By Sheralyn T. Felix, Partner Marketing Manager at Avalara
It’s that time of year – the holiday season! The weather changes, daylight savings time kicks in, holiday music plays on car stereos, and emails are filled with shopping deals for Black Friday and beyond. These changes signal our favorite end-of-the-year tradition, planning for tax season.
Whether we want to or not, this is the right time to evaluate and prepare for our 2017 remittance. Businesses should set aside time now to review the year to date, reassess goals, and prepare for the coming year.
Ecommerce holiday sales is one of the fastest growing areas of the retail economy and closes out the entire year. Dollars are there for the taking, but with greater opportunity comes greater risk of sales tax audits – and associated fines, penalties and fees. Even if holiday shopping blitzes blow out your 2017 revenue expectations, what good is it if you find yourself on the wrong side of an expensive, time consuming audit?
Now is the time to evaluate, prepare, and plan. Here are a few tips to guide your holiday planning for the new year:
How did your business change or grow in 2017? Knowing this will determine preparations for success in 2018.
- Did you expand into new markets this year? If so, you might have created a nexus requirement for your business where additional tax obligations are essential.
- Did you add new products to your inventory? Online or in physical locations? When you add new inventory, it can mean you have added new suppliers and distributors which leads to the need for new reseller and exemption forms, new filing requirements, and quite possibly, new tax policies.
- Have you altered the way you’ve done business this year? For example, have you changed carriers or added drop shipping? Drop shipping is handled differently state to state. Any new methods of doing business should be considered and evaluated.
In addition to monitoring activity within your business, you must be alert to external changes that could affect sales tax and filing requirements. These can originate at the federal level or in states and communities. They can be relatively straightforward — like a state sales tax rate change — or complex, like the application of sales and use tax to ecommerce and digital goods and services.
- New nexus. It’s hard to keep up with nexus changes at the state level. Did you know that states want to collect more tax revenue from remote sales? Perhaps one of the most notable trends of 2017 is states’ push to obtain tax revenue from remote sales. States have been working to tax out-of-state sellers for years, but their efforts have been hampered by a Supreme Court ruling that a state can only tax businesses physically located within its borders. In recent years, states have found creative ways to work around this. Unfortunately for states in need of additional sales tax revenue, these affiliate, click-through, and economic nexus laws are difficult for states to enforce. Therefore, many states are looking to different and more aggressive approaches. Two methods have been gaining steam this year: use tax notification and reporting requirements, and taxes on online marketplace providers such as Amazon and eBay.
- New exemptions. Exemptions can change at any time, at all levels of government — federal, state and local. There is also a growing trend among states to tax many services that are currently exempt. Staying on top of potentially relevant changes is challenging but well worth the effort.
- New interpretations. Businesses involved with digital goods and services need to be ever on the lookout for changing policies: the stance of many states is still unclear, but there is a global trend to tax digital content.
And finally, Plan
You’ve assessed your 2017 achievements and set 2018 goals. You’re alert to real and potential fiscal, legislative, and tax changes. Now you need a plan.
- Add new strategies to the mix. There is much that you can control in your business but legislative and policy changes are out of your hands. 2018 may be the year in which federal lawmakers finally enact a remote sales tax law, or the United States Supreme Court delves into the issue. Develop and enact strategies to help your business implement new nexus laws, new cloud tax policies, and similar changes. Learn more about ecommerce and sales tax legislation.
- Be creative with new processes. Businesses that sell multiple products to multiple markets should implement processes that will facilitate growth while simplifying compliance. See how sales tax automation and compliance software works.
- New plan. Forget manual tax compliance. Discover Avalara and the future of tax compliance. Now is the time to plan with Avalara and master tax trends for 2018.
You’re busy — your plate is full. Right now, carving out time for year-end planning may not seem worth the trouble. But it is. Ask your accountant about ways to simplify tax compliance, and begin 2018 with confidence.