The problem with this is: how do you know what the tax rate is for the product you're selling? For instance, if you're in New Jersey and you're selling a clothing item like a pair of socks, then there's no tax. But if you're selling a fur coat, then there's full sales tax. There's different tax rates for different products, and it varies wildly across almost 10,000 different jurisdictions in the US.
I wonder if this extends to county/city taxes? That would open up even more ridiculous complexity.
Locally, there's a poorly structured (ie not machine-readable) spreadsheet of municipal taxes that tell you, based on _what side of the street_ you're on, whether you fall under the "mosquito district tax" that requires a small percentage more sales tax to pay for the annual spraying of mosquitoes.
Without simplifying the tax codes, I'm not sure full compliance over the web is even possible...
I work as a sales tax auditor. The answer is, you as the merchant need to know those rules. For smaller retailers they usually just tax everything unless the buyer has given some sort of exemption certificate. For the merchant you can tax exempt items as long as you remit the tax but if you dont tax a taxable item then you become fully liable for the uncollected tax. Thats why these smaller retailers tax everything.
On top of this there are also conditional taxations and tiers. For instance you pay $x in tax if you've moved $y in product $z in jurisdiction q unless condition c applies. This seems pretty nasty for any business that doesn't have full time legal and accounting teams.
When using a sales tax API, the merchant configures their product catalog by assigning products to specific tax categories or tax codes based on the sales tax provider. Some tax categories are extremely granular to accommodate the scenario you mentioned. The logic on whether or not the product is taxable in a specific state based on a certain threshold is done completely within the API when passing over tax codes for each line item.
In general you would identify the product type from a list of a lot of product types and then let your sales tax calculator as a service provider sort out what needs taxed and at what rate.
What if each state has a different set of product types?
IMO, the federal government's responsibility to regulate interstate commerce should include creating a standard of product categories. States can then tax those categories at whatever level they see fit.
That shouldn't matter too much, identify with the most granular option there is one time for each product and then let the tax provider figure out what falls into each bucket for each state. Also, UPC codes should help automate it for large swaths of products. If I buy a Sony lens cap from B&H or Amazon or Random Joe's Camera Shop it would have the same UPC and can be automatically classified by any number of tax vendors.
