As more companies race to provide unique customer experiences, the importance of supporting technology involved in key customer touch points, such as sales transactions, continues to increase. E-commerce systems are a great example of how retailers help shape the customer experience by driving a seamless interaction with their customers across numerous commerce channels.
To accomplish this, it is crucial for e-commerce systems to include streamlined tax calculation, reporting and compliance functionality. When tax calculations for online transactions are inaccurate or so noticeable as to be disruptive, they can give rise to customer experience problems and potentially costly compliance risks. Given the volatile combination of compliance challenges many online sellers now confront, avoiding tax-related inaccuracies and disruptions can be difficult.
However, by understanding potential sources of complexity, purchasers of e-commerce systems can make better buying decisions by ensuring a solution contains the functionality needed to address tax-compliance requirements as seamlessly as possible:
- Rapidly Changing U.S. Sales Tax Rules and Rates:In 2018, 619 standard sales tax rate changes (to state, municipal and local sales tax rates) occurred throughout the U.S. During the past decade, there were a total of 5,886 standard new and changed sales tax rates — with an average of 588 changes annually during that stretch.
- New Global Tax Rules:Tax functions in global companies also must contend with new VAT rules in Europe and a surging movement among global tax authorities to tax e-commerce transactions within the jurisdiction where the customer resides. Increasing numbers of countries in Europe and Asia have either implemented new tax rules targeting digital activities or are considering doing so. The U.K.’s digital tax rules take effect in 2020, for example, while approval of France’s new digital taxation proposal is expected this year
- Large Product Mixes and Customer Expectations:Retailers that offer thousands of products through their storefronts also face the ongoing challenge of categorizing and managing those products to ensure taxes are accurately calculated on each product depending on a range of factors, including product types, transaction locations and tax exemption status.
An effective e-commerce system contains functionality that mitigates those areas of complexity while also improving sales tax capabilities — without costly custom integration development. There are a handful of tax-related questions to ask when considering a new solution. I’ll discuss more about this specific evaluation criteria in another Tax Matters post.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.