eCommerce brands come in all shapes and sizes, but there’s one thing that never changes: No matter how big or small you are, every online store needs to collect and pay taxes.
Depending on what you sell and where you sell it, these might be sales taxes or import taxes or other duties. You might be required to pay corporation tax, too.
Getting compliant with tax obligations is seldom straightforward. In fact, collecting, reporting and paying the right amount of taxes is one of the biggest challenges that eCommerce brands face. It’s why smart brands turn to business-as-a-service solutions for help.
The Problem of eCommerce Taxes
Unless you are a niche seller operating in a very small market, charging and collecting the right amount of tax is probably going to be very complicated. Even if you are a U.S. online retailer and operate only in America, the 2018 Wayfair ruling means you’ll need to collect sales tax for almost every state, even if you have no presence there.
Forty-three of the 45 states that have general sales tax have now adopted nexus laws as a result of Wayfair, notes tax lawyer Kelly Phillips Erb. This means keeping abreast of state sales tax laws has become much more challenging for those small-to-medium-sized sellers who don’t have a dedicated accounting or legal department.
Further, not all items are taxable in every state, tech reporter Erik Sherman points out. There are no rules that are applicable to every state, either. For example, some states require you to charge sales tax on shipping costs, while others don’t, writes TaxJar’s Mark Faggiano.
But that may not be the worst of it, says writer Wayne Rash. “According to one estimate I’ve read, there are actually over 10,000 unique taxing jurisdictions in the US, each one of which can impact both sales tax rates and collection operations from e-commerce activity.”
So, unless the federal government takes steps to simplify legislation, eCommerce brands must be able to comply with changing laws in every jurisdiction. That includes charging the correct tax, making the right exemptions and filing accurate returns.
That’s if you operate solely in the U.S., too. As soon as you start to expand globally, expect to face dozens of different import taxes and duties. Even selling across a trade bloc like the EU isn’t simple. Each member state requires brands to charge (and pay) a different amount of VAT to their residents.
It Takes Expert Guidance to Navigate
In the wake of Wayfair, communications and public affairs consultant Richard Levick says it’s essential for brands to work with tax experts. It’s no good trying to guess what tax you owe and to which state. With the right team of experts, you can remain compliant with this ruling and any others that follow.
Tax experts may be particularly helpful when it comes to dealing with any outstanding taxes you owe, notes PR consultant Tor Constantino. Right now, hundreds of state and local governments are coming after eCommerce brands for years’ worth of unpaid taxes. It’s crucial for brands to accurately assess their tax liability — not only so that they are compliant, but also to ensure they don’t overpay.
Given that these tax laws are often complex and vary from state to state, the advice of an expert when calculating liability is essential for eCommerce brands of almost any size. eCommerce tax advisors can also help to avoid any penalties or other forms of retroactive punishment that may be levied against your brand.
Brands need to act quickly, too. It’s essential to address internet sales tax issues before they become a PR disaster, writes Prometric CRO Alex Paladino. Doing so is far from easy, however. To make such a move successful, Paladino notes that in-depth knowledge on complex state and local tax laws is essential.
Software Is Essential for a Smooth Operation
Expert advice may be essential, but tax specialists can only take you so far. “For online retailers, having software to help manage the complexity of many different sales tax laws is crucial,” says journalist Bennett Conlin.
Tax software offers several benefits for online stores, writes trial attorney J. Blake Ledbetter. Automation can make the calculation and reporting of tax figures significantly easier. Analytics can also help brands to get a better grasp of their potential tax liability and make better business decisions accordingly.
Automated software makes your eCommerce business much more flexible, too, writes Sovos’ Alex Forbes. If states or local authorities do update their tax laws, it will be much easier to change your process if you’re using software to calculate the tax on your behalf.
Software-based automation also allows stretched eCommerce brands to devote less time and attention to dealing with complex tax matters. Ari Zoldan, CEO of Quantum Media Group, points to Dylan’s Candy Bar as one brand that has recently had success automating its tax compliance — a move that has helped the brand move into new markets.
Perhaps most importantly, an eCommerce platform can essentially guarantee that taxes are calculated quickly and accurately for every shopper. Inaccurate tax calculations can be extremely damaging to the customer experience, warns Vertex Inc.’s Brian Wilchusky.
“As a result, it’s vital for e-commerce systems to include streamlined tax calculation, reporting, and compliance functionality,” he writes. “This need has intensified due to sweeping legal changes concerning the taxation of eCommerce in the U.S., as well as new digital taxation rules in the European Union.”
That software also needs to be flexible enough to account for different expectations in different markets. In the U.S., customers expect taxes to be added on at checkout, notes Kim Flaherty, a User Experience Specialist with Nielsen Norman Group. They also appreciate that these may vary depending on where they live. That being said, the tax must be calculated correctly. The surprise of additional or expensive fees is enough to encourage users to leave the site altogether.
Expanding Internationally Comes With Its Own Tax Challenges
International taxes are liable to change just as much — if not more often — than those in the U.S. Take Brexit, for example, where despite more than three years passing since the referendum, the country’s future trading relationship with the EU is yet to be decided.
When it comes to calculating what these taxes are, every country will be different. So, too, will be the expectations of local shoppers about how taxes should be displayed. This makes having a robust online shopping platform that can handle multiple currencies and multiple taxes essential.
Advice from genuine international tax experts is also invaluable. “Learning the different tax codes, business regulations and packaging standards in different countries can be challenging,” say Business News Daily’s Chad Brooks, Nicole Fallon and Saige Driver. It’s much easier to have a trusted partner on hand who can tell you what your brand needs to do.
Better yet is to have a partner who is responsible for collecting and declaring taxes in different countries. As an authorized merchant reseller, this is exactly what Scalefast is. You don’t have to worry about abiding by tax laws. We are the ones liable.