I want to set up an online store and sell things. As I'm based in the state of New York, I am supposed to collect sales tax on each sale to customers within New York state. The problem is that NY sets the tax rate based on the destination (shipping) address, not my address. So, instead of just one percentage to use, I've got something like 81 different tax jurisdictions to deal with, and need to map a customer's shipping address to the correct tax jurisdiction. So, how have you seen other sites that are required to collect sales tax in New York  handle it? The problem is determining which tax jurisdiction the customer is in, not what rate to use once I know the tax jurisdiction.

Please don't say, "You don't have to collect sales tax on the Internet." You do  if you're selling within a state that you have a nexus (physical presence) in. I'm just trying to find the least burdensome way to do this. By the way, if you buy out of state and are not charged sales tax, you are supposed to declare your purchases (and the appropriate amount of local sales tax) on your income tax form and pay "use tax" then (as if anyone really does this!).

Some elaboration on the poll questions:

1) ignore it and don't collect: This is illegal, but I wouldn't be surprised if some sites simply threw up their hands and don't bother collecting. Note: if a site has no "nexus" in New York or is otherwise not required to collect sales tax, please vote #7.

2) collect at your/their local (one) rate: Illegal, but understandable. If they have just one location, they just use their own local tax jurisdiction's rate and leave it at that. Customers would not be happy to be overpaying if their local rate is lower.

3) collect at max rate and refund: I'm not sure it's legal to collect at the highest rate in the state and then refund any difference once you've figured out what the correct rate is. Customers would not be happy to be overpaying.

4) use ZIP code-based lookup: The tax department specifically warns against doing this. ZIP Codes and tax jurisdictions don't align very well. For example, there are several post offices which serve parts of 3 counties, each of which could have a different rate. Some cities have their own jurisdiction and rate, different from their suburbs, but the suburbs are served by their city's post office. This would probably come the closest to determining the correct tax jurisdiction, but it's not foolproof.

5) use some lookup service: Are there any low cost services where a site can supply a customer address and get back the proper tax jurisdiction? Supposedly the state of Washington does something like this for their destination-based tax system. New York has a standalone web site where you can type in an address and get back the tax jurisdiction code, but they provide no interface to call it from a shopping cart! It would be nice to be able to use such a system, because it's from the state and their decision is final (i.e., customers can't argue with me that they're being overtaxed).

6) do something else: I've heard suggestions to come up with a single rate averaged out over the whole state (something less than the maximum rate in use). If you weight the different rates correctly, you should end up with the right amount of tax revenue. Unfortunately, you have to report separate amounts for each tax jurisdiction, rather than just a lump sum to the state. Again, some customers will be overpaying and be unhappy.

7) not required to collect, but I want to add a comment: You don't have to collect tax for NY, but do want to add a comment without really voting (or you voted by accident and don't know how to clear it).

So, I called up the state tax department and asked them how web sites (online stores) handle this kind of thing, and they have no idea. I think they're still back in the Stone Age or something. They suggested that I ask customers what county they're in, but that still doesn't help when a city within a county has a different rate than the rest of the county.

Does any site just ask customers what their proper rate is? This could be checked against their address during order processing, using the web tool, but what do you do when they've given the wrong rate? An overpayment could be refunded, but what do you do if they're short? Any home-brew automated system is bound to overtax some customers and undertax others. I'm sure the undertaxed customers won't complain too much, but overtaxed are sure to complain or just walk away.

New York is too big a potential market to just say, "I'm just not going to bother selling here." Thanks much for any useful input you can give!

Not sure how it works with NY , but when I was running a mobile computer repair business in Washington state, the areas that I covered all have varying tax rates, however the tax offices told me I could charge a set price (which I wanted to do), then I would cover the taxes when I files each quarter.

If you can do something like a varient of the above, you could work the "average" price of the taxes into your pricing, not charge an individual tax rate on the store items, then when you file, you take it out of what you have earned.  In essence, you would be paying directly for the taxes you should have charged customers, rather then them paying you the taxes and then you forwarding on the taxes.

NY is a little funny when it comes to the online / physical business thing, so you may want to call and check on this before doing so.

My understanding is that it's illegal to overcollect sales taxes, and could get fined if anyone complains. It's a mess.

I think you've misinterpreted what he is suggesting. It appears that he is likely suggesting to increase all your prices for everyone to account for the extra costs for the taxes. That isn't illegal, it would just suck for the people outside of New York who now have to pay more per good item price due to the price spike to pay for their New York counterparts.