I’m a huge fan of the TikTok account, Recess Therapy. Host, Julian Shapiro-Barnum, knows how to talk to kids and capture endearing content for the rest of us to enjoy. Recently, Recess Therapy posted a very cute post of a young entre-entre-entrepreneur.
When it comes to anticipating the risks associated with tax compliance, it’s easy to feel like this 5-year-old entrepreneur. You don’t know what you don’t know, right? It can get really, really complex and challenging for even today’s most technologically advanced, well-resourced organizations.
To address tax compliance, business leaders have two options: the first is to attempt to keep up with rules and rates through a manual process which can lead to human error, and oftentimes are not even noticed until tax season - increasing the likelihood of audit penalties.
The second option for business operators is to work with a tax technology provider to automate the tax management process. With the right tax technology in place (pssst we like our friends at Vertex), you can more easily weather any complexities that may arise.
Getting Ahead of Tax Compliance
Whatever your size, product offerings, or channel, sales and use tax compliance is an essential part of business operations. But with thousands of tax jurisdictions in the U.S. and shifting definitions of what constitutes a nexus, it’s the furthest thing from cut and dry.
To help you prepare, we partnered with Vertex to outline four common compliance challenges retailers often face — and how to solve them — so that you can proactively address them.
Challenge #1: The Quick Pace of Tax Change
Did you know that the United States has 12,000 tax jurisdictions? That means there are 12,000 different governments with different tax laws, constantly tweaking requirements for businesses.
What’s more, these jurisdictions can change their rules at any time, like what types of products are taxable vs. non-taxable, what days and weekends are sales tax holidays (back to school weekend, anyone?), and even the rate that different types of products are taxed. Does anyone else have a headache just trying to fathom what it would take to manually keep track of 12,000 jurisdictions with ever-changing laws? Once you feel like you’ve got it down, they change. It reminds me of when I was seven and trying my hardest to win wack-a-mole at the county fair — impossible.
Even crazier, if you do business globally, that number of tax jurisdictions jumps up to 19,000!
We recorded a podcast with Michael Bernard, the Chief Tax Officer of Vertex a few months ago. In our enlightening interview with him (if we do say so ourselves), Michael explained that the three pillars of funding for state governments are:
During an economic downturn, sales tax income is often the first to drop the most dramatically (but then rise again the most dramatically). This means that sales tax laws are the most frequently changed of the three taxes.
An integrated tax technology solution like Vertex automates sales, use, and VAT (value added tax) by giving you access to an expertly-maintained tax database of over 300 million tax laws and rules to drive accuracy and compliance. This allows organizations to be freed from the errors and delays of updating spreadsheet-based solutions and take a sigh of relief knowing that their tax technology automatically adapts to the changing landscape (winning the tax version of wack-a-mole).
Challenge #2: Keeping Track of Multiple Commerce Platforms and Channels
My online shopping habits have changed dramatically in the past three years, along with everyone else's!
I still order my groceries online, but I’d rather pick them up curbside than opt for delivery. I’ve purchased clothes online, only to find that they didn’t fit quite right, and returned them in-store. I’ve tried on shoes in my local running store and ordered the color I want to go to my door.
This shift has also made retailers realize that there are endless shopping possibilities. Customers can use channels in any combination; new channels are constantly evolving. You can purchase a gallon of milk from your fridge door!
In an omnichannel world, retailers need to meet the channel-crossing expectations of their customers. This could mean implementing various POS systems, which requires integrating your commerce platforms and tax solutions across channels and divisions.
Find a solution that will ensure consistency across:
When a tax compliance solution like Vertex is directly integrated into your software management platform, you gain access to a single, centralized source of accurate tax calculation across your channels and divisions — POS, store kiosks, eCommerce sales, catalog sales, call-center sales, mobile device transactions and mobile — creating a frictionless customer experience. Say goodbye to manually updating and maintaining retail-specific taxability rules and rates for refunds, delivery charges, rental charges, restocking fees, non-merchandise fees, warranty sales, component/ packaged issues, delivery method taxability, multiple ship-to locations, drop shipments and service charges in multiple places — it’s all automatic now.
