Holiday Sales, Increased eCommerce Activity - and Sales Tax Obligations

It looks like another banner year for eCommerce and online shopping this holiday season. And that means that more companies may find themselves with new sales tax obligations.

Online shopping from Thanksgiving through Cyber Monday (Nov. 29) this year did fall short of 2020’s total; observers said this might have been because shoppers, fearing supply chain problems, began hitting the buy button earlier in the holiday shopping season.

But digital revenue for November and December is still expected to hit $212.28 billion in U.S. eCommerce sales – topping the $200-billion mark for the first time.

More than $1 in every $4 spent on retail purchases during the 2021 holiday season will come from online orders, by some estimates (with about two out of every five of those done via a smartphone, other industry observers add).

Holiday shopping reflects a generally mushrooming eCommerce environment. It’s estimated that by 2040, 95% of all purchases will be through eCommerce, and 93.5% of global internet users have already purchased products online.

How does this impact sales tax obligations?
Expanding sales tax obligations are a concern of many execs, according to TaxConnex’s recent market survey of 100 top finance professionals in a variety of industries. Nine out of 10 respondents listed the following as their top concerns moving into 2022: keeping up with states’ changing nexus rules; understanding the taxability of products or services; the threat of audits; or filing returns and paying sales taxes due on time.

Almost three-quarters of respondents said online sales have become a bigger percentage of their revenue over the past two years – yet only about a third report being happy with their approach to managing sales tax.

Then there’s the danger of sales tax audits. More than one in four have seen more state sales tax audits in the past two years, the survey found, and almost half think audits will get more frequent in the next two years.

Give yourself the gift of compliance

As eCommerce growth continues to expand the sales tax obligations of companies, it’s important to remember that keeping sales tax compliant involves multiple steps managed monthly – or even more frequently.

Begin with monitoring your economic sales tax nexus state by state: Did you trip the nexus threshold by volume of sales? You will also need to understand the taxability of your products and services in each state where you have sales tax nexus, as well as proper recordkeeping of exemption certificates.

Next comes registering (or renewing registrations) for sales tax in the appropriate states and preparing and filing sales tax returns based on your filing frequencies (which can also be hard to keep straight – you need an accurate, dynamic filing calendar). Finally, but perhaps most importantly, you have to remit sales tax that you’ve collected, making sure to maintain a paper trail that includes proof of mailing.

Effective compliance only gets more complex over time, especially for companies finding themselves with economic nexus in more and more tax jurisdictions. Those jurisdictions, for instance, love to send tax notices: Ignoring one (or even just losing track of it for long enough) could put you and your company at risk.

The eCommerce explosion is exciting for online businesses – but they should realize that it also comes with extra effort to keep up with sales tax obligations.

If you’re worried about new nexus thresholds this holiday season, it’s best to get in front of the potential problem. TaxConnex is an outsourced sales tax service provider who can take sales tax off your plate – get in touch to learn how we can help!