Collecting Online Sales Taxes: How Smaller Retailers Can Master the Challenge
Many brick-and-mortar and large online retailers are applauding the United States Supreme Court’s decision to overturn the South Dakota v. Wayfair, Inc. ruling. Small online retailers, however, are not — as they now face the possibility of being responsible for collecting and remitting sales taxes in thousands of jurisdictions throughout the United States, whether or not they have a physical presence in a particular state.
Although the largest Internet sellers already have the capability to process online sales taxes in line with the new ruling, smaller and entrepreneurial retailers may not have this in-house expertise. Whether or not you agree with the ruling, what we can agree on is that smaller retailers have a lot of challenges to face as they race to comply with it. This new burden means smaller, entrepreneurial retailers have a wave of new decisions to face, and some of them might mean the difference between expanding their businesses or deciding not to sell to customers in certain states and jurisdictions or shutting down completely.
Fortunately, there are steps that smaller retailers can take to quickly and thoroughly comply with this ruling — and forego shutting down sales or decreasing revenue. First, let’s take a look at some of the challenges this ruling presents, and then we can look at some of the solutions.
The challenge facing smaller online retailers
Several accounts of the Wayfair ruling have already spotlighted the scope and importance of this particular challenge, and what it may mean to the future of smaller retailers. Among the various states, there are thousands of sales tax jurisdictions, and the laws regarding which items are taxable — and who must collect — vary among these jurisdictions. The huge number of taxing jurisdictions, frequent changes in sales tax laws and lack of consistency in the laws will require online sellers to devote a significant amount of time to ensuring sales tax compliance.
Estimates of sales tax revenues lost because of the physical-presence rule are in the range of billions of dollars per year. The General Accounting Office estimated that state and local governments could have collected between eight and 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. It’s critical that online retailers begin assessing their sales tax compliance obligations immediately as tax collection may become a high and immediate priority in various states.
Part of the hurdle for online sellers in this new environment is being able to determine in each particular state which of its goods and services are subject to sales tax. A number of states have already passed laws to trigger tax collection in anticipation of the Supreme Court’s decision, and others have begun to take action on collecting these tax revenues so the pressure is on to conform to the law.
As a small business owner myself, I look to experts to help mitigate any potential compliance issues our firm may have. Fortunately, online retailers also have the option to seek help from experts for viable and immediate solutions to meet this new sales tax challenge and avoid issues of non-compliance.
Compliance: Recruiting an expert to handle sales tax issues
With many smaller online retailers lacking the budget to hire a full-time permanent tax professional to ensure compliance with the new SCOTUS ruling, it can makes sense to seek the expertise of an accounting consultant with a solid track record in tax issues — someone who could be called upon to evaluate your sales and work on an as-needed basis. One method of identifying an appropriate individual of this type who is capable of assuming these responsibilities is by teaming with a staffing agency with a recognized reputation for recruiting contingent talent in the areas of accounting and finance services.
After analyzing a retailer’s specific needs, the staffing agency’s job is to match the company with an individual who has the professional background and capacity to work with them to make sure they are paying appropriate taxes and comply with the new law. This individual could very easily work remotely on behalf of the company, and on a seasonal basis rather than year-round, depending on the online retailer’s tax collection requirements.
An additional advantage of seeking the services of a tax professional on a contingent basis is that retailers have a more flexible workforce at their disposal — and don’t have to spend the money when those workers’ services are not required. A reputable staffing agency will also have a pool of candidates to work with, so you should be assured coverage whenever you need it.
One of the largest advantages to working with a staffing firm, though, comes in the form of compliance with regard to hiring protocols. Hiring independent workers comes with its own set of rules and regulations. The days of being able to effortlessly hire someone as an independent contractor without a lengthy vetting process are long gone. Today the implications for misclassifying staff as independent contractors comes with a huge tax liability for organizations of all sizes. Hiring through an agency mitigates this risk, as the burden to ensure the professional is paid in accordance with the relevant regulations concerning contract workers lies entirely with the agency. This is especially relevant for online retailers that may not have the in-house expertise to determine compliance.
Finally, if the online retailer’s needs increase as its business increases, and it wants to transition the independent contractor to a full-time employee, the staffing agency can oversee the onboarding process so that the hiring process is conducted smoothly and efficiently.
