By: Editorial Staff, Date: January 21st, 2021
2020 will go down as the year that fundamentally changed everything in how consumer business happens. The retail landscape has been entirely turned upside down, and the digital monster of e-commerce, which had slowly been creeping into more and more industries, suddenly became a sprinter, leaping forward. Companies like Amazon and Best Buy leaped forward, Walmart reconstituted its own web portal, and everyone else realized they needed a digital presence pronto; the days of being a non-Internet business was finally over. And it took a pandemic to make the change permanent.
However, as online retailers and services are rejoicing with the offsetting surge in e-sales, they aren’t preparing for the tax implications. And state tax agencies are a hungry bunch, actively looking for new revenue channels to replace the ones they know will be lost due to COVID restrictions. To avoid this trap, there are a couple of things businesses new to online should be doing now:
- Use tax software religiously – Any sales over the last 11 months should be put through tax software to automatically calculate sales tax and related obligations. The math formulas are automatic, and they cover all the different sales districts that exist in a business’ state. This cuts down on errors and covers all the differences systematically.
- Assume you owe sales tax and be pleasantly surprised later – A lot of business owners still think if they operate online, they don’t have to worry about taxes. This is a fallacy. Most states have changed their code to capture the missing revenue. Now it’s more likely than not an online business will owe collections, so just assume that’s the case. When it’s time to file and the case is otherwise, it’s a bonus and savings built-in.
- Stay on top of monthly tax returns – The use of automation and software carries an additional benefit in that monthly tax returns are calculated and produced accurately. This avoids the minefield of manual preparation, which can be error-prone when transactions start to cross months like delayed shipping or refunds are needed due to change orders.
It’s clear that COVID is going to be around for a while still, which means e-business and related e-commerce transactions will be heavy through the winter and, well, into the spring. Anticipating these impacts will lessen the related problems with tax obligations later. Remember, tax agencies won’t be cutting breaks; the tax losses from traditional businesses will heighten scrutiny of those that owe.
Note: The Knowledge Group continuously produces webcasts on this topic and other hot-buttons issues relating to taxation law to keep you ahead of the curve.