Challenge #3: Processing Sales Tax on Refunds and Returns
There are already a lot of variables surrounding tax compliance with customers’ purchases. There are even more when it comes to returns. While employing an all-sales-final model may work for some businesses, (hello warehouse sales) for most, employing this across the board won’t help you instill trust and loyalty in your customers’ relationship with you.
As a retailer, you have to learn how to process refunds and returns. Some things to consider to help you get ahead.
Things to consider when processing refunds and returns:
Omnichannel capabilities give retailers the opportunity to provide an excellent customer experience. However, the more channels for sales and returns to occur means there are more nuances for complex tax compliance.
Since tax rules and rates for returns must be aligned with the original purchase rules (date purchased, jurisdiction purchased in, etc.), retailers must keep historical data on purchases and file returns in the proper jurisdiction. Due to these variables, it is imperative for retailers to integrate an automated tax determination engine like Vertex with their ERP solution.
An integrated solution like Vertex collects and stores granular-level details about transactions, which not only reduces errors, but also helps prepare returns for every jurisdiction where you are obligated to file. This creates a huge impact on increasing tax filing productivity while reducing audit risk.
Challenge #4: Providing a Seamless Customer Experience
It’s no secret that consumer eCommerce expectations and retail operational capabilities are evolving quickly. For example, I for one gravitate towards companies with free shipping and/or free returns — it’s just more convenient. With today’s capabilities to interact with customers such as BOPIS, social shopping, and shipping from store, the possibilities to interact and meet your customers in new ways are endless. Furthermore, customers now expect to mix and match different shopping channels as well. With options like these retailers are rethinking their processes, and moving from a reactive mindset to a proactive one to create a positive, seamless customer experience.
Providing a seamless customer experience doesn’t mean removing all friction, but intentionally creating moments of good friction such as adding suggested purchases to accompany your customers’ selections prior to checkout. (Why yes, I do need copy paper to go along with my new printer.)
When it comes to the art of good friction, it’s imperative to mimic your customer’s thought processes and steer them in a way that feels natural.
As a retail leader, you want to integrate your systems in a way that the good friction stays, and the bad friction dissipates. An example of bad friction? — You guessed it — having inaccurate tax calculations.
An integrated tax technology solution like Vertex enables consistent, accurate tax processes no matter where and how customers make a purchase. Whether they’re making a standard purchase, taking advantage of an exemption, or making a return, consumers can feel comfortable that it’s all being handled correctly — and retailers are comfortable knowing that tax won’t get in the way of their customers purchasing their products — or two.
“DIY” just won’t cut it.
As you can see there are a whole host of tax compliance challenges that retailers everywhere must face that can leave you feeling overwhelmed and uncertain. And like the Recess Therapy kid mentioned above, we don’t know what we don’t know. That’s why we “get a little help from our friends” at Vertex when it comes to tax.
Vertex’s software and services address the increasing complexities of global commerce and compliance by reducing friction, enhancing transparency, and enabling greater confidence in meeting indirect tax obligations. It is fueled by over 300 million data-driven effective tax rules and supports indirect tax compliance in more than 19,000 jurisdictions worldwide.
In short, they know tax inside out and upside down — so you don’t have to!
We were only able to dig into four compliance issues here but they’ve put together a great guide to give you all seven compliance issues and how to get ahead of them. Read all seven tax compliance issues and download Vertex’s free compliance guide here!
Vertex Inc., is a leading global provider of indirect tax software and solutions. Vertex’s mission is to deliver the most trusted tax technology enabling global businesses to transact, comply, and grow with confidence.
Copyright © 2023 Vertex, Inc. All rights reserved. The information contained herein is intended for information purposes only, may change at any time in the future, and is not legal or tax advice. Any product direction and potential roadmap information is not a guarantee, may not be incorporated into any contract, and is not a commitment to deliver any material, code, or functionality. This information should not be relied upon in making purchasing, legal, or tax decisions. The development, release, and timing of any features or functionality described for Vertex’s products remains at the sole discretion of Vertex, Inc. Any statements in this release that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to various risks and uncertainties described in Vertex’s filings with the US Securities and Exchange Commission (“SEC) that could cause actual results to differ materially from expectations. Vertex cautions readers not to place undue reliance on these forward-looking statements which Vertex has no obligation to update and which speak only as of their dates.