Online Sales Tax Bill–Big Changes Ahead
A watershed moment in online retail is quickly approaching—we may be on the brink of a bona fide online sales tax bill. Of course, any commentators worth their salt have been on this issue for years now. But the stakes have changed: the U.S. Senate approved a pending bill Monday, with the House scheduled to make a decision shortly. President Obama seems in favor of the legislation, as well. The heat’s on! Whether or not you support the idea behind the law—that debate alone could easily occupy a month’s worth of blogging—certain logistical elephants will have to be scooted around should it pass. Thanks in large part to Dale Traxler, today’s blog will address just that: operational requirements, related legislation, and lingering questions in need of clarification.
A Quick History Lesson
A Supreme Court decision in 1992 set the ground rules for e-commerce. Understandably, the technology at the time couldn’t accommodate the thousands of separate sales tax jurisdictions involved in nationwide or global order fulfillment. Accordingly, they ruled that merchants couldn’t be held responsible for tax collection or payment except in states where they had a physical presence—a “nexus.” While this may seem relatively easy to grasp, the intervening 21 years have produced quite the snarl of state laws, a shifty definition of “nexus,” and more than a few lawsuits.
Online Sales Tax, Clarified?
Enter the Marketplace Fairness Act of 2013, designed to alleviate these issues once and for all. Except, does it? Let’s take a look at the bill itself, summarized below:
• The bill applies to all e-tailers exceeding the “small seller exception”—annual U.S. sales over $1M. Small sellers are exempt.
• Any state belonging to the Streamlined Sales Tax (SST) Governing Board can mandate the collection of sales/use taxes from 90 days after enactment (22 states are currently members).
• Non-SST states that meet alternative criteria may also take part. If the legislation passes, expect more states to simply join the SST.
• States must provide free calculation/collection software to retailers.
• The bill explicitly precludes new “Internet taxes” beyond those already imposed by states and municipalities.
• The bill applies to online, physical, and multi-channel retailers alike.
So?
It’s not as cut-and-dry as some make it out to be. You can’t just grab any free software and be good to go. E-tailers will have to consider and/or implement the following:
• Only SST-certified software qualifies, and it may require complicated integration procedures.
• Once software’s in place, you’ll still have to monitor the entire sales cycle to ensure full compliance, including returns, sales tax refunds, and synchronization with existing systems.
• Timely payments to tax agencies and cash flow management.
• Evaluation of higher pricing in your competitive landscape.
Accounting
But wait, there’s more! Depending on your needs and sales volume, you may also want to track sales tax collections by state. This requires reconfiguration of your financial system and advanced functionality to coordinate transactions from the shopping cart. Plus, you’ll need to keep track of liability by state when collecting unpaid taxes; again, this plays into cash flow allocation, and it will require easy return processing and management. At the risk of beating a dead horse, pricing is the biggest issue here. You’ll probably have to reevaluate your standing in comparison with local retailers when sales tax needs to be factored in. And what about shipping costs on top of that? These questions can’t go unanswered.
Certified Online Sales Tax Software
Luckily, among the certified software providers is our valued partner CCH, offering SalesTax.com to streamline and automate many of the necessary processes. Our SalesTax.com Magento Connector even integrates their software with your Magento platform! Of course, it all depends on your goals and capabilities as a business—but not adapting is a surefire way to fail. Remember, if the bill’s in consideration now, it could conceivably come into effect smack dab in the middle of the holiday season. And get in touch with us if you’re unsure—it’s what we do!
