E-Commerce Sales Taxing Your Compliance and Financial Systems?

When e-commerce was in its infancy, jurisdictional regulations offered some organizations an opportunity to leverage their corporate structure and deliver goods and services to certain buyers without a sales tax imposition.

By contrast, most retailers are viewed as having a substantial presence due to brick-and-mortar store locations or other measures of the law that require tax calculation as an integral part of the checkout process. Even those online retailers who don’t have the requirement to collect sales tax today most likely need to have a plan prepared should new legislation ultimately require sales tax collection.

E-Commerce Sales: Tax Compliance
Considering the typical requirements of collecting the proper sales tax at several hundred or more retail locations, retailers’ tax and financial experts need to track applicable rates, exceptions, exemptions, holidays and special rules solely relevant to their physical stores. Traditionally, retailers also needed to incorporate these changes into their point-of-sale (POS) systems to determine pricing and tender amounts at each store location. If a retailer operates in hundreds of locations, it needs to track the “tax area” or combination of jurisdictions that govern those locations.

Once a retailer begins selling products or services online, its legal requirements are compounded as it now must track, administer, collect and remit taxes and tax rules at each doorstep. If you're operating in all states that levy a sales tax, you’ll need to comply with well over 8,000 jurisdictions. Compliance can be a daunting task for both finance experts and technology teams managing the infrastructure to support internet sales. When not properly managed, it can be fairly costly in the form of audit support costs, penalties and, even more damaging, a poor customer experience.

Fortunately, tax technology is available to help you manage jurisdictional compliance requirements for all of your business-to-consumer channels. Leveraging this technology allows you to support your back-office, brick-and-mortar locations, e-commerce sales and other channels. It will also streamline your company's ability to stay on top of managing tax law changes and integrating those changes into your relevant systems.

Tips to Consider
When planning to leverage today’s tax technology solutions — software that tracks legislation, tax changes, holidays, exceptions and exemptions, as well as calculating tax on any of your transactions or powering your POS systems with the proper tax data for each location — consider a system that fits your company's two year to five year business and technical goals.

While your initial focus may be on e-commerce, be sure the system you choose is able to easily leverage all your selling channels. Doing so ensures that all users (e.g., tax accounting, finance and technology groups) can trust the same centralized system to meet your enterprise tax needs. The end result is you save a considerable amount of money, and it prevents reliance on multiple individual experts managing disparate tax solutions.

Here are some tips to keep in mind when considering the right tax technology solution for your brand:

• To calculate the most accurate tax, capture customers’ addresses, including a 9-digit ZIP code. The extra four digits in the ZIP code helps determine whether the “ship to” location crosses a district boundary or lies in an unincorporated zone in a city.
• To collect the right tax amount during holidays, understand each state’s rules relative to applying the holiday on an order date vs. a fulfillment date.
• To ensure calculations are accurate and comply with both state and local tax rate charts, select a system that tracks and applies the appropriate methods.
• To meet the increased demand an e-commerce site brings to returns filing, payments, reconciliation and audit support, choose a tax technology solution that automates your entire compliance cycle.
• Choose a tax technology solution that supports your internal operations, including web service application servers, hardware, database and scalability strategies so that you leverage technical expertise and skills already present in your organization.
• Find a tax technology provider that's comfortable in providing technical solutions to support the reliability and redundancy needs of a retail operation in a cost-effective manner.
• Be certain your provider's solution can scale to meet peak demand volumes for tax calculation and reporting and remittance needs.
• Look for a tax provider that can supply technical expertise in the form of a highly skilled consulting network in the deployment of their solution inside a retail infrastructure.

Don’t hesitate to consider transaction tax software as a core part of your retail operational efficiency plan from both a business and technology perspective. In many cases, peer companies and your business network can help offer feedback on the various solutions available in assisting you to make enterprise tax automation an effective solution for your company.

John Cowan is director of retail solutions at Vertex, a provider of enterprise tax technology and services to retail operations. John can be reached at john.cowan@vertexinc.com.