That official-looking envelope from the tax authorities? It’s enough to ruin anyone’s day. Sales tax mistakes are a top reason for state audits, but the real cost isn’t just the penalties. It’s the lost hours, the mental drain, and the focus pulled from your customers. Getting your small business sales tax right is an investment in your own peace of mind. We’ll walk through exactly how to report sales tax in California, covering the essentials of California sales tax filing so you can do it with confidence and get back to what you do best: running your business.
Key Takeaways
- Know Your Nexus Triggers: Your duty to collect sales tax begins when you establish a significant connection, or “nexus,” in California. This happens with a physical presence or once you hit $500,000 in annual sales to the state, so monitor your sales volume closely.
- Set Up a System to Avoid Errors: Relying on spreadsheets is risky. The most reliable approach is to register for a seller’s permit and use accounting software to automatically handle complex tax rates, track sales, and store customer exemption certificates.
- Make Filing a Routine, Not a Scramble: You must file a sales tax return for every reporting period, even if you had no sales. Staying compliant means meeting every deadline and keeping organized records for at least four years to avoid penalties and be prepared for any potential audits.
What Are Sales and Use Taxes?
If you sell products or provide certain services in California, sales and use tax is a concept you need to get comfortable with, fast. Think of it as a consumption tax. It’s not a tax on your business income, but rather a tax on the transactions you make with your customers. While it might seem like just another line item on a receipt, understanding how it works is fundamental to keeping your business compliant and financially healthy. Let’s break down the key components you need to know.
Sales Tax vs. Use Tax: What’s the Difference?
Though they sound similar, sales and use tax are two sides of the same coin, and they apply in different situations.
Sales tax is the one you’re most familiar with. It’s a percentage-based tax added to the price of specific goods and services when they’re sold. As a business owner, you collect this tax from your customers at the point of sale.
Use tax, on the other hand, applies when sales tax wasn’t collected on a taxable purchase. This often happens when you buy something for your business from an out-of-state seller who doesn’t collect California sales tax. In this case, your business is responsible for paying the use tax directly to the state. For example, if you buy new office chairs online from a company in another state and they don’t add sales tax, you owe use tax on that purchase.
How Sales Tax Impacts Your Small Business
Getting sales and use tax right is non-negotiable. State and local governments see it as a major revenue source, and they take compliance very seriously. Failing to properly collect, report, and remit these taxes can lead to significant consequences, including hefty penalties, interest charges, and stressful tax audits. These issues can quickly drain your resources and distract you from actually running your business.
Relying on manual calculations or outdated spreadsheets is a risky strategy. Tax laws are complex and constantly changing, with different rates and rules depending on your location and what you sell. Setting up a solid system for business accounting and management from the start ensures you stay compliant, avoid costly mistakes, and maintain a clear picture of your financial obligations. It’s a critical piece of your company’s foundation.
Who Collects and Pays Sales Tax?
When it comes to sales tax, your business acts as a collection agent for the government. It’s often called a “pass-through” tax because you collect it from your customer and then pass it along to the state. Even though the customer is the one paying, the legal responsibility to accurately calculate, collect, and remit the funds falls entirely on you, the seller.
For use tax, the responsibility is also on your business, but as the consumer. It’s up to you to track purchases where sales tax wasn’t paid and remit the appropriate use tax to the state. Properly configured accounting software can help automate this tracking, but you need to ensure it’s set up correctly. Ultimately, whether you’re the seller or the buyer, the burden of compliance rests on your shoulders.
Do I Need to Collect Sales Tax in California?
Before you can file your sales tax return, you first need to figure out if you’re even required to collect sales tax. The answer depends on your connection to a state, the volume of your sales, and what you sell. For California-based businesses, understanding these rules is the first step toward staying compliant and avoiding costly mistakes. Let’s walk through the key questions you need to answer.
Understanding California’s Sales Tax Rates
Figuring out the correct sales tax rate in California can feel like trying to hit a moving target. It’s not a single, flat percentage across the state. The actual rate you need to charge depends on the specific location of your sale, right down to the city and county. This is because the total rate is a combination of a statewide base rate plus various local and district taxes. For business owners, this means you can’t just set one rate and forget it. You have to be precise. Getting this calculation wrong can lead to under-collecting tax, which you’ll have to pay out of pocket, or over-collecting, which can create issues with both your customers and the state.
