The changing state of e-commerce

Not long ago, clicking a computer mouse to buy something was an idea of science fiction. Today, of course, e-commerce is how a significant amount of shopping takes place in general. Capital One reports that global e-commerce retail sales will hit some $6.91 trillion this year, up 9.5% from total e-commerce retail sales in 2023.

Projections indicate that value will increase to $8.03 trillion in 2027. U.S. retail e-commerce sales for 2023 through the third quarter were $833 billion, up 7.6% from the same period in 2022. U.S. retail e-commerce sales are expected to top $2 trillion by 2027.

These numbers only echo what we’ve heard about e-commerce for years. But the field continues to change – and if sales tax doesn’t keep up, you could be caught in a tough spot with a customer.

Latest e-commerce updates

Now that the click has become the cash register line, e-commerce is adding new ways to buy.

Shoppable videos. A marketing video that features retail products to buy using embedded links in the video. Viewers click the links as they watch and are redirected to where they can buy the items without leaving the video – unlike clicking and buying in descriptions below videos, a process that risks losing the viewer.

Q-commerce. A natural pairing of e-commerce and brick-and-mortar retail, sometimes called on-demand delivery. A click produces a delivery within the hour, the goods having been stored in one of many small warehouses near consumers. Groceries are a popular product in q-commerce and the trend is likely to spark increasing partnerships with local delivery services for “last-mile logistics.”

Pick-up. Another pairing of e-commerce of brick-and-mortar but without the delivery. The buyer physically goes to the retailer, such as a Walmart or Target store, and picks up the item bought earlier online. This is also known as Buy Online, Pick Up In-Store (BOPIS), click-and-collect or, perhaps most familiar, “curbside.”

Ignited by the pandemic and still popular, curbside grew 66% in the U.S. from 2022 to 2023 and is now offered by nearly two-thirds of U.S. retailers – the largest such market in the world. Almost three-quarters of American consumers said they’re more likely to buy online and collect in-store.

And, among these three new e-commerce updates, curbside could be the most troublesome for sales tax.

Calculation problem

Shoppable videos have little unusual impact on e-commerce purchases and incur sales tax – the transaction is essentially the same as on an online retailer’s website and the sales tax is calculated using standard origin or destination rates. The same is largely true of q-commerce.

In-store pick-up, however, can be a hotbed of bad sales tax calculation if done carelessly. Consider that there are 10,000-plus tax jurisdictions in the U.S., many of which involve intensely localized differences in rates in California or West Virginia, to name just two states – and, in the case of a municipality like Kansas City, sales tax rates can change block to block.

Sales tax systems, however, often calculate the rate according to the ship-to-address of the customer. Suppose the pick-up is made at a store that’s in a nearby jurisdiction. The sales tax could be calculated wrong. This leaves you the vendor in a bad position, likely having to either refund the customer and admit that you charged too much sales tax or contact the customer and get them to remit the correct, greater amount of sales tax than you charged.

Either way, it’s a headache. Proper sales tax automation should, as BOPIS gains more traction, require that sales tax systems calculate an in-store pickup sales tax rate determined by the store location or automatically input the store location as the shipping address.

E-commerce has done wonders for online retailers, it’s true. Just beware of the e-commerce update details as this vibrant field continues to change.

If you’re struggling with how to manage sales tax in 2024, consider outsourcing. TaxConnex acts as an outsourced member of your team, getting to know your business and processes while applying sales tax expertise and years of experience to a compliance process that works for you. Get in touch to learn more!