According to eMarketer forecasts, U.S. retail sales over the holidays will top $1 trillion for the first time this year — with ecommerce sales projected to climb to more than $135 billion.
And thanks in part to the compressed shopping season between Thanksgiving and Christmas, the annual crush in 2019 could be more pronounced than ever before: In addition to predicting an even higher amount for online sales ($143 billion), Adobe Analytics projected that online retailers would see $29 billion in revenue over the five days between November 28 and Cyber Monday alone, with every day in November and December surpassing $1 billion in sales.
Are you ready?
Many online sellers have spent months gearing up for this crucial stretch, crafting plans and strategies well before holiday decorations started popping up in brick-and-mortar stores. (Although with each passing year, that seems to get earlier and earlier. We swear we heard holiday music playing while shopping in September.)
But in the midst of the holiday planning, many businesses forget something that’s every bit as important as making sure their inventory is solid and their shipping partners are prepared, something that can create real issues when shoppers are clicking “buy” at a frenzied pace: sales tax compliance.
We’ll admit it: Sales tax doesn’t help anybody get into the spirit of the season (other than state treasurers, maybe). But for businesses that don’t get it right, the holidays can quickly go from merry to scary.
So let’s ask again: Are you really ready for the crush? Don’t worry. There’s still time to get there — even when it comes to sales tax.
Why Sales Tax Is So Tricky
You’ve no doubt been following the developments in the sales tax world — such as all the states that began enforcing new economic nexus laws over the past few months, along with the ones that enacted marketplace facilitator regulations, and so on.
You also surely have checked state Department of Revenue websites for changes to filing deadlines and requirements, updated your calendar to reflect all of your due dates, performed a test run for ERP exporting or shopping cart data, and gotten your exemptions in order, listing specific reasons for each.
Unless you’ve been busy, you know, running your business. Then you haven’t had the time to do all of that, and you might not know that Arizona, Kansas, Massachusetts, Oklahoma, Tennessee, and Texas all have new economic nexus laws on the books as of now. And changes to existing laws in Maryland and Minnesota took effect in October, too.
That means more than 40 states require online sellers who pass certain transaction and/or financial thresholds to collect and remit tax on sales in their state, even if the seller doesn’t have a physical presence there. And more than 30 states have marketplace facilitator laws, which require platforms such as Amazon, eBay, and Etsy to collect and remit tax on all sales made through their marketplaces — including sales by third-party sellers.
If you’re on top of things, you might have already known this. Or it might be a total surprise. Either way, it illustrates one key fact about sales tax for business owners: Tax laws are always changing.
Thousands of Jurisdictions, Millions of Rules
There are more than 12,000 tax jurisdictions in the U.S. alone, with millions of tax rules. And when you’re in the throes of the biggest holiday shopping season ever, it’s hard enough to keep up with things like inventory and shipping — let alone figure out whether you have to collect sales tax in new places, then handle all the payments and filing, too.
There could be changes on the state level. Cities and counties can enact or revise taxes. There could be a special district or regulation in place. Whatever the changes are, if you let your business get complacent, you could find yourself facing a Grinch who comes calling for the sales tax you owe when the holiday season ends.
What do you do then? If you haven’t collected the right amount of tax, or worse, any tax at all, you might have to pay it all out of pocket — cutting into your profits, or maybe even turning a profitable season into a losing one. (This assumes you aren’t going to go to your customers who are already enjoying their purchases and say, “Whoops, please send me another $11.43,” or whatever the number might be. That’s a great way to ensure you won’t ever get another order from those customers.)
There could even be penalties, but this is already getting a bit depressing. So let’s move on, because there’s something you can do to prevent this entire nightmare before (and during, and after) Christmas from happening in the first place.
Automation to the Rescue
It’s no surprise that tax compliance is a costly proposition for retailers who manage it on their own: In larger operations, it can require hundreds or even thousands of hours of staff time at a cost of tens or hundreds of thousands of dollars. And that’s not taking into consideration what these employees could accomplish if their time was freed for more productive pursuits.
Even if you’re a small organization, and even if you’re an owner who handles sales tax management for “free,” you’re still looking at configuring and reconfiguring systems, maintaining records, making payments and filing returns to the various jurisdictions, while trying to keep everything current.
Wouldn’t you rather focus your time on things that could help your business thrive? With automation, you can. (And you’ll probably enjoy your time at the office more, too.)
Automated solutions calculate highly accurate tax rates in real time, based on current laws and on your current nexus status — which would be a big enough benefit, but the right application can do a lot more than that, based on your company’s needs. Perhaps that’s why leading brands are three times more likely to automate sales tax than the peer companies that trail them, according to Aberdeen Research.
Here are just a few of the benefits automation can bring to your business:
- Seamless integration with your shopping cart/checkout experience. You want this, and your customers do, too. After all, they don’t want to pay sales tax if they don’t have to, and automated tax management reduces the errors that are so common when retailers try to handle it themselves. That includes charging customers tax unnecessarily, which isn’t good for the customer, and not charging tax when you should, which isn’t good for you. Additionally, automation can help you avoid outages or downtime associated with changing rates in your ecommerce or shopping cart software. We don’t have to tell you that the holiday season is no time to be dealing with checkout issues. Customers want to buy when they want to buy, and if they can’t do it on your site, you run the risk of them going somewhere else.
- Streamlined record-keeping. Collecting sales taxes also means collecting sales tax receipts and records. If you’ve ever faced an audit, you know how much time and stress you can save by having your records organized and easily accessible. Accuracy matters, too, and with automation, it’s all handled for you. (If you’ve never faced an audit, knock on wood. And keep good records anyway.)
- Consolidated remittance and automatic filing. Depending on your automation provider, it’s all possible. Some offerings even allow you to make a combined single tax payment for the amount owed in all states; they’ll handle the work of sending the appropriate amounts to each jurisdiction, and file your returns for you as well. That sounds a whole lot better than you trying to figure out filing schedules and prepayment guidelines, while jumping through all the other hoops tax authorities love putting in front of you. And it’s almost as important as collecting the right amount of tax in the first place, because late payments and late filings can bring fees and interest charges.
What It All Means for Your Business
The ultimate benefit to all of this, of course, is that automation goes beyond saving money and frustration. It allows you to free up the most important capital of all — human capital.
What could you and your employees do if none of you had to worry about keeping up with tax laws, filing requirements, and remittance payments? How could that time, and that mental capacity, be used? Coming up with new products? New marketing ideas? Better processes?
The online holiday pie is already huge — at least $135 billion in the U.S., according to the projections above — and it’s only going to get bigger. Are you going to get your share? Are you going to grow your share? Companies have been using automation for decades to thrive. Today, it’s easier than ever for you to do the same.
Get Your Business Ready for The Holidays
Avalara, a leading provider of automated sales tax solutions, has written a whitepaper highlighting several compliance challenges that can become particularly complex during the crush of the holiday shopping season. In addition to helping you prepare for common holiday problems, the paper also includes Avalara’s Holiday Readiness Checklist. Check it twice before the holiday season begins, and you’ll be on the fast track to the state tax auditor’s “nice” list!
Download Avalara’s “Are You Ready for the Holidays?” whitepaper here: https://avlr.co/330VgQ9