The Statewide Base Rate
The foundation of California’s sales tax is the statewide base rate of 7.25%. However, you’ll almost never charge just that amount. This base rate is just the starting point. Most cities and counties in California add their own “district taxes,” which are layered on top of the statewide rate. This is why the sales tax in Los Angeles is different from the rate in San Francisco. As a business owner, you are responsible for charging the combined, correct rate for the location of the sale. The California Department of Tax and Fee Administration (CDTFA) provides resources to find the exact tax rate for any address in the state, which is an essential tool for staying compliant.
What Is Sales Tax Nexus (and Do You Have It)?
The first concept to understand is “nexus.” Think of nexus as a significant business connection to a particular state. If you have nexus in a state, you are required to register, collect, and remit sales tax there. This connection can be established through a physical presence, like having an office, warehouse, or employees in the state. It can also be created through your economic activity, even if you don’t have a physical footprint. The rules for what creates nexus can be different in every state, so it’s essential to know the specific requirements for where you do business, especially if you sell to customers across the country.
Defining “Engaged in Business” for District Taxes
California’s sales tax isn’t a single, flat rate. It’s a combination of the statewide base rate plus various local “district” taxes that can change from one city or county to the next. Your responsibility to collect these additional district taxes hinges on a key concept: being “engaged in business” in that specific area. This is a formal definition that goes beyond just having a physical storefront, and it’s essential to understand because it determines which tax rates you need to apply to your sales. Getting this wrong can lead to under-collecting tax, leaving you to pay the difference out of your own pocket.
So, what does it mean to be “engaged in business”? According to the California Department of Tax and Fee Administration (CDTFA), you have a connection to a district if you have a business location there, own property (like a warehouse or even a computer server), have an employee or sales agent working within its boundaries, or make deliveries with your own company vehicles. These operational details are a core part of your business accounting and management and directly influence your tax obligations. It’s not just about where your headquarters are located, but where your business activities actually take place.
If your operations meet any of these criteria in a district, you are required to collect that district’s specific sales tax on your taxable sales there. This means you can’t apply a single tax rate to all your California sales; you must accurately allocate sales to each location. Trying to manage this manually is a recipe for mistakes and can become a huge headache. This is why having correctly configured accounting software is so valuable. It can automate these complex rate calculations, ensuring you collect and report the right amount every time without the guesswork.
Do Your Sales Meet the Economic Nexus Threshold?
Economic nexus is based on your sales revenue or transaction volume within a state. This is especially important for ecommerce businesses, consultants, and digital creators who may not have a physical store but sell to customers everywhere. In California, you have economic nexus if your total sales of tangible goods delivered into the state exceed $500,000 in the current or preceding calendar year. This means even if your business is based in another state, you must register with the California Department of Tax and Fee Administration (CDTFA) and collect California sales tax once you cross that threshold. Keeping a close eye on your sales data is key to knowing when you’ve met this requirement.
Is What You’re Selling Taxable in California?
Once you determine you have nexus, the next step is to figure out what’s taxable. In California, most sales of tangible personal property—physical items you can see and touch, like clothing, furniture, and electronics—are subject to sales tax. However, some items are exempt, such as many food products sold at grocery stores and prescription medications. Services are generally not taxable in California, but there are some exceptions. It’s your responsibility to know which of your products and services are taxable and apply the correct rates. Getting this right is a core part of your ongoing business accounting and management.
Key California Sales Tax Rules and Exemptions
California has a few unique rules to keep in mind. First is the “use tax,” which is a tax on items you purchase for your business from an out-of-state seller (like online) without paying California tax. If you buy office equipment from a vendor who didn’t collect sales tax, you are required to report and pay use tax on that purchase. Additionally, California’s sales tax rates aren’t uniform across the state. The total rate includes the statewide base rate plus local district taxes, which vary by city and county. This means the tax rate you charge a customer in Santa Monica will be different from one in Sacramento. Mismanaging these complexities can lead to notices and audits, making it crucial to have a solid system in place.
Common Nontaxable Sales and Deductions
Not every dollar you collect is subject to sales tax. California allows you to deduct certain types of sales from your total taxable sales, which lowers the amount you owe. According to the CDTFA, common deductions include sales to other retailers who will resell the items, sales to the U.S. government, and sales of certain food products. The key is documentation. For example, if you sell products to another business for resale, you must have a valid resale certificate from them on file. Without that proof, you could be held liable for the tax during an audit. Diligent record-keeping is essential for substantiating these deductions and ensuring you don’t overpay your sales tax liability.
