Companies across many industries, and with all kinds of business models, see sales tax systems as powerful engines of fast, accurate compliance. And rightly so. But for e-commerce companies, they’re much more than that. Transaction tax technology is rapidly becoming a necessity of doing business.
I explore some of the tax and technology issues confronting e-commerce businesses in a recent FEI article co-written with my colleague Chris Livingston. In Tax: A Critical Element of E-Commerce Success, we cite some staggering statistics on the rise of internet retail. Last year, e-commerce sales represented more than half of all retail sales growth. In 2019, e-commerce will account for a significant slice of the global GDP: $3.4 trillion of the total $80 trillion, or around 4.3%.
E-Commerce Growing Pains
At the same time, the tax challenges are significant—and intensifying. Retailers in the U.S. are familiar with the Supreme Court’s 2018 South Dakota v. Wayfair ruling, which allows states to impose sales tax obligations on remote e-sellers based on economic nexus thresholds, rather than the traditional physical presence rules for nexus. But tax management challenges are also global. For example, the OECD is currently working on new rules for the taxation of the digital economy. In addition, many countries have already started to act unilaterally, with new laws for remote collection of transaction taxes by nonresident sellers.
From a tax perspective, not all products—even similar ones—are treated equally. Expanding into new offerings can quickly multiply the complexities of tax management.
Whatever the specific complexities of the tax calculations behind online transactions, customers expect them to be addressed invisibly – and in real-time. As a result, we note in the article, “the inability to manage transaction tax can be deadly for a retail or e-commerce business. Further, some jurisdictions have threatened to send tax bills directly to consumers when e-commerce businesses fail to comply.” Not a scenario that any e-retailer wants to materialize.
How Transaction Tax Platforms Can Help
In the article, Chris and I explain some of the ways a transaction tax platform can help avoid that kind of outcome: for example, by performing tax validation for each ship-to address, ensuring that the right forms are filed on time and with the right data, and centralizing the paperwork to simplify audit management, all while enabling businesses to grow with confidence.
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.
Director, Strategic Development & Emerging Markets
David Deputy is Director of Strategic Development and Emerging Markets, managing the development of enterprise data management solutions. David brings 20+ years experience in ERP solutions, tax analytics and business intelligence software solutions. His background also includes work at Oracle, corporate finance and in bank regulation. David holds an MBA from Cornell and a Finance degree from the University of Florida.