Why Payment Services Should Consider Cross-Border Tax Determination Services

E-commerce technology has made global selling easy, leading many small and midsized e-commerce companies to focus on expanding their cross-border sales to consumers. Unfortunately, most of these companies don’t understand how the realities of cross-border duty and tax compliance could result in shipment delays and canceled orders. This has created an opportunity for e-commerce platforms to introduce a vital new service.

Until recently, the small packages comprising the majority of cross-border online retail shipments flew under the tax radar of most governments because the low total volume of shipments meant it wasn’t worth the cost of enforcing existing tax laws. With the increase in global sales, that's all changing. Governments are implementing new tax regulations to capture more e-commerce tax revenue, and they're modernizing how they enforce compliance. This means every SMB selling across borders must be prepared.

However, most SMB retailers know little about cross-border selling and tax compliance. They don’t understand that if the required cross-border duties and taxes aren't paid at the time of sale, they may be demanded of the customer before the shipment can be delivered, creating an unexpected (and potentially very high) charge that causes frustration and leads to canceled orders. Those online retailers that understand this dilemma still face some complicated choices: Who will be responsible for paying the duties and taxes, the seller or buyer? How will the responsibility be communicated to the buyer in order to ensure a positive shopping experience? How will the appropriate duty and tax be calculated at the time of the order?

This complex calculation alone can be so daunting that many retailers simply won’t want to deal with it. For example, if a business wants to calculate the total cost of a shipment to reach a customer’s doorstep, it must be able to assign the appropriate duty rate to each item in the shipment, and then calculate the correct tax amount by applying the specific tariff code(s) for each item based on the Harmonized Commodity Description and Coding System. Imported goods may also be subject to other taxes, such as a value-added tax (VAT) or a goods and services tax (GST). And all this isn’t even the full story! Today’s protectionist trade trends and uncertain political environment make cross-border tax selling even trickier because the regulations change daily depending on the types of products and countries involved. Sellers just aren’t going to be able to manage all this on their own.

This has created an opportunity for e-commerce platforms to introduce a new service that can provide additional value to their international localization efforts. Easy-to-implement tax determination services now exist that can automate the cross-border duty and tax calculations for every item in every order being shipped to every country around the world. These “shipper neutral” solutions work with all the standard shipping options and easily plug into existing e-commerce, invoicing and marketplace platforms. The systems automatically pull the required information from regulatory, tariff, product and shipping systems, and they can also track the cost of goods, shipping and insurance to calculate the total cost of getting a shipment from the seller to the buyer. These painless, implement-and-forget-it services allow e-commerce platforms to deliver what their cross-border sellers need without having to introduce a new, expensive technology system into their own infrastructures, which then needs to be managed and updated.

Online SMB retailers work with e-commerce platform providers because these services make selling easy. As retailers expand their international sales, they'll expect the same platforms to help them meet the challenge of cross-border duty and tax compliance. The good news is that just as technology has made international selling easier than ever for retailers, it has also made it easy for service providers to introduce solutions to resolve the complex regulatory and taxation challenges these retailers will face.

Amy Morgan is vice president of global trade and cross-border at Avalara, a software for automated tax compliance.