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Learn the fundamentals of sales tax
Meet Emmet: The First Sales Tax Artificial Intelligence
byMarch 13, 2020
One of the most difficult parts about sales tax compliance is ensuring you’re collecting and remitting the right amount of sales tax on each of the products your business sells.
Sales tax would be easy if every state and tax jurisdiction taxed every item at the same rate. But most states tax various products differently.
Pennsylvania, for example, doesn’t require merchants to collect sales tax on clothing. …except if that clothing is considered “formal” or made of fur. And, California doesn’t consider software as a service to be a taxable product, but Texas does.
To ensure you stay compliant with all 46 states with sales tax laws, this means that your business is required to correctly categorize all of your products with the right “product tax code.” But, with 14,000 taxing jurisdictions in the U.S. alone, and 3,000 product tax categories, this can mean millions of possible combinations. And millions of ways to accidentally charge the wrong amount of sales tax.
Is your line of granola bars taxed as “grocery” (exempt in many states) or “candy” (generally taxable)? Is your software considered “canned software” (generally taxable) or “software as a service” (only taxable in some states)?
Until now, you had to figure this out on your own (or hire a sales tax expert to do it for you.) The process of tagging each of your products with the right product tax code could take hours and generate lots of frustration for the person handling your sales tax. And it isn’t a one-time process. Every time you add new SKUs to your product mix, you have to make sure they are properly categorized.
We dug into the data, and, assuming all this research averages out to a minute per SKU, it would take a customer who sells approximately 3,000 SKUs 50 hours to categorize their products.
Emmet is the first-ever artificially intelligent sales tax categorization robot. And it’s here to take all the work out of collecting and remitting the right amount of sales tax.
Emmet evaluates all of a TaxJar customers’ products and intelligently suggests the right product tax code.
Over the past few weeks, Emmet has been categorizing TaxJar customers’ product tax codes with a more than 90% success rate. And because it’s an AI, Emmet improves by the second with every single new product it categorizes.
Today, Emmet is saving TaxJar customers hours when initially onboarding and every time they add new SKUs to their product mix.
Using the same example as above, that seller who sells a mix of 3,000 different SKUs would now only spend a fraction of that 50 hours on product categorization. This means less time dealing with sales tax, and more time working on the more fun and profitable parts of your business!
Why did we invent Emmet?
TaxJar has always been a technology-first company. This means we simplify sales tax for our customers by turning it into an automatic, background process. Businesses who use TaxJar no longer have to dedicate hours to sales tax, or hire outside experts. And our customers never have to worry about a sales tax snafu interrupting operations or resulting in an unexpected tax bill.
What better way to automate sales tax than to use machine learning to take away one of the most difficult and time-consuming parts of the process?
“The only thing more exciting than machine learning is finding a problem it can solve,” said Alec Carper, TaxJar’s Director of Engineering. “Product classification is a perfect use case of a complex and time-consuming problem that can be automated with machine learning. Let the computers do the boring work so you can focus on growing your business.”
Who can Emmet help?
Emmet is only getting started.
Currently, Emmet helps TaxJar customers who categorize their own products within the TaxJar app.
In the coming months, Emmet will work with TaxJar customers who use the TaxJar API or who collect sales tax via eCommerce sales channels (like Amazon, Shopify, BigCommerce, etc.)
Emmet learns something new with each new transaction it processes, and will only get better (and more helpful to more TaxJar customers!) with time.
What’s the future of sales tax AI?
Our technology-first team has always been dedicated to finding our customers’ sales tax pain points and then solving them with technology. And we are only getting started when it comes to machine learning.
While Emmet saves hours, it still needs a little help from a human for that ~10% of the time when it can’t decide on a product’s tax category. But in the future, as Emmet continues to learn, it will be able to correctly categorize products in most use cases, essentially eliminating the need for any manual work when it comes to product categorization.
Stay tuned here for updates as we continue to harness new technology to solve sales tax for businesses.
Ready to take Emmet for a spin? Contact TaxJar today.