Rebecca Cenni-Leventhal is CEO and founder of Atrium, a staffing and contingent workforce solutions firm that offers clients a consultative and personalized approach to their talent management needs. Atrium services high-profile startups, mid-sized companies and Fortune 500 companies in nearly all industries.
Although the largest Internet sellers already have the capability to process online sales taxes in line with the new ruling, smaller and entrepreneurial retailers may not have this in-house expertise. Whether or not you agree with the ruling, what we can agree on is that smaller retailers have a lot of challenges to face as they race to comply with it. This new burden means smaller, entrepreneurial retailers have a wave of new decisions to face, and some of them might mean the difference between expanding their businesses or deciding not to sell to customers in certain states and jurisdictions or shutting down completely.
Fortunately, there are steps that smaller retailers can take to quickly and thoroughly comply with this ruling — and forego shutting down sales or decreasing revenue. First, let’s take a look at some of the challenges this ruling presents, and then we can look at some of the solutions.
The challenge facing smaller online retailers
Several accounts of the Wayfair ruling have already spotlighted the scope and importance of this particular challenge, and what it may mean to the future of smaller retailers. Among the various states, there are thousands of sales tax jurisdictions, and the laws regarding which items are taxable — and who must collect — vary among these jurisdictions. The huge number of taxing jurisdictions, frequent changes in sales tax laws and lack of consistency in the laws will require online sellers to devote a significant amount of time to ensuring sales tax compliance.
Estimates of sales tax revenues lost because of the physical-presence rule are in the range of billions of dollars per year. The General Accounting Office estimated that state and local governments could have collected between eight and 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. It’s critical that online retailers begin assessing their sales tax compliance obligations immediately as tax collection may become a high and immediate priority in various states.
Part of the hurdle for online sellers in this new environment is being able to determine in each particular state which of its goods and services are subject to sales tax. A number of states have already passed laws to trigger tax collection in anticipation of the Supreme Court’s decision, and others have begun to take action on collecting these tax revenues so the pressure is on to conform to the law.
As a small business owner myself, I look to experts to help mitigate any potential compliance issues our firm may have. Fortunately, online retailers also have the option to seek help from experts for viable and immediate solutions to meet this new sales tax challenge and avoid issues of non-compliance.
Compliance: Recruiting an expert to handle sales tax issues
With many smaller online retailers lacking the budget to hire a full-time permanent tax professional to ensure compliance with the new SCOTUS ruling, it can makes sense to seek the expertise of an accounting consultant with a solid track record in tax issues — someone who could be called upon to evaluate your sales and work on an as-needed basis. One method of identifying an appropriate individual of this type who is capable of assuming these responsibilities is by teaming with a staffing agency with a recognized reputation for recruiting contingent talent in the areas of accounting and finance services.
After analyzing a retailer’s specific needs, the staffing agency’s job is to match the company with an individual who has the professional background and capacity to work with them to make sure they are paying appropriate taxes and comply with the new law. This individual could very easily work remotely on behalf of the company, and on a seasonal basis rather than year-round, depending on the online retailer’s tax collection requirements.
An additional advantage of seeking the services of a tax professional on a contingent basis is that retailers have a more flexible workforce at their disposal — and don’t have to spend the money when those workers’ services are not required. A reputable staffing agency will also have a pool of candidates to work with, so you should be assured coverage whenever you need it.
One of the largest advantages to working with a staffing firm, though, comes in the form of compliance with regard to hiring protocols. Hiring independent workers comes with its own set of rules and regulations. The days of being able to effortlessly hire someone as an independent contractor without a lengthy vetting process are long gone. Today the implications for misclassifying staff as independent contractors comes with a huge tax liability for organizations of all sizes. Hiring through an agency mitigates this risk, as the burden to ensure the professional is paid in accordance with the relevant regulations concerning contract workers lies entirely with the agency. This is especially relevant for online retailers that may not have the in-house expertise to determine compliance.
Finally, if the online retailer’s needs increase as its business increases, and it wants to transition the independent contractor to a full-time employee, the staffing agency can oversee the onboarding process so that the hiring process is conducted smoothly and efficiently.
Rebecca Cenni-Leventhal is CEO and founder of Atrium, a staffing and contingent workforce solutions firm that offers clients a consultative and personalized approach to their talent management needs. Atrium services high-profile startups, mid-sized companies and Fortune 500 companies in nearly all industries.