Posted Date: 1/5/2011
Reducing the Taxing Effects of E-Commerce
By John Cowan
Since its early days the e-commerce business channel has made significant strides to become a key component of a retailer’s competitive business plan. This channel not only bridges the gap between brick-and-mortar locations to the customer’s doorstep, but it also provides key data points regarding customers’ and prospects’ search and browsing habits and buying preferences. This intelligence equips retailers with a targeted promotional vehicle to drive increased sales via a personalized shopping experience for its customers. This captured data often can be leveraged for trends that make a retailer’s merchandising choices and positioning more effective for the entire customer base.
Of course, like any revenue-generating sales channel in retail, e-tailing requires financial integrity, data security and a host of other behind-the-scenes business activities — including sales tax technology — in order for retailers to measure their margins via the web.
E-Commerce Sales – Tax Compliance
During the formative years, jurisdictional regulations offered some organizations the opportunity to leverage their corporate structure to deliver goods and services without sales tax. By contrast, today retailers’ store locations and other measures are used to determine whether tax must be collected, and the resulting computations are integral to every online checkout process. However, as in-store sales are replaced by Internet orders, even those few retailers who are not required to collect sales tax today should certainly have a plan in place in case regulations change in the future. Challenged state budgets drive new taxes to bolster revenue and fund services; it seems more than likely that the sales tax landscape for retailers will continue to evolve.
Today, a retailer’s tax and financial experts need to continuously track applicable rates, exceptions, exemptions, holidays and special rules relevant to their physical stores as well as all their selling channels. Organizations traditionally also incorporated these jurisdictional tax changes into their POS (point-of-sale) systems to determine pricing and tender amounts at each store location. Retailers operating in multiple locations needed to track the “tax area” or combination of jurisdictions that governed those locations. As the number of retail locations grows into the hundreds, the task of keeping this information accurate can become increasingly complex.
Once an organization enters into the e-commerce channel, the obligations surrounding how it must track, administer, collect and remit taxes are exponentially compounded. For example, retailers operating in all states that levy a sales tax must comply with the requirements of well over 8,000 jurisdictions and manage even more exceptions, product- or jurisdictional-specific rules, and tax holidays. Compliance becomes a daunting task for both the finance experts and the IT team charged with managing the infrastructure to support Internet sales. When not properly managed, sales tax becomes more costly, due to audit support costs, penalties levied and — more damaging still — a poor customer experience or permanent damage to a company’s brand image.
Fortunately, enterprise tax technology is available to help manage jurisdictional compliance requirements for all B2C (business-to-consumer) channels. In fact, leveraging such technology enables support for back office functions, brick-and-mortar locations, e-commerce sales and other channels as a business scales. Enterprise tax technology streamlines the organization’s ability to keep abreast of the latest tax law changes and requirements and to integrate those changes into its relevant internal operating infrastructure.
Tax Tips and Traps
Keep a long-term focus. When considering tax technology solutions to track legislation, rate changes, holidays, exceptions and exemptions, as well as calculating tax on transactions or powering POS systems with location-relevant data, consider a system that fits the organization’s two- to five-year business goals and technology plans. Typical sales tax automation projects sometimes begin on the e-commerce side, but the solutions are most beneficial when they can be leveraged across all channels of business with an eye toward the future.
Beyond addressing the “here and now” issues of sales tax compliance, implementing a tax automation solution across an enterprise ensures that all users – tax accounting, finance and technology groups – can trust the same centralized system to meet their enterprise tax needs. For retailers, the results extend beyond considerable savings to reduced reliance on multiple individuals managing disparate tax solutions as well as a consistent process across all departments within an organization.
Additional food for thought relative to the tax side of an e-commerce implementation:
- To calculate the most accurate tax, particularly local jurisdictional levels, it is important to know a customer’s street address and nine-digit ZIP code. Those extra four digits will be the difference in determining whether the “ship-to” location crosses a district boundary or lies in an unincorporated zone in a city. This level of address cleansing is essential to accurate calculation for multi-jurisdictional retailers.
- To collect the correct amount during a tax holiday, retailers must understand each state’s tax rules relative to applying the holiday on an order date versus a shipment or fulfillment date. There are enterprise tax technology solutions that can provide this capability.
- To ensure calculations are accurate and comply with both state and local rate charts and rounding rules, select a system that tracks and applies the appropriate methods.
- Enlist a technology provider with a rich network of proven retail tax technology specialists. The chosen solution must not only support the organization in a cost-effective manner, but also should be scalable to accommodate future growth. In the end, it’s cheaper and smarter to rely on trusted experts with years of retail industry experience and a track record of successful implementations at similar organizations.
- To address the increased demands e-commerce brings to returns filing, payments, reconciliation and audit support, choose a tax technology solution that automates the entire compliance cycle for a comprehensive, end-to-end solution.
Other considerations related to the technology side of an e-commerce implementation include:
- Choose a tax technology solution that supports the organization’s internal operations —including web service application servers, hardware, database and scalability strategies to leverage in-house technical skills or skills that are readily available from your outsourcing partner should you outsource your IT.
- Select a tax technology provider that is skilled in providing technical solutions to support the performance requirements of a retail operation with both reliability and redundancy and in a cost-effective manner.
- Be certain the provider’s solution can scale to meet peak demand volumes for both tax calculation, reporting and remittance needs.
- Consider using a firm that supplies technical expertise in the form of a highly skilled consulting network in the deployment of their solution inside a retail infrastructure.
Automated transaction tax software provides numerous benefits as a core part of an organization’s retail operational efficiency plan – from both a business and technology perspective. In many cases, peer companies and an organization’s business network can be rich sources of feedback regarding the merits of available solutions and in assessing the best way to make enterprise tax automation an effective solution for the company.
John Cowan has spent 17 years in the tax technology industry. He is director of retail solutions for Vertex Inc., a provider of enterprise tax technology and services to retail operations. He has spent the last several years focused on implementing tax solutions within the world’s largest multichannel retail operations. John can be reached at john.cowan@vertexinc.com.
Rate this Content (5 Being the Best)
Current rating: 4.4 (15 ratings)
|
|
|
|
|
|
|
Apparel Skype Event On Demand: Where in the World is Our Consumer Headed?
4/11/2012 11:59:20 AM (EST)
Marshal Cohen, Chief Industry Analyst, The NPD Group Inc. and Dave Bruno, Director of Commerce Studies, RedPrairie, discuss today’s landscape of social, mobile and local influences, consumers’ ever-changing perceptions of value, and the consistent desire for fresh, innovative and unique product.
Download this 15-minute video short now.
Sponsored by Red Prairie
Panelists:
Marshal Cohen, Chief Industry Analyst, The NPD Group Inc.
Dave Bruno, Director of Commerce Studies, RedPrairie
Moderated by:
Susan Nichols, Publisher, Apparel
|
|
View On Demand
|
|
|
|
|
One Size Does Not Fit All In Multi Channel Distribution
4/1/2012
There's no question that the world of retailing is changing at breakneck speeds as customers connect with brands in stores, via their computers, virtual shopping kiosks, tablets, smart phones, Facebook, Pinterest and more. But is the supply chain ready for this multichannel revolution, particularly from the distribution point of view? This white paper explores the key considerations for developing the right multichannel supply side solution.
Download Now
|
|
|
|
|
|
|