Partial Exemptions for Specific Industries
Certain industries in California benefit from partial sales tax exemptions, meaning some of their purchases are taxed at a lower rate. This often applies to equipment essential for their operations. For instance, businesses in farming, timber harvesting, manufacturing, and research and development may qualify for a reduced tax rate on purchases of specific machinery and equipment. However, these exemptions aren’t automatic. You typically need to provide the seller with a specific exemption certificate to claim the lower rate. This is where proactive business tax planning becomes so valuable. Knowing which exemptions apply to your industry can lead to significant savings, but it requires careful management of your purchasing records and compliance paperwork.
How to Register and Set Up Your Tax System
Once you’ve determined you have nexus in California, the next step is to get registered and create a system for managing your sales tax. This part can feel a bit administrative, but setting things up correctly from the start will save you countless hours and potential headaches down the road. A solid system for tracking, collecting, and remitting sales tax is one of the best things you can do for your business’s financial health. It’s not just about compliance; it’s about building a scalable operation that can handle growth without creating a tangled mess of tax obligations.
Think of this as building the foundation of your sales tax process. We’ll walk through the essential steps: getting your official permit, knowing what paperwork you’ll need, choosing and configuring your software, handling tax-exempt customers, and making sure your tax rates are always current. Taking the time to get these five pieces right will make your regular filing process much smoother.
Get Your California Sales Tax Permit
Before you can legally collect a single dollar of sales tax from customers, you need permission from the state. In California, this means you must register for a seller’s permit with the California Department of Tax and Fee Administration (CDTFA). This permit is what officially authorizes your business to collect sales tax on taxable sales. The good news is that you can complete the entire registration online, and there’s no fee to apply. Don’t put this off—if you’re making sales, this is a non-negotiable first step. Operating without a permit while making taxable sales can lead to penalties and back taxes, so it’s best to get it sorted out right away.
What You’ll Need to Register
To make the registration process as smooth as possible, it helps to have all your information ready before you start the online application. The CDTFA will ask for specific details about you and your business to get you set up correctly. You’ll need to provide your business name and address, your business structure (e.g., sole proprietorship, LLC), and what kinds of products you sell. Be prepared to provide your Social Security number if you’re a sole proprietor or your federal employer identification number (EIN) for other business types. Having these details on hand will help you complete the seller’s permit application quickly and without any frustrating delays.
Set Up Your Software to Track Sales Tax
Trying to track sales tax manually with a spreadsheet is a recipe for errors. Using dedicated accounting software is the most effective way to manage your obligations. Modern platforms can automatically calculate the correct sales tax rates for every transaction based on the customer’s location, which is critical in a state with varying district taxes like California. This automation not only saves time but also dramatically reduces the risk of mistakes. Getting professional help with accounting software implementation and support ensures your system is configured correctly from the start, so you can trust the numbers when it’s time to file.
Handling Tax-Exempt Customers
Not all sales are taxable. If you sell to other businesses that plan to resell your products (wholesalers) or to tax-exempt organizations like non-profits, you don’t need to collect sales tax from them. However, you can’t just take their word for it. You are required to collect and keep a valid resale or exemption certificate on file for every exempt customer. This documentation is your proof that you correctly followed the rules. Without it, you could be held liable for the uncollected tax during an audit. Make sure you have a clear process for requesting, verifying, and storing these important documents.
How to Keep Your Tax Rates Current
Sales tax rates aren’t static; they can change. State, county, and city tax rates can be updated, and new special tax districts can be created. It’s your responsibility as a seller to collect the correct, current rate for every sale. Manually keeping track of these changes across all the jurisdictions you sell into is nearly impossible for a busy business owner. This is another reason why using a modern sales tax or accounting software is so important. A good system will automatically update tax rates as they change, ensuring you stay compliant without having to constantly monitor tax authorities for new legislation.
How to Report and Pay Sales Tax in California
Once you’re registered and your systems are tracking sales correctly, it’s time to file your return and pay the tax you’ve collected. This process might seem intimidating at first, but it becomes a routine part of your business operations. The key is to be organized and mindful of deadlines. Following a consistent process ensures you stay compliant and avoid unnecessary stress or penalties. Let’s walk through the essential steps for filing and paying your California sales and use tax.
