With the ever-changing landscape of sales tax in the US, businesses face constant challenges and complexities. As economies evolve, sales tax regulations transform, and recent changes reflect a trend toward taxing digital goods and services. Major players like Facebook and Google have initiated legal actions against new taxes on digital advertising, highlighting the impact on companies of all sizes.
Despite these challenges, positive changes are emerging, such as technological advancements that facilitate tax solutions and states simplifying economic nexus laws. It is crucial for businesses to stay informed, adapt their processes, and navigate the evolving sales tax environment effectively. Additionally, understanding concepts like sales tax holidays and compliance with international tax regulations becomes paramount as businesses strive for accurate taxation and safeguard against potential risks.
This episode of “Lessons for Tomorrow” features two expert guests from tax compliance software company Avalara to help explain the evolving world of sales tax compliance.
Introducing Kate Bacholzky and Brian Kelly
We have the pleasure of hosting guest speakers Kate Bacholzky and Brian Kelly in this episode. Kate is a sales executive at Avalara, where she has been involved with the Americaneagle.com partnership since its inception. With a focus on helping ecommerce businesses in the United States, Kate brings her expertise in sales and customer service. Brian, on the other hand, is a solution specialist for global services, specializing in international ecommerce. Having worked in the international ecommerce industry for over a decade, Brian offers valuable insights into global tax regulations. Together, Kate and Brian contribute to Avalara's mission of providing sales tax compliance solutions and supporting businesses in navigating the complex landscape of taxation.
Understanding Complex Sales Tax Regulations in the US
US sales tax is characterized by constant change, with no consistency. As economies evolve, sales tax regulations also transform. A notable trend is the taxation of digital goods and services. For instance, Massachusetts introduced a tax on digital advertising, impacting companies based on their global revenue. This tax applies to banner ads and search engines, leading major players like Facebook and Google to initiate legal actions. The effects of these changes extend beyond Fortune 1000 companies, impacting businesses of all sizes. The overarching theme is that sales tax in the US is ever-changing, requiring businesses to adapt continually.
Positive Recent Changes in Sales Tax Regulations
Positive changes in sales tax can be observed amidst the negative connotations associated with tax adjustments. A survey conducted by Avalara and CPA Trend Lines reveals that while many businesses anticipate negative effects, there are still positive aspects to consider. Technological advancements make it easier for businesses to implement tax solutions, facilitating adaptation and change. Some states, such as South Dakota, are simplifying their economic nexus laws, making compliance more manageable. Additionally, certain countries like Italy, Spain, and the U.K. are implementing taxes on plastic packaging, highlighting efforts to address environmental concerns. While sales tax changes can be challenging, staying informed and having streamlined processes in place can help businesses navigate the evolving landscape effectively.
Sales Tax Exemptions: Sales Tax Holiday
A sales tax holiday might seem contradictory to the idea of a holiday, but it actually refers to a designated period when certain taxable items are exempt from sales tax. Around 18 states, including Florida, implement these holidays for various purposes. For example, Florida recently enacted over 30 sales tax holidays, each with its own specific exemptions. These holidays can range from disaster preparedness to back-to-school shopping. Other states, such as Texas, offer tax exemptions on items related to water conservation. As a seller, it's crucial to be aware of these holidays and adapt your processes accordingly to ensure compliance and effectively handle the exemptions.
Understanding Sales Tax Responsibilities for Marketplace Facilitators
Businesses, regardless of their size or industry, often struggle to keep up with the complexities of sales tax changes. It is crucial for them to stay informed and adapt to these changes. One common area of confusion is for sellers who operate both their own online store and a marketplace like Amazon. While marketplace sales may seem simplified since Amazon handles remittance, sellers need to be aware of potential obligations related to inventory storage and economic thresholds in different states. Ignoring sales tax compliance can have negative consequences, especially during audits. It is vital to proactively address these issues to avoid long-term harm to the business.
Preparing for a Sales Tax Audit
Sales tax audits are expected to become more sophisticated with technological advancements. As businesses embrace new technologies, audit departments will also evolve to catch up. Compliance issues can arise even for companies operating outside a particular state, as demonstrated by a case where a business received a tax bill dating back to 2014 due to having an employee in that state. Staying informed about changes in sales tax regulations is crucial, such as Kentucky's recent taxation of additional services. The case of Uber and Georgia highlights the potential impact on both large and small businesses, emphasizing the importance of compliance to avoid hefty lawsuits.
Global Tax Regulations
When it comes to global tax regulations, change is a common factor both domestically and internationally. The similarities between US sales tax and international value-added tax (VAT) or goods and services tax (GST) lie in understanding product taxability and compliance obligations. For international businesses, storing products in different countries can trigger tax obligations. While rules vary across countries, the need for compliance remains consistent. Differences arise in specific aspects like the harmonized tariff code in the European Union (EU), where accuracy is crucial to avoid penalties. Understanding these distinctions and complying with international tax regulations is essential for businesses operating globally.
The Impact of Incorrect Harmonized Tariff Code (HS Code)?
Ensuring accurate and detailed descriptions of goods is crucial for international business operations, particularly in light of recent changes in Europe. Since March 1st, the European Union has mandated precise product descriptions on commercial documentation and labels. This shift aims to enhance resident safety and enable customs agents to assess the admissibility of goods. Descriptions must now include information about the composition, origin, and purpose of the items. This level of specificity helps determine whether the products comply with import regulations and whether they are allowed into the country. It's important to adhere to these requirements to safeguard industries and protect residents.
Stricter Compliance with Sales Tax Regulations in the US & Around the World
Countries worldwide are becoming increasingly strict about compliance, driven by various factors beyond public and consumer safety. One significant change is the heightened scrutiny of product descriptions, leading to delays and returns at customs. Compliance is now a critical concern, as countries aim to recoup lost tax revenue, especially in the case of digital goods. They may impose a de minimis threshold of zero, holding businesses accountable for taxes due from previous years. Additionally, countries are implementing invoicing requirements to track and verify transactions, ensuring accurate taxation. These measures demonstrate the growing relevance of compliance worldwide, with potential implications for businesses operating in the US.
Sales Tax Invoice Requirements in the US
The possibility of the US adopting an e-invoicing system, similar to what is being implemented internationally, is being discussed. Currently, the focus is on business-to-government and business-to-business communication. However, it is expected to expand to include business-to-consumer transactions as well. The aim is to enhance control over tax collection, particularly value-added tax or goods and services tax. The advancement of digital technology plays a significant role in driving these developments. While the details are yet to be determined, the trend indicates a move towards increased transparency and efficiency in tax-related processes.
Listen to Avalara on Lessons for Tomorrow!
The landscape of sales tax is constantly evolving, and businesses must stay informed and adapt to these changes. Staying informed and embracing digital solutions will be key for businesses to navigate the evolving landscape of sales tax effectively.
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