by Shannon Flynn
The consumer market has slowly been shifting to ecommerce for years, but the evolution of retail since the start of the COVID-19 pandemic has been astronomical. Because of restrictions on in-person shopping, U.S. ecommerce sales spiked by more than 30 percent per quarter from Q2 2020 to Q1 2021, and continued to rise by nine percent in the second quarter of 2021.
The pandemic has highlighted the importance of multichannel selling, but the retail revolution was already in progress. It brings new challenges like supply chain bottlenecks, inflation, around-the-clock operations, and labor shortages. Alongside the social and technological within retail are tariff wars, rapidly unfolding geopolitical events, and economic pressures of all kinds.
The implications are a new set of tax challenges – and one or two opportunities – for any company doing business online. Here is a look at what is driving the change and the new tax complexities we are seeing emerge:
Navigating Changes to Tax Rates and Rules
Changes to sales tax rates at the local, state, and national levels are inevitable, but there are also changes to how certain products are taxed. Preparing and filing tax returns is an arduous process for retailers, made more difficult if they have commitments in multiple states or nations. On top of the time and money spent by businesses to accurately file on-time across their jurisdictions, changes to the filing obligations create additional complications.
Retailers must also contend with the fact that the ecommerce digital revolution seemed to reach its zenith at around the same time key nations began implementing major changes to tariffs on imported and exported goods. Protectionary economic measures like tariffs have added a substantial challenge to digital-first business-to-community (B2C) and business-to-business (B2B) retailers operating across national borders. Some examples – like aerospace components, raw aluminum, and other high-value goods – have seen their tariff statuses change several times in just a few years under different administrations. Retailers of all kinds must engage in ongoing learning and work with their peers in the industry to understand how these pivotal events will alter their tax obligations and bottom lines.
Learning to Serve a Global Tax Base
The chief advantage of ecommerce is also one of its biggest challenges. Taking part in a global marketplace means exposure to a globe’s worth of tax risks – including cross-border taxes. Retailers can do business across a significant geographical territory, but each new market brings its own set of tax liabilities. These can include:
- Import taxes
- Export taxes
- Sales taxes
- Use taxes
- Tax holidays
Given the number of sales territories a retailer might sell in, staying in compliance with subject-to-change tax laws can be a challenge. It requires reliable in-house infrastructure and knowledge, or a partnership with a third-party team or software tool to keep revenue streams and tax liabilities organized, accessible, and (if need be) auditable.
Engaging in Multichannel Retail Leads to New Tax Liabilities
With the steady increase in retail channels, brands have increased opportunities to reach customers, but it also increases their tax liability. If you sell in-store or online or offer any services like buy online, pick up in-store (BOPIS) and buy now, pay later, your tax obligations are likely to change frequently.
The main challenge here is remote sales tax laws. The District of Columbia, parts of Alaska, and an additional 45 states have adopted marketplace facilitator laws. This requires remote sellers and marketplaces to collect and remit sales tax based on where a customer is located. With each state having its own rules on what triggers an obligation to collect and who is ultimately responsible for collection and remittance, retailers who are selling across numerous states on multiple channels face a myriad of complexities.
Building a Resilient and Global Workforce
The pandemic has brought workforce issues to the forefront. Executives say the most significant impediment to retail growth in 2022 will be labor shortages in hourly-wage jobs, with up to 74 percent expecting shortages in customer-facing roles. Warehouse positions with a traditionally high turnover rate are also likely to be problematic. Executives predict shortfalls in hourly supply chain, distribution, and logistics positions.
The traditional workforce may be a distant memory. Today, all but the most physically demanding jobs can be done remotely at least part of the time. Navigating labor shortages means providing modern resources and amenities for workers, some of which may impact taxes. For example: landing and retaining talent from a global talent pool where employees seem to be gaining the upper hand may require employers to support workers’ higher education ambitions. Lifetime learning can be tax-deductible for employees and employers alike. That means alongside retail’s ongoing tax challenges, there are also opportunities to support employee growth and build stronger retention programs.
Matching Tax Software With Digital Sales Platforms
New opportunities are everywhere for retailers with the expanding ecosystem of digital platforms. It is easier than ever to reach new customers in new locations. This expansion of shopping channels and payment platforms has also created lower-cost marketing and operating options for retailers.
However, ecommerce is a 24/7 business with transactions taking place at all hours and from across the globe. The evolution of online retail’s technology stack means companies require an equally fully featured tax software suite. With all of the moving pieces in ecommerce migrating to online platforms, compliance and accounting software must be equally capable and mobile. Today, retailers must invest in tax technology that makes this digital transition seamless for customers and the company alike. The right software will provide guidance on all kinds of financial planning and reporting tasks – including sales forecasting and estimating tax obligations before expanding into new markets.
The Retail Tax Landscape Is Changing
Retail taxes and tax compliance are complex topics becoming more challenging by the day. With the rapidly evolving nature of consumer behavior, transforming business operations is vital to keep pace while staying compliant.