Find Your California Sales Tax Filing Due Dates
The California Department of Tax and Fee Administration (CDTFA) will assign you a filing frequency when you register for your seller’s permit. This schedule—typically monthly, quarterly, or annually—is based on your expected or actual sales volume. Businesses with higher sales volumes are usually required to file more frequently.
It’s your responsibility to know these dates and file on time, every time. In California, sales tax returns are generally due by the last day of the month following the end of the reporting period. For example, if you file quarterly and the quarter ends on March 31, your return is due by April 30. You can find your specific due dates by logging into your CDTFA online account. Mark these dates on your calendar so you never miss a deadline.
Reporting Your Total Sales and Purchases
When you sit down to file your California sales tax return, the first number you’ll report is your total gross sales for the period. The California Department of Tax and Fee Administration (CDTFA) requires you to include all sales—both taxable and nontaxable. A common mistake is including the sales tax you collected from customers in this total. If your total sales figure already has that tax baked in, you must deduct it on the “Nontaxable Sales” line of your return. Overlooking this step will cause you to overpay by paying tax on the tax you already collected.
You also need to report any purchases where you owe use tax. This typically applies to items you bought for your business from an out-of-state seller who didn’t charge California sales tax, like office equipment or supplies ordered online. In that case, you are responsible for paying the tax directly to the state. Keeping detailed records of all sales and purchases is essential for accurate reporting. This diligence not only ensures compliance but also prepares you to confidently handle any potential tax notices or audits. For official details, you can review the CDTFA’s online filing instructions.
How to Calculate Your Sales Tax Return
Accuracy is everything when preparing your tax return. Start by running a report from your accounting software or point-of-sale system to get your total gross sales for the period. From there, you’ll need to separate your taxable sales from non-taxable sales, such as sales for resale or sales to exempt organizations.
When businesses manage this process manually, simple accounting errors can easily lead to miscalculating tax payments. Getting your accounting software implementation right from the start is the best way to prevent these mistakes. Your software should make it easy to calculate the exact amount of sales tax due for state, county, and district taxes. Double-check your numbers before you begin the filing process.
Allocating Local and District Taxes with Schedules
California’s sales tax isn’t a single, flat rate. The total percentage you charge is a combination of the statewide base rate plus various local and district taxes that differ by city and county. This is why the tax rate in one part of the state can be different from another. To handle this complexity, the CDTFA requires you to use specific schedules when you file your return. These schedules help you report these based on where the sale happened, ensuring the correct amount of tax revenue is sent to the right local jurisdiction. It’s a critical detail that can easily be overlooked if you’re not prepared.
The main schedules you’ll encounter are A, B, and C. Schedule A is used to report voter-approved district taxes, which you owe if your business is located in a district or you deliver products into one. Schedule B is for allocating local tax to a specific county, often used for transactions like construction contracts tied to a jobsite. Schedule C is for allocating tax to your registered business locations. Properly assigning your sales to these schedules is a non-negotiable part of filing. Getting this allocation right is a fundamental piece of your ongoing business accounting and management, as mistakes can attract unwanted attention from tax authorities.
Where to File and Pay Online
California requires nearly all businesses to file and pay their sales and use tax electronically. The CDTFA’s online services portal is the primary tool for this. The system is designed to guide you through the process, asking for specific figures like your total sales and taxable sales.
Once you’ve entered all the required information from your calculations, the system will show your total tax due. You can pay directly from your bank account via an electronic funds transfer (EFT). This method is secure, provides an instant confirmation that your return has been received, and helps you avoid mail delays or lost checks. It’s the most efficient way to handle your filing obligations.
Step-by-Step: Filing Your Return Online
Filing online is straightforward once you get the hang of it. Head over to the CDTFA’s online services portal and log in to your account. The system will prompt you for the key figures from your calculations, like your total gross sales, non-taxable sales, and taxable sales for the period. This is where having accurate reports from your accounting software is a lifesaver. After entering your sales data, you’ll choose your payment method—most businesses use an electronic funds transfer (EFT) for a secure and instant transaction. Before you hit that final submit button, take a moment to review every number one last time. A quick double-check can save you from future headaches and ensure your filing is accurate.
