The closing of brick-and-mortar retail operations began well before the COVID-19 outbreak. The decline of shopping malls, for example, was there for all to see at least a decade earlier. During the pandemic, all things retail shifted online, often to an omnichannel environment. Now the pendulum is swinging back toward the physical world, bringing with it more choices for consumers and more complexity for retailers.
Consumers want to get back out there in person, but many other factors are at play. A couple of recent Wall Street Journal articles depict the new retail landscape: Online Shopping Is Getting Old reports that online sales have moderated this year, rising by a seasonally adjusted 3% in the first quarter. At the same time, the composition of online transactions is changing, “with retailers ranging from big box stores to the local bookshop offering in-store pickup for online orders.” The second article, Online-Only Startups Adopt a Bold New Strategy: Opening Actual Shops, notes that digital advertising costs exploded during the pandemic. In response, digitally native businesses now are exploring the advantages of on-premises operations for building relationships and growing their customer base.
Online-native retailers putting down roots in physical locations will need to understand the tax requirements in local jurisdictions such as specific fees for public improvement fees, fees unique to a specific shopping district or scenarios like Urban Enterprise Zones and disposable bag fees. Brick-and-mortar organizations heading online may be unexpectedly challenged with sales across state, or even international, borders.
Omnichannel retail brings its own tax complexities. For a useful overview of some key topics, you might want to check out this podcast in ITR’s Tax Insights series: Vertex discusses how to manage tax in an omnichannel retail environment. In our short discussion, ITR Commercial Editor Alice Jones and I look at the globalization of commerce and companies’ growing exposure to localized tax legislation and the need to report in more jurisdictions. We also examine digital resources like the cloud and new retail tax solutions, such as edge computing. Edge brings companies’ enterprise resource planning (ERP) systems closer to external data sources, which is increasingly valuable in retail, given the widespread use of point-of-sale systems.
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. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.