Two more major retailers have been found incorrectly charging Atlanta’s higher sales tax rate within Sandy Springs. And the state Department of Revenue is acknowledging that, barring an audit or formal complaint, such incorrectly calculated sales tax money likely goes into the coffers of the wrong jurisdiction. That could mean tax revenue is being misdirected not only locally, but statewide.
The problem is rooted in ZIP codes, such as Sandy Springs’ 30328, that the United States Postal Service generically labels as “Atlanta” even though they are entirely outside that city. Software used by companies to automatically calculate sales tax on purchases is often based on ZIP codes, and thus can be wrong in local cities without careful customization or replacement with modern mapping-based systems, which can be expensive to install and operate. Starbucks, Staples and, most recently, Home Depot are among retailers that the Reporter has found incorrectly charging Atlanta’s sales tax in Sandy Springs.
The problems have compounded in the era of online sales, which are taxed based on the customer’s delivery address, resulting in a complicated sales tax system whose flaws raise the ire of local governments and retailers alike. “If Home Depot is having trouble with sales tax complexities, imagine the troubles that small businesses are confronting all over the country,” says Steve DelBianco, president of NetChoice, a trade association of online and tech businesses.
Wrong local rates
Stuck in the middle are customers like Marianne Shutzberg. She recently found Atlanta’s 8.9% sales tax, rather than the local 7.75% rate, applied to online and delivery orders to her home in Sandy Springs’ 30350 ZIP code by the major home furnishing company Pottery Barn and The Walking Company, a shoe retailer.
“I thought other people in Sandy Springs should know about this,” said Shutzberg. “I want to pay my fair share of taxes. I don’t want to pay more than my fair share.”
Neither company responded to Reporter questions, but Shutzberg said that they provided some strange explanations for the incorrect sales taxes. A Pottery Barn representative, she said, claimed that part of the sales tax went to Cobb County – which takes in no part of Sandy Springs nor the 30350 ZIP code.
And, Shutzberg said, an employee at The Walking Company’s brick-and-mortar store in Perimeter Mall told her the company charges Atlanta’s 8.9% sales tax on all online orders statewide because it’s Georgia’s highest rate and is simpler than calculating local numbers. The Reporter confirmed that The Walking Company’s website calculates Atlanta’s sales tax when a customer types in an address as far away as Albany in southwest Georgia, though it is unclear whether the company actually bills that rate on completed orders.
William Gaston, a spokesperson for the Georgia Department of Revenue, said the state relies on local governments and businesses to provide accurate information for sales tax calculation. Asked where incorrectly calculated revenue goes, he essentially said it follows the incorrect report: “Sales tax is collected by the business and then reported and remitted to the DOR. The DOR then distributes sales tax to local jurisdictions based on what has been reported and remitted.”
“I guess the real question is, what does a taxpayer do about it?” said Shutzberg. “Lobby for stores to improve the accuracy of their systems or try to recoup the tax from the state of Georgia?”
No easy answers
It turns out there’s no easy answer to that question.
Since it incorporated in 2005 within ZIP codes long known generically as “Atlanta,” the city of Sandy Springs has pushed for the Postal Service to rename the local codes, in part due to the tax problems.
“Because the postal service has never acknowledged the creation of Sandy Springs and continues to insist we are ‘Atlanta,’ many of our residents inadvertently overpay sales tax on purchases,” said Mayor Rusty Paul in an email. “For businesses with millions in expenditures, the added costs are substantial. This isn’t just a Sandy Springs problem. It involves many of Georgia’s newly created cities.”
But that could literally take an act of the U.S. Congress, which so far has been unsuccessful. “We are still hoping for either the Postal Service to fix the problem or our congressional delegation to introduce a bill forcing them to do so,” Paul said.
The Postal Service did not respond to questions. Asked whether DOR has boosted enforcement or education to businesses about the Sandy Springs situation, given the many years of advocacy, Gaston only said that people can file complaints with the agency or the Attorney General’s office.
Another solution is to stop using ZIP codes, which are mail delivery routes that were never intended to reflect local geography, despite often being named for cities. But there are complications there, too. A 20-year-old sales tax reform program still in effect – and signed onto by Georgia – is based on ZIP codes. And the expense of mapping-based systems is increasingly controversial, especially since a 2018 U.S. Supreme Court decision allowed states to tax online sales by businesses located elsewhere. Georgia began collecting such taxes this year.
Scott Peterson is the vice president of U.S. tax policy and government relations at Avalara, a company that makes map-based sales tax software. He previously directed South Dakota’s sales tax collections and was the first executive director of the Streamlined Sales Tax Project, that ZIP code-based reform effort.
“ZIP codes are just horrible” as a basis for calculating sales taxes among the U.S.’s roughly 12,000 jurisdictions, Peterson said in a phone interview. “In situations like this [in Sandy Springs], where you’ve got a city whose address is something else… That’s just a recipe for disaster.”
But retailers may stick with old-fashioned software for various reasons, he said. The Streamlined agreement frees retailers from tax liability for local mistakes if they use nine-digit ZIP codes for calculation. And businesses may be willing to keep making errors if it’s cheaper than fixing them. A chief financial officer, Peterson said, might say, ““You want me to pay $15 million to avoid paying $65,000 over here?”
For businesses trying to pay the correct online sales tax, the expense can be unavoidable. Bradley Scott, finance director at the Arizona-based jewelry supplier Halstead Bead, said his company has spent nearly $120,000 in hard costs and staff time since June 2018 installing sales tax software, despite using a “free” package. Since October 2018, he said, the company has charged roughly $2,370 in sales taxes to Georgia customers, but paid the state $2,898, because the software’s “numbers routinely do not reconcile.”
Scott said the new tax compliance costs are forcing Halstead to cut jobs and reduce its business. When local jurisdictions think about capturing sales tax, he said, they also need to think about losing corporate income and payroll taxes.
“This boon to state coffers would better be described as the opening of Pandora’s box and its ensuing tidal wave of small-business collapse,” he said.
On the city side, local jurisdictions sometimes benefit from the errors, Peterson recalled from his time collecting taxes in South Dakota. “Sometimes cities would get money and think, ‘Hmm, this isn’t right,’ but keep it anyway,” he said. And on the other hand, sometimes audits caught the incorrect tax distributions and the cities had to reimburse the state.
“In some cases, it was painful,” he said. “When I left, we had three cities that were on payment plans.”
But even Avalara can get confused. The company’s website offers free information about local sales taxes, but the details posted there on one page for Sandy Springs incorrectly use Atlanta’s rate and even break that down incorrectly, claiming part of it goes to Cobb County — possibly making it the source of the confusing answer Pottery Barn gave Shutzberg. Other parts of the Avalara website offer correct information about Sandy Springs sales taxes. Peterson could not immediately explain why the website had incorrect Sandy Springs information, but said that it is not the source of sales tax calculations for the software Avalara provides to its retail customers.