What to Do When You Have No Sales to Report
What happens if you have a slow month or a reporting period with no sales at all? You still have to file. Even if you didn’t collect any sales tax, you must file a “zero return” for that period. This is a non-negotiable requirement.
Filing a zero return informs the CDTFA that you are still an active business but had no taxable transactions. If you simply don’t file, the state will assume you are delinquent and may issue penalties or estimate a tax liability for you. It’s a simple step that takes just a few minutes online but saves you from significant headaches down the road.
Record-Keeping for Sales Tax Compliance
Maintaining organized records is your best defense in the event of an audit. Your records should justify every number you report on your sales tax return. This includes sales invoices, cash register tapes, purchase invoices, and resale or exemption certificates. Incomplete exemption certificates or outdated customer records can create serious compliance issues.
Your records should be kept for at least four years. Having a robust bookkeeping system is essential for staying organized. If managing paperwork feels overwhelming, our Business Accounting & Management services can help you create a streamlined process for accurate and timely record-keeping, ensuring you’re always prepared.
Don’t Forget Use Tax on Business Purchases
Sales tax isn’t the only tax you need to worry about; there’s also use tax. A business is required to report and remit consumer use tax on items purchased for your business from an out-of-state seller who did not collect California sales tax. This often applies to online purchases of office supplies, equipment, or software.
For example, if you buy a new printer from an online retailer that doesn’t charge you sales tax, you are responsible for paying the equivalent use tax directly to the CDTFA. You report and pay use tax on the same form you use for your sales tax return. It’s an easy detail to miss but a common focus during audits.
Resources and Support from the CDTFA
Dealing with a state tax agency can feel intimidating, but the California Department of Tax and Fee Administration (CDTFA) offers more than just rules and regulations. They also provide a number of resources designed to help business owners understand their responsibilities and get help when they need it. Taking advantage of these free tools can demystify the tax process and give you the confidence that you’re handling things correctly. Think of it as a way to get information straight from the source, so you can build your compliance strategy on a solid foundation.
Educational Materials and Classes
You don’t have to figure everything out on your own. The CDTFA provides a wealth of educational support specifically for small business owners. They offer basic sales and use tax classes, online seminars, and workshops that cover the fundamentals of tax compliance in California. These resources are perfect for learning how to correctly register, file, and pay your taxes, helping you avoid common mistakes from the very beginning. You can learn about these taxes directly from the agency that manages them, which is an invaluable opportunity to ask questions and clarify any confusing points before they turn into actual problems.
Getting Direct Assistance
Even with the best preparation, issues can still arise. When you run into a problem, it’s important to know where to turn for help. The CDTFA has systems in place to assist taxpayers who have received a penalty, need to request a refund for an overpayment, or want to appeal a tax decision they disagree with. For more complex disputes, the state provides a Taxpayers’ Rights Advocate to ensure you are treated fairly. While this advocate is a valuable resource, handling a formal notice or audit can be overwhelming. In these situations, seeking professional audit representation can provide the specialized support needed to protect your business interests.
Common Small Business Sales Tax Mistakes to Avoid
Sales tax compliance can feel like a moving target, but getting it right is non-negotiable. A simple oversight can lead to penalties, interest, and stressful audits down the road. The good news is that most errors are preventable. By understanding the common pitfalls, you can create a system that keeps your business compliant and gives you peace of mind. Let’s walk through the most frequent mistakes small business owners make and how you can steer clear of them.
Misunderstanding Your Nexus Obligations
One of the most common trip-ups is misunderstanding where you’re required to collect sales tax. This connection to a state, known as “nexus,” isn’t just about having a physical office. For many California businesses, especially online sellers, economic nexus is the bigger factor. If your sales into the state exceed $500,000 in a year, you have nexus and must collect sales tax, even if you’re based elsewhere. As your business grows, your nexus footprint can expand. Keeping track of these changing obligations across different jurisdictions is complex, and getting it wrong can create significant tax liability from past sales.
Using the Wrong Tax Rates or Exemptions
California doesn’t have a single, statewide sales tax rate. The rate you charge depends on the delivery address of the product, which includes a combination of statewide, county, and city district taxes. Applying your local rate to every sale is a recipe for error. You might under-collect, leaving you to pay the difference, or over-collect, which is unfair to your customers. Similarly, incorrectly applying exemptions for certain goods or to resale customers can trigger red flags. Failing to collect tax when you should can lead directly to an audit and back taxes.
