eCommerce businesses face unique challenges that traditional, brick and mortar businesses do not. They must navigate an increasingly complex tax infrastructure that can pose unique challenges.
But eCommerce businesses shouldn’t shy away