Three retail tax trends worth tracking

The National Retail Federation’s (NRF’s) annual “Big Show” lived up to billing. The event featured huge numbers of attendees and presenters and plenty of big ideas about the industry’s challenges, opportunities and innovations (e.g., how smart mirrors are transforming some in-store customer experiences).

In addition to talking shop with retail tax professionals at Vertex’s event booth and speaking on the complex navigation of compliant commerce with my co-presenters, I managed to listen to some fascinating insights and ideas about the current, and future, state of the industry.

Most of these trends fall into three categories:

1. Customer behaviors that drive technology breakthroughs: More customers are embracing the circular economy, also known as re- commerce, by increasing their purchasing of secondhand or previously owned goods. This behavior started in electronics and is now expanding to clothing and furniture. Consumer technology adoption is also driving retailers to innovate. You’ll see more retailer apps with “store mode” settings that help shoppers identify which aisle and shelf an item is located, alert shoppers to dual pricing options and more. Virtual mirrors equipped with augmented reality features and Internet of Things (IoT) connectivity can suggest clothing styles and sizes while letting customers virtually try on garments.
2. Omnichannel initiatives that stimulate growth: Native online retailers are opening physical store locations – mirroring in reverse the previous trend of traditional brick-and-mortar retailers developing e-commerce offerings. Brick and mortar locations will continue to play a major role in many retailers’ strategies as traditional lines between physical and digital channels blur to the point where that demarcation will feel as if it no longer exists. Oh, and as you may have heard, retailers continue to adopt and integrate artificial intelligence (AI) technologies at a torrid pace.
3. New tax legislation, retail tax rates and fees that pose compliance challenges: In addition to record volumes of U.S. sales tax rates and rules changes, VAT complexity overseas and the implementation of e-invoicing rules in the EU and other regions, retail tax groups are contending with changing marketplace facilitators rules and new fees. Marketplace facilitator laws govern whether the seller or the online platform is responsible for filing and remitting sales tax and when a company is subject to doing so via nexus rules (which are based on transaction thresholds). “From a higher- level economic standpoint, marketplace facilitators should recognise that fiscal uncertainty among U.S. states will drive many jurisdictions to seek new sources of revenue,” my colleague, Vertex Chief Economist and Senior Tax Policy Director George Salis writes. “This search will focus on the continuing taxation of the (global) digital economy, which include e- commerce and online marketplace transactions. As such, remote sellers and marketplace facilitator can expect tax rules (e.g., nexus standards) and rates to continue to undergo frequent changes.” While many retailers are familiar with environmental “green” fees attached to an expanding collection of products (plastic shopping bags, batteries, mattresses, etc.), the use of retail delivery fees are also increasing.

So, what does all this mean? Retailers are in for a big year with some major tax compliance challenges. I’ll be updating readers throughout the year on these trends and if/how they may shift.