With the crack of a gavel in June of 2018, the United States Supreme Court reached a resolution on South Dakota v. Wayfair.
The Court ruled that states should determine retailers’ internet sales tax nexus obligations based on sales revenue and transaction volume instead of physical presence—forever changing the sales tax landscape for online retailers selling in and into the United States and complicating an already complex tax compliance environment.
Today, 42 states impose taxes on online sales (up from 25 at this time last year), and some retailers have fallen out of tax compliance as Cyber Monday approaches.
This year, retailers may require many more state tax IDs in order to comply with these changes. They will experience process challenges as they register in these new states, each with different tax filing requirements.
Finance and IT teams are tasked with keeping up with new tax compliance obligations and dealing with the fallout from negative auditing results, on top of the other issues they deal with. Luckily, they can deploy a sales tax software program to assist them.
Cyber Monday 2019 and sales tax infrastructure
Retailers with e-commerce channels have a lot to gain during Cyber Monday and Cyber Week in 2019. According to BlackFriday.com, Cyber Monday spending is anticipated to grow 20% this year, with consumers spending nearly $9.5 billion online.
Cyber Monday also falls on December 2 this year, one week later than last, which means consumers have one week fewer before Christmas to find the right gifts—and putting more stress on financial systems to handle an increase in transactions in a shorter amount of time.
Why do companies need efficient compliance software?
To make matters worse for IT teams, a survey conducted by the Aberdeen Group shows they were already inundated with an increase in audit frequency and the time spent responding to tax auditor requests and notices prior to the South Dakota v. Wayfair decision.
In 2017, survey respondents indicated these increases as their top challenge and biggest drain on resources in the sales and use tax process. IT workers spend about 49.6 hours each per month dedicated to supporting the sales and use tax process. This includes software updates, maintenance, data reconciliation, filing, and audit support.
Current and acquired financial systems manage tax information aggregation from multiple data sources (ERP, POS, e-commerce, purchasing, and CRM software), and the success of those systems factors heavily into the resources spent on data reconciliation between IT, tax, and finance teams.
For international businesses (and those with international affiliations) selling into the United States, the implications of Wayfair economic nexus thresholds could pose a substantial increase in the hours spent on tax compliance.
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How to ensure tax compliance for Cyber Monday
Like any software, sales tax software is only as effective as it’s programmed to be (and as smart as the people who manage and maintain it.) So, beyond selecting the most appropriate software for their business needs, what should retailers do in preparation for Cyber Monday 2019?
Follow these five steps to ensure your digital commerce, financial, tax automation systems, and corresponding teams are ready this year.
1. Confirm that you are properly registered in all states and prepared to collect and remit sales tax into all the jurisdictions you plan to sell to
The impact of South Dakota v. Wayfair has reached most states (as of October 2019, only two states remain without economic nexus laws, while Kansas is still in dispute). Your business’s tax and IT teams might not be prepared for all new state tax filing obligations that you may now be required to fulfill if sales from Cyber Monday reach a certain threshold. Be sure to compare the impact of your Cyber Monday sales projections with state economic nexus sales tax thresholds.
2. Check if you meet the criteria for Certified Service Provider services through the Streamlined Sales Tax Agreement (SST)
Many states have taken steps through SST to simplify state and local tax rates, tax remittances, and returns. Learn if you meet the criteria for SST, and how to take advantage of it. You can also look into outsourcing the bulk of sales and use tax administration to a Certified Service Provider (CSP).
3. Make sure relevant marketing offers are properly configured in your sales and use tax engine.
Has your company developed or begun selling new products or services? Has your marketing team devised imaginative new product bundles to make existing offerings more attractive?
Before Cyber Monday hits:
|Ensure bundles are taxed appropriately across all the jurisdictions where you sell. Combining products can change their taxability and your sales tax software should be updated to reflect any changes.|
|Check that your product codes (SKUs) are mapped to the correct product taxability codes from your sales tax software vendor. This can be particularly challenging for manufacturers selling directly to consumers.|
|Think about whether your automation process considers the tax implications of discounts, coupons, gift wrapping, and shipping and handling.|
It’s important to get these things right when your transactional volumes are at their highest during your Cyber Monday sale. From there, you can accommodate increased customer support calls complaining about incorrect tax knowing you’ve done the prep work.
Ensure exemption certificates are up to date and valid as well. This can be a huge lift for smaller teams. Consider outsourcing exemption certificate management to a managed services provider.
Multichannel retailers should also be aware of any new distribution centers or shipping locations that require proper representation in your tax engine. Proper tax calculation is important for items your consumer chooses to pick up or have delivered faster from a more convenient location as well.
4. Review your technology architecture and scalability contingency plans
Planning for increased transaction volumes? Start load testing now. Be careful of false positives or missing alerts if using synthetic monitoring tools that don’t account for each transaction point or API.
Besides your own volume forecasting and patterns based on previous years, review what the industry experts are saying to ensure your systems will scale.
Determine the right time for code freeze of your entire commerce environment. While there is no hard and fast rule, ideally this is one month prior to Thanksgiving. Only make changes to the environment with extreme caution and with change management controls in place.
Weigh the risks of making simpler marketing content that offers changes to attract users, versus ones that may interrupt core online operations.
5. Make sure you have the proper vendor support contracts in place
Make sure your support contracts are in order with your vendors and suppliers. As an e-commerce retailer, you’re in business 24/7, so your support contract should follow suit.
Do you receive annual account reviews to review past successes or issues and share future goals? Are you covered for cloud-based as well as on-premises systems? Are your current SLAs for incident resolution adequate for your business? Many vendors provide tiers of support that may be worth reviewing with the goal of continual improvement.
Give customers their best Cyber Monday experience ever
Economic nexus sales tax requirements aren’t going anywhere, but the rules that govern them will continue to evolve over time—states continually change or remove their sales thresholds. Given this dynamic environment, companies must stay alert to critical changes impacting their organizations, and remain technologically nimble and ready pivot as necessary to maintain compliance.
Cyber Monday, known as Cyber Week (if not Month) to many, is a time for celebration for consumers and a year-end business boost for e-commerce businesses. With proper planning and preparation, you can improve your customers’ experience and your own during one of the busiest and most important times of the year for sales.
Is this your first time dealing with taxes as a small business owner? Our guide on small business taxes has everything you need to know.