by Amit Mathradas
It has been more than a month since the World Health Organization declared COVID-19 a global pandemic. Over the past few weeks, governments, businesses, and individuals alike have been forced to adapt nearly every aspect of their normal day-to-day operations. Stay-at-home orders or mandated business closures have swept the nation, causing most consumers to turn to ecommerce for all of their shopping wants and needs.
At the same time, retail businesses have not only had to deal with the legislative and health impacts of COVID-19, but also to grapple with a drastic shift in how they can continue serving customers online in the age of social distancing. Amidst the blur of the past several weeks, it’s likely that most retailers have not given much thought to tax compliance, but there are several considerations that businesses should keep in mind when it comes to managing tax during these uncertain times.
Tax Changes in Response to COVID-19
In response to the global pandemic, federal, state, and local governments have made major adjustments to tax collection and enforcement. From income tax delays to sales tax deferments, businesses have several options at-hand to help lessen the financial blow of the virus in the short-term. At the federal level, a historic stimulus package, the CARES Act, was instituted on March 27th to provide relief to taxpayers and expand unemployment benefits.
At the state level, nearly every state and the District of Columbia have introduced filing extensions as well as interest and penalty waivers for a host of taxes, including lodging tax and sales and use tax as of early April. California, for example, has delayed state tax filing deadlines for small businesses filing less than $1 million in tax until July 31, due to compliance with public health requirements.
The relief measures being taken across the country offer support to businesses impacted by COVID-19 in an effort to keep businesses open and encourage ongoing consumer spending. And, while businesses have the option to take advantage of the tax changes, tax compliance management never stops and they must continue to be diligent in managing their tax obligations throughout the duration of the pandemic.
Managing Tax Throughout COVID-19
Many retail businesses have taken their stores online for the first time or have worked to expand their online presence in the midst of stay-at-home orders. As a result, many businesses have waded into the complex waters of ecommerce and economic nexus tax obligations.
With more consumers going online to make purchases from retailers anywhere in the country, the tax obligations placed on retailers can quickly get out of hand depending on the volume of sales being made to customers in other states. These added obligations were made possible following the 2018 Supreme Court decision in South Dakota v. Wayfair where states were granted the ability to apply tax to online transactions made within the state regardless of where the seller is located.
While tax obligations are pulled back for the short-term, the digital transactions that are taking place today will have an impact on a business’s economic nexus obligations down the road and taxing authorities will only delay tax collection for a limited time until they are forced to begin recouping lost revenue.
Fortunately, retailers have several options when it comes to managing tax during COVID-19 and beyond. Most retailers are already using a range of technology solutions to manage and operate their businesses on a daily basis. From point-of-sale systems in-store to ecommerce platforms online, technology is powering modern retail businesses across multiple channels. Tax compliance should be no different.
Tax Compliance Automation
Tax compliance automation technology exists to ensure that businesses are collecting the right amount of sales tax on all purchases based on the tax rates and rules for the more than 12,000 taxing jurisdictions in the U.S. This technology has the ability to integrate with the systems that retailers are already using to allow businesses to get their compliance up-and-running swiftly. While many retailers may be hesitant to spend money on a process that provides no tangible value to the bottom line or customers, automating tax compliance can help businesses in the short and long-term.
Managing tax compliance manually is time-consuming and resource intensive. While business owners and finance teams are grappling with the customer-facing impacts of COVID-19, it is unreasonable to assume that they will have the disposable time to focus on tax, especially during a time when rules and rates are changing rapidly. Adopting tax compliance technology can help reduce the time spent to maintain compliance in the short-term, which makes automation the more cost-effective option for businesses.
Tax automation technology also provides businesses with an ongoing compliance strategy. By leveraging the cloud, tax automation makes it easier for businesses to compile and manage transaction data on an ongoing basis from virtually anywhere. The cloud also enables real-time tax content updates, which ensures that the technology is calculating and remitting taxes that align with the changing rates and rules around the world. Not only does tax technology save money and minimize risk in the long run, it also helps future-proof business operations with the latency and flexibility needed to weather nearly any disaster or business impact.
The impact of COVID-19 is likely to be felt by retailers of all sizes for the foreseeable future. Fortunately, businesses can leverage tax automation as a tool to minimize the burden in the short-term, while also preparing for recovery in the future. Effective tax compliance management goes far beyond mitigating risk and staying compliant. Managing tax correctly helps businesses streamline their finance operations, improve their checkout experiences, and cut time, resource, and financial costs to weather the storm and make their way back to normal.