing pains. "DecoratorsBest is a marketplace and drop-ship," says Karpf, "and consequently, we have unusual and complex sales tax requirements. When I started the company, determining which New York State zip code was associated with which county was hard enough, but the thought of having 20-plus states in which to file sales tax was overwhelming."

Drop shipment transactions, in which a customer orders from a retailer and the retailer places the order with a wholesaler who ships directly to the customer, present a particularly confusing sales tax situation. Three different states may be involved, which would include the retailer's location, the customer's home and the wholesaler's location. Each state has its own laws concerning sales tax, and counties within states have varying tax rates.

When Karpf's bookkeeper said it would require the addition of several new full-time employees to handle sales tax management, Karpf knew it was time to find a better way. On the recommendation of one of her brands, she turned to Avalara, a cloud-based software platform that automates sales tax management. Avalara calculates sales tax within its client's billing, e-commerce or point-of-sale system using geolocation technology to determine jurisdiction.

Avalara's platform is easy to use, says Karpf, and it automatically calculates sales tax per brand making it easier to add new brands. "Best of all," she adds, "Avalara manages and files all of those overwhelming sales tax forms. Now our one part-time bookkeeper is available for our office's needs, and DecoratorsBest can staff up in the areas that help fulfill our customers' needs and grow our company. Being in the e-commerce world, I am oriented towards finding software that creates efficiency and helps us grow. Our sales tax program with Avalara was one of the first programs that we implemented. It has saved us countless hours of laborious work and tremendous costs by reducing our staffing needs."

This article was written by Gillian Burdett of Examiner.com for CBS Small Business Pulse.