Every company that sells products online knows the importance of Black Friday and Cyber Monday. According to CNNMoney, online shoppers spent $5 billion last year on Black Friday. And Forbes reported that on Cyber Monday, 2017, online shoppers spent $6.6 billion.
But there could be a downside this year, thanks to the Supreme Court’s June decision in South Dakota vs. Wayfair, Inc., which says that states can charge online retailers’ sales tax, regardless of the company’s physical location. What makes things even worse for these online retailers is that each state can set up its own regulations regarding sales tax collection—including when regulations go into effect—and these regulations can change with little warning.
Consider the following changes enacted in just the past few weeks:
- Colorado now requires online retailers to obtain a state sales tax license, and the deadline for compliance is Nov. 30, 2018.
- Massachusetts announced that the state will officially begin enforcing its post-Wayfair regulations for all online retailers.
- Nevada passed a law to adopt the $100,000 in sales or 200 transaction threshold effective for enforcement Oct. 1, 2018.
- Illinois announced that they have expanded their existing regulations and stipulated that the enforcement date for these new rules was Oct. 1 of this year.
These are just a few examples of the types of rules and regulations that are passing at a dizzying rate. Keeping track of all the changes and understanding your sales tax exposure because of them is a huge challenge for retailers, especially around the busy holiday season. Not having a plan in place could put a damper on Black Friday and Cyber Monday as tax not collected from customers becomes the responsibility of the retailer. However, there are steps businesses can take now to reduce their sales tax exposure and potential for government audits and fines.
- Know your risk: Keep track of existing sales tax regulations, and keep an eye on the states who haven’t yet formalized their sales tax laws. You might want to consider hiring someone who monitors these regulations.
- Invest in the appropriate software: If you don’t have a sales tax plug-in for your accounting software, get one. It will take time to set up, so don’t wait.
- Keep your software up to date: Ensure that your sales tax plug-ins are updated to accommodate the latest changes, for example, turning on nexus for each state, ensuring products are accurately coded, checking that any new products being launched for the holiday are in the system, and so on.
- Contact your tax advisor: Your tax advisor can help identify your sales tax exposure and risk, which includes identifying the states where you have the highest exposure and how to minimize that risk.
For many retailers, the next two months will account for 50% to 70% of their annual revenue. Failing to collect sales tax according to each state’s sales tax regulations can be devastating. Don’t let uncollected sales tax spoil your holidays, or your bottom line.
Todd Suchevits is president and CEO of VPTax