Retailers/ecommerce companies face special sales tax challenges

Online retailers and eCommerce companies have been the focal point of taxing jurisdictions and their updated nexus laws for years.

Our third annual survey of financial professionals revealed a sales tax storm in many industries. Financial leaders continue to lean on internal resources while wrestling with the current economy, inflation and a tight job market.

Retail/eCommerce respondents to our survey reported challenges such as audits, timely filing of sales tax returns and charging the correct sales tax.

Not happy 

A quarter of retail and eCommerce companies who responded to our survey already file sales tax returns in 11-30 states and 69% sell into more than 30. Three-quarters also plan to expand into more states in the coming year.

(Most retail/eCommerce companies in our survey had annual U.S. revenues of at least $10 million)

A little more than four out of five respondents used internal staff and resources; or integrated third-party sales tax software to handle sales tax obligations. Slightly more than that (86%) used internal staff and resources; or an existing accounting system or integrated third-party sales tax software to manage jurisdictional notices and communication, and 81% used integrated third-party sales tax software when calculating sales tax.

Yet these companies are unhappy about they handle sales tax. More than two out of five (44%) said the task takes too much staff time. A similar number cite lack of internal resources (and lack of internal knowledge) as a big reason they would outsource handling sales tax.

Retailers also have bigger pain points than some other industries surveyed about getting returns filed on time, charging customers the correct sales tax and being hit with an audit (25% reported seeing more state sales tax audits in the past two years).

Carts and sales tax 

Shopify, BigCommerce and Squarespace were among the preferred eCommerce platforms for online retailer/eCommerce respondents. Among the sales tax tools provided by all respondents’ shopping carts or eCommerce platforms: integrations with sales tax providers (43%); sales tax rates and taxability determination (29%); sales tax rates only (10%); and alerts to economic nexus thresholds (5%).

How do these cart platforms handle sales tax?

Shopify, like many similar platforms, isn’t required to collect and remit sales tax for its sellers as it isn’t a marketplace facilitator like Amazon, eBay or Etsy. The site says users can set up Shopify “to automatically handle most common sales tax calculations” and overrides “to address unique tax laws and situations.”

BigCommerce uses a third-party, built-in sales tax provider or gives users custom tax tables. “We recommend using an automatic tax setup if you are in a supported area,” the platform’s primer adds. “If your location falls outside of our automatic tax providers’ regional coverage, BigCommerce allows you to configure your store’s tax collection settings manually. To do this, you will need to define the tax rates for the different regional zones.”

Squarespace, depending on your billing address, collects sales tax for your subscriptions (in areas where they’re “legally required to do so”). They apply taxes to subscriptions for residents in 20 states, Chicago and Denver and the District of Columbia, according to the latest information on their site.

“If you have more questions about taxes,” Squarespace adds, “we suggest speaking with a tax advisor.”

Everyone who says they’re simplifying sales tax is leaving the hardest parts – and the liability – up to you. Rely on sales tax experts to maintain your compliance. Contact TaxConnex to learn what it means when sales tax is all on us.