July 1st is right around the corner and for e-commerce based companies in Washington this means that Senate Bill 5089-2007-08, or the "Stream Lined Sales Tax" bill takes effect.  In short this means that online retailers in Washington need to collect destination based sales taxes.

Washington state is not alone on this.  In fact Washington is joining 21 other states under the Streamlined Sales and Use Tax Agreement (SSUTA).  Notice the "Use Tax" in the wording.  This is what empowers the state to tax based off destination shipping address.  This is just like when you go to register a boat in Washington that you purchased in Oregon, you are paying a use tax, which is legal according to the constitution.

Fortunately the Supreme Court ruled in Complete Auto Transit vs Brady that states cannot tax interstate commerce, which really means that an online retailer in Washington does not have to collect California state sales tax, unless that online retailer also has offices in California. 

With the passage of Stream Lined Sales Tax bill there are several winners here:

• Washington state tax coffers.
• Local brick and mortars.
• Lawyers and possibly accountants.
• Tax integration consultants.

Online retailers that only have an online presence previously had a nice loophole around collecting state sales tax since they are generally located in only one or two states.  Chain based brick and mortars (like Barnes and Nobles) that decide to go online are at a district disadvantage since they have presences in most, if not all states, which means they need to collect sales taxes from online sales in just about every state.

The absolutely ridiculous part of this law is the extra complexity to ensure the right local sales tax is collected.  In other words the shipping address dictates the sales tax rate, and in Washington each locality has its own sales tax rate with local governments setting local sales tax.  This means the sales tax rate can vary widely, and you, Mr. e-tailor need to figure it out.

Fortunately we all have zip codes here in the US which we can use to figure out the local sales tax rate, unfortunately we also have zip+4.  Well, zip+4 isn't bad, in fact its actually useful, but most people have no idea with their zip+4 is.  I know I definitely fall into that category.  And wouldn't you know it, the shipping zip code isn't enough to figure out the correct sales tax, you need the zip+4.

We can't start asking customers for their zip+4, since they probably don't have any idea what the last 4 numbers are, but we can ask them for their address and regular zip code which we can then use in a cleansing call to the USPS webtools APIs.  This address cleansing call, as you might now suspect, fills in the zip+4 based off the street address and zipcode.

With zip+4 in hand we can query our local database of sales tax rates and charge the customer the locally correct sales tax rate.