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When e-commerce was in its infancy, jurisdictional regulations offered some organizations an opportunity to leverage their corporate structure and deliver goods and services to certain buyers without a sales tax imposition.
By contrast, most retailers are viewed as having a substantial presence due to brick-and-mortar store locations or other measures of the law that require tax calculation as an integral part of the checkout process. Even those online retailers who don’t have the requirement to collect sales tax today most likely need to have a plan prepared should new legislation ultimately require sales tax collection.
E-Commerce Sales: Tax Compliance
Considering the typical requirements of collecting the proper sales tax at several hundred or more retail locations, retailers’ tax and financial experts need to track applicable rates, exceptions, exemptions, holidays and special rules solely relevant to their physical stores. Traditionally, retailers also needed to incorporate these changes into their point-of-sale (POS) systems to determine pricing and tender amounts at each store location. If a retailer operates in hundreds of locations, it needs to track the “tax area” or combination of jurisdictions that govern those locations.
Once a retailer begins selling products or services online, its legal requirements are compounded as it now must track, administer, collect and remit taxes and tax rules at each doorstep. If you're operating in all states that levy a sales tax, you’ll need to comply with well over 8,000 jurisdictions. Compliance can be a daunting task for both finance experts and technology teams managing the infrastructure to support internet sales. When not properly managed, it can be fairly costly in the form of audit support costs, penalties and, even more damaging, a poor customer experience.
Fortunately, tax technology is available to help you manage jurisdictional compliance requirements for all of your business-to-consumer channels. Leveraging this technology allows you to support your back-office, brick-and-mortar locations, e-commerce sales and other channels. It will also streamline your company's ability to stay on top of managing tax law changes and integrating those changes into your relevant systems.
Tips to Consider
When planning to leverage today’s tax technology solutions — software that tracks legislation, tax changes, holidays, exceptions and exemptions, as well as calculating tax on any of your transactions or powering your POS systems with the proper tax data for each location — consider a system that fits your company's two year to five year business and technical goals.
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