A Triple Tax Whammy for Online Sellers

Our Director of Innovation David Deputy looks at shifting and increasing demand, fulfillment headaches and cross-state/cross-border tax issues for online sellers.

“Perfect storm” no longer suffices when describing the manifold tax management challenges confronting online sellers and platforms.

Prior to the pandemic, these retailers were scrambling to adapt to a flood of new sales tax rules and rates in the wake of the U.S. Supreme Court’s 2018 Wayfair ruling. These economic nexus legislative and rate changes targeted online sellers as well as marketplace facilitators, as my colleague, Vertex Chief Tax Officer Michael Bernard reported.

COVID-19’s rapid spread transformed consumer buying behaviors, leading to a surge in online transactions. While soaring sales represent a good problem, they also qualify as a complex challenge. The pandemic and its resulting economic damage have strained supply chains and created fulfillment obstacles at a time when many online sellers and marketplaces are offering new products and new product categories to consumers.

More than one-third of retailers have revamped their marketplace strategies, according to a Digital Commerce 360 survey. “But those adjustments have been different for each merchant,” according to the media and research firm’s latest Online Marketplaces Report. “Nearly a quarter of sellers, for instance, altered advertising, customer acquisition and marketing strategies on marketplaces since the COVID-19 crisis began…other merchants have made changes to their fulfillment network and last-mile delivery vendors, faced supply chain and inventory turnover challenges, or have shifted focus to their own e-commerce sites.”

But wait, there’s more.

In addition to addressing COVID-era customer preferences and post-Wayfair tax rules changes, retailers that conduct business beyond U.S. borders must also understand and comply with changing value added tax (VAT) compliance requirements in numerous countries.

The complexity of this triple whammy—shifting and increasing demand, fulfillment headaches and cross-state/cross-border tax issues—places growing stress on the tax functions within online sellers and marketplaces. Those retailers with a scalable global tax solution in place are finding that they have (up to three) fewer worries while they continue to adapt their strategies to thrive in uncertain 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. 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.

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Our Global Tax Resources Related to COVID-19

In light of the current coronavirus (COVID-19) healthcare crisis impacting businesses, we have compiled a list of resources that provide information at the international, U.S. federal, and state levels.

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