E-Commerce’s recent evolution has largely qualified as smooth sailing, but it’s running into some strong headwinds in the form of new tax rules. In a recent FEI article titled Tax: A Critical Element of E-Commerce Success, my colleague David Deputy and I examine some of these challenges and how companies can address them.
Among the biggest impacts of what we describe in the article as a “perfect storm” for e-commerce:
Taxation of low-value cross-border transactions. Several countries, including Australia, are imposing sales tax on low-value cross-border sales. A similar type of trend is now discernible in the U.S. at the state level.
New tax rules based on the location of the consumer. In the U.S., the Supreme Court’s 2018 South Dakota v. Wayfair decision shifted nexus considerations for out-of-state transactions firmly toward the customer’s location. Global agreements are in place to use the residence of the consumer as the basis of the right to tax e-commerce, and many countries have already started to enact laws for remote collection of transaction taxes by nonresident sellers.
The ever-increasing complexity of sales tax laws. In the past decade, in the U.S. alone, there have been an average of 225 new sales taxes, 368 sales tax changes, and 593 new and changed sales tax rates per year. And then there are all the exemptions, tax holidays and product categorization rules to keep up with.
Transaction tax platforms can cut through the complexity and give retailers the support they need through the entire sales tax process, from collection through reporting. For example, they can ensure that you’re filling the right forms with the correct rates and product tax codes for each jurisdiction. They can also validate tax for each ship-to address and centralize your data so that you can manage audits more easily. In short, these solutions can help you steer safely around whatever tax turbulence might be on the horizon.
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.
Chris Livingston is director of operations for Vertex Cloud, managing customer implementation processes, as well as the development of connectors to mid‐market ERP and ecommerce platforms. Throughout his career, Chris has held positions in finance, software development, product management and operations. He received his B.B.A. in finance from Pace University and is certified in project management, database management and business analysis.
A lot has changed since Vertex published our Retail Tax and E-Commerce: What You Need to Know white paper a few years ago. Some important tax challenges have remained exactly the same. What's different? The volume of online sales has increased in staggering fashion.
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