On Dec. 16, 1773, an import tax dispute with England set off one of the key sparks that ultimately led to the American Revolution. As we reflect on the significance of that event so long ago, there’s an opportunity to dive a little deeper into the topic of taxation and how it evolved in our country.
Had I paid a little more attention in high school, I might have understood that the nation whose founding principles included “no taxation without representation” was built on a federalist model that granted most day-to-day powers to the states, rather than the national government. Key among those powers was the ability to impose taxes at a local level.
People debate the pros and cons of our country’s federal system to this day, but there’s one thing nobody can deny: Our system of local taxation has created a tremendously complex, and burdensome, environment in which to do business.
Most people, even many tax experts, do not realize that there are more than 13,000 taxing jurisdictions in our country. Each with its own particular rates, rules, and compliance requirements. Imagine what that means for businesses that sell goods and services throughout the land.
To illustrate this point, and in honor of the Tea Party in the Boston Harbor way back when, let’s talk about tea. There are currently over 900 different tax types that a tea merchant can encounter in the U.S. selling domestically and abroad. Think about that: 900 potentially different considerations in charging, collecting, and ultimately paying tea taxes to individual governments.
Loose or bagged. Matcha or mint. Box or bulk. Served hot in-store or ready for you to brew at home. It all depends on which state you’re selling from as well as the state where the buyer resides. Every consideration changes the seller’s compliance exposure.
Most people are not aware of these complexities, and that extends to the people on the front lines of commerce. According to research our company did into the evolution of tax complexity, 94% of tea merchants are unclear on this question as well. In fact, eight in 10 modern tea merchants feel anxious about staying on top of the complexity and rate of change when it comes to sales tax on goods like tea.
But it’s not just Americans who are struggling to manage their transaction tax obligations. The British are still getting into hot water over it after all these years as well. Four out of five UK tea merchants have faced penalties or fines due to unintentional non-compliance with U.S. sales tax obligations.
And that is just involving tea. Most other goods and services sold in the U.S. are subject to their own set of compliance requirements. Unless they’re not, of course. But how do you know which items are subject to what taxes? Taxes affect every business, every person, every day. From the ancient Egyptians until recent decades, tax has been managed manually and businesses have struggled to keep pace with incredible complexity and fast-moving changes.
Fortunately, we have technology today that greatly relieves the burden of tax compliance from businesses of all sizes. Automation has freed many businesses from tax compliance management concerns.
250 years ago, soon-to-be Americans boycotted a tax on tea. Today, our own tax system has created complexity for businesses that the Boston Tea Party participants could have never imagined. And of course, taxes aren’t going away. As founding father Ben Franklin said in 1789, “Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.”
Scott McFarlane is the co-founder and CEO of Avalara, a provider of tax compliance automation software.
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