Attention, B(lockchain)-Commerce Companies: Transaction Taxes are Coming

Of all the digital advances currently re-shaping business models, I’m hard-pressed to think of one more exciting than blockchain technology (of course, I may be a bit biased). Cross-border blockchain-based transactions, also known as b-commerce, are emerging and some think they likely account for a large slice of the larger parent category of e-commerce growth in the next decade. Vendors of blockchain solutions, and distributed ledger technologies in general, are rightly bullish about the prospects for their market.

It’s not a clear horizon, however. The rise of b-commerce is happening at just the same time that tax authorities are starting to bring the full weight of transaction tax regulations to bear on e-commerce businesses.

U.S.-based readers will be familiar with the Supreme Court’s 2018 Wayfair decision, which permits states to impose sales tax obligations on remote sellers even when they have no physical presence within the state. States are overhauling their sales tax rules at a dizzying rate. Providers of blockchain-based platforms and distributed applications may find that they fit the definition of “marketplace facilitators” in the post-Wayfair environment and are required to collect and remit sales tax, as well as file returns.

It’s not just the U.S., though. Many tax authorities around the world either are targeting digital transactions and services or considering doing so. The United Kingdom, for example, has introduced rules making online marketplaces liable for non-compliant traders using their platforms. The OECD is currently developing digital taxation guidelines and intends to finalize them next year.

If your b-commerce company needs to brace for the impact of indirect tax, here’s where to begin:

1. Keep an eye on e-commerce tax regulations. Know if these rules apply to your site, platform or distributed application. Consider tracking global regulatory trends, such as the growing consensus among jurisdictions that the customer’s country or state of residence is key to determining where transaction taxes are collected and remitted.
2. Consult with outside experts. External audit firms and law firms specializing in tax can be useful sources of advice. I’d also recommend visiting the website of the Accounting Blockchain Coalition (I’m proud to add that I’m the president of this organization).
3. Review your transaction processes and tax liabilities. If you’ve never previously set up a sales tax function, now may be the time to do so. Consider the potential impact on your financial statements and investigate tax technologies that automatically apply and update transaction tax rules and rates.

For more on this topic, check out my Vertex article B-Commerce Cometh, but During Taxing Times.

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.