Keeping Messy or Incomplete Records
When it’s time to file your sales tax return, organized records are your best friend. If you can’t easily pull reports showing total sales, taxable sales, and tax collected, the filing process becomes a stressful scramble. In an audit, the burden of proof is on you. Missing invoices or incomplete exemption certificates can result in those sales being deemed taxable, leaving you with a hefty bill. Solid business accounting practices are the foundation of compliance. Your records should tell a clear and accurate story of every transaction from sale to remittance.
Relying Too Much on Manual Processes
Manually tracking sales tax in a spreadsheet is risky. As your business grows, so does the chance of human error. A simple typo or outdated rate can lead to miscalculations and incorrect filings. Modern accounting software automates rate calculations based on precise location data, tracks sales, and generates reports, saving you time and reducing risk. When you manage compliance manually, you’re more likely to miss key details, like when you’ve crossed an economic nexus threshold. Investing in the right tools is a crucial step, and our team can help with accounting software implementation to get you started.
Incorrectly Correcting Past Filing Errors
If you discover you underpaid or overpaid sales tax in a previous quarter, your first instinct might be to adjust your current return to make up the difference. This is a critical mistake. Each filing period is a standalone record, and you can’t use a new return to fix an old one. The correct way to handle this is to file an amended return for the specific period where the error occurred. Trying to bundle corrections into your current filing confuses your financial records and creates a messy audit trail that can trigger penalties. If you’re ever audited, you’ll have a difficult time explaining the discrepancy. If you receive a notice or are unsure how to proceed, seeking professional help for tax notice and audit representation can prevent a small mistake from turning into a major financial problem.
What Triggers Sales Tax Audits and Penalties?
State tax agencies look for specific red flags. Consistently filing late, reporting numbers that are drastically different from previous periods, or having a high volume of exempt sales can all trigger an audit. Businesses with multiple locations or a remote workforce are especially vulnerable to compliance issues that attract attention. If you receive a notice from the CDTFA, don’t ignore it. An audit isn’t an accusation of guilt, but it is a serious process that requires a careful and timely response. Having an expert handle the correspondence can prevent the situation from escalating, and our audit representation services are designed to manage this process for you.
When Is It Time to Call a CPA?
You don’t have to be a sales tax expert to run a successful business—but you should have one on your team. If you’re feeling overwhelmed by tracking rates, expanding into new markets, or dealing with complex product taxability, it’s time to call a professional. A CPA can provide the experience and resources you need to manage compliance efficiently. Getting expert help with your business tax planning not only ensures you file accurately and on time but also frees you up to focus on what you do best: growing your business.
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Frequently Asked Questions
I only sell online to customers in California. Do I really need to collect sales tax? Yes, absolutely. If your business has a significant connection, or “nexus,” to California, you are required to collect sales tax on taxable sales made to customers within the state. This applies whether you have a physical storefront or operate entirely online. For many businesses, this connection is established through economic activity once your sales into the state cross a certain threshold.
What’s the difference between sales tax and use tax in simple terms? Think of it this way: sales tax is the tax you collect from your customers when you sell them a taxable item. You’re acting as a collection agent for the state. Use tax is a tax you pay directly to the state yourself when you buy a taxable item for your business from an out-of-state seller who didn’t collect California sales tax on the purchase.
What happens if I miss a filing deadline or realize I made a mistake on a past return? Missing a deadline will likely result in penalties and interest charges, so it’s important to file as soon as you can. If you discover an error on a return you’ve already filed, you can submit an amended return to correct it. It is always better to address these issues proactively rather than waiting for the state to find the mistake for you.
I had no sales this quarter. Can I just skip filing? No, you still must file a return. The state requires you to submit what’s called a “zero return” to report that you were still in business but had no taxable sales for that period. If you don’t file, the state will assume you are delinquent and may assess penalties.
Why can’t I just use my local sales tax rate for all my sales within California? Sales tax rates in California are not uniform; they vary by the specific delivery address of the customer. The total rate is a combination of the statewide rate plus local district taxes. Applying your business’s local rate to all sales will lead to incorrect calculations, causing you to either under-collect from some customers or overcharge others, which can create significant issues.