In a year defined by extreme challenges (a global pandemic) and newly relevant terminology (quarantine, bubble, etc.), it’s fitting that the retail industry has adapted so quickly and effectively to new challenges (consumers’ accelerated adoption of e-commerce and multichannel purchasing) while contributing some new phrases of its own (curbside pickup).
Retailers will need to stay on their toes, however, as looming tax compliance changes drive the need for ongoing process and technology adaptations.
A Record-Breaking Year for Cyber Monday
The industry’s agility was on vivid display during its busiest stretch of the year late last month. Cyber Monday’s online sales volume (at least $10.8 billion, a more than 15% increase over 2019) reached an all-time record, according to figures from Adobe Analytics and the National Retail Federation (NRF). Almost as notable was the fact that online sales transacted on Black Friday 2020 (an estimated $9 billion according to Adobe Analytics) soared by more than 20% compared to 2019 levels, making it the third largest online-sales day in history.
“For several years, we’ve been talking about the dynamic nature of the retail industry and the speed of change necessary to meet the consumer demand,” NRF President and CEO Matthew Shay noted in a statement. “This year’s research clearly shows that the investments made by retailers are paying off in a big way.” The NRF also reports that “retailers’ investments in technology continued to pay off with consumers seamlessly shopping on all platforms throughout the weekend.”
The Importance of Optimizing Tax Compliance Processes for E-Commerce
That multichannel activity combined with multiplying sales tax rates and rules changes make it crucial for retailers to keep their tax compliance processes and supporting technology as adaptive and responsive as possible. (And keep in mind that new sales tax rules and rate changes affect all transactions, including in-store, e-commerce and those conducted through online marketplaces.)
Retail tax teams and their IT colleagues should recognize that advanced tax automation helps ensure that the right forms are automatically completed, tax is calculated using the most up-to-date rates and product tax codes for each jurisdiction and tax is validated for each ship-to address. These tax engines should integrate with enterprise resource planning (ERP) and point of sale (POS) systems to make tax calculations an accurate and seamless part of each transaction, while rifling through vast troves of data to 1) identify when economic nexus thresholds are met (to meet Wayfair tax compliance requirements); and 2) defend against audits when necessary.
Making sales tax determination, calculations and submissions as accurate and automated as possible will give retailers more time to respond to changing consumer behaviors while addressing unexpected challenges and adding innovative new terms to the lexicon.
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.