Why Zip Codes Don’t Work

If you’re using sales tax software that calculates based simply on zip code, you might be in for some trouble down the road. The problem with zip codes, especially in states where they might cover both towns and county areas outside of towns, is they don’t display accurate sales tax jurisdiction data by themselves. It takes more information that a simple 5-digit code to accurately calculate sales tax rates, unfortunately, so simplifying the process in this way isn’t going to save you anything — and will end up costing your business much more.

The United States Postal Service is the agency that assigns zip codes and the technology was originally developed in the 1960s. It went into effect on July 1, 1963, fifty years ago, and was originally meant to denote the actual post office that delivers the mail to the address with the last two digits. This has changed some, however, with post office closings and annexations of rural areas into towns. Over the last fifty year,s the population of the country has changed quite a bit. The postal codes were never designed to correspond with taxation but just to help the post office to deliver mail more quickly as urban areas became more populated and difficult to manage in terms of mail. However, even if they did sometimes align with tax rates, with changes in population, town annexation, and other changes that affect taxation, the zip codes would still be outdated for keeping track of taxation jurisdictions.

If you’re looking for an accurate way to manage your invoices so you’re always capturing the best information for taxability, ensure that you’ve got a correct address that accurately represents the buyer. By ensuring that your data is as complete and correct as possible, you’ll provide the information your sales tax filing software needs to accurately file your sales tax returns. If your software verifies, as our FileLINK does, it’s important to have the same information across the board too, so make sure your data matches across all the software platforms you use to manage your business.

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