Tax threat retailers should be mindful of the this holiday season

Megan Higgins, Vice President and General Manager, eCommerce and Marketplaces at Avalara, today takes a look at the tax threat that retailers should be mindful of this holiday season.

The holidays look a bit different these days. Gone are the long lines of consumers queuing for hours outside of stores to get the best deals on Black Friday. You’re now more likely to spend hours scrolling and searching across multiple sites for the best deals, as the sale season is defined by online promotions throughout the holiday season.

Now more than any other time in the year, it becomes remarkably evident that online shopping has made the retail world smaller than ever before. From a customer’s point of view, a click is a click, whether shopping domestically or internationally. And with all the change in how consumers go about shopping in recent years, an uptick in omnichannel commerce has occurred.

Yet, while this shift to omnichannel opens new opportunities for retailers to reach and sell to customers, it has also created new tax obligations that many may not even know exist. Retailers feel far from prepared and are headed for a tax headache that may well put a dampener on festivities. Two fifths (40%) of UK retailers cited feeling overwhelmed by their tax and compliance obligations as one of their greatest anxieties this holiday season.

As retailers work to fulfill holiday orders in-store and online, and get those purchases to customers via shipping, in-store and curbside pickup, and other delivery methods, there are several tax considerations they should be prepared for.

Expanded tax obligations from online sales

For those on the outside looking in, the pandemic-driven acceleration of ecommerce came as a blessing to online retailers as digitally-led sales sky-rocketed. However, whilst our post-pandemic market has allowed for increased customer acquisition for those operating businesses online, it also opened the door to a check-list of tax obligations that must be met.

If we take a look at the tax nuances that have come as a result of BOPIS and pickup options, we soon realise that this simply cannot be avoided as consumers increasingly demand flexible shopping and delivery options, and see this as a key priority when looking to invest their money. For purchases made online and picked up in different locations, the tax amount could vary with a degree of complexity.
Attracting and retaining domestic and international customers is only doable if a positive customer journey is implemented. As cross-border commerce continues to gain momentum in our new economic climate, online retailers must address compliance requirements in advance and ensure that buyers clearly understand all the associated cross-border costs.

If not, these retailers risk their customers looking elsewhere in an already over-saturated market of industry competitors.
From the US to the EU, new ecommerce tax rules impose additional obligations on retailers. For many retailers, the holiday season could be their first time selling online and facing these rules. The time has come for retailers to team up with tech partners who can solve this issue for them.

Cross-border compliance from international sales

With ever-changing government regulations, and customs and tax authorities working to keep pace with the rapid acceleration of global ecommerce, there is an increased enforcement of tariffs, customs duties, and taxes at a rate never seen before.

Many online retailers have had it relatively easy up to this point, as many countries allowed low-value parcels to cross borders without imposing duties or taxes, and it was really only exporters that had to deal with these complexities.

However, cross-border complexity is changing and has been in flux in the UK ever since we left the European Union. Previously, the UK didn’t require the collection of its value-added tax (VAT), which is similar to U.S. sales tax, for imported online purchases of under £135. With Brexit, the UK has eliminated that exemption and will require online retailers to collect and remit VAT on all orders shipped to the UK. Online retailers selling to UK customers will be required to register and remit VAT collected on orders to the UK quarterly.

Selling online makes selling across seas easier. However, it is critical that retailers – individuals inexperienced in compliance complexity – have a thorough understanding of the tax types and customs obligations in advance can help reduce shipment delays and reduce risk. Through harnessing the right technology to automate and integrate every aspect of the cross-border journey, retailers can achieve this.

Getting this right is the difference between being a Santa or Scrooge this holiday season

Getting your tax and customs obligations right isn’t just the icing on the Christmas cake – it is essential if you are going to keep your customers happy this holiday season. Far too many retailers fail to recognise the importance of tech solutions to help demystify the long-list of tax obligations that must be met.

Through leveraging the right technologies and integrating processes with other critical ecommerce systems, like payment and shipping, retailers can allow for not only a smoother customer journey, but set themselves up for success this holiday season.

To hear more from Avalara, register to attend their session at Tamebay Live, taking place on the 25th-27th January 2022. They’ll be examining the tax threat that retailers face, in a session titled ‘Brexit – 12 months on. What have we learnt and what do you need to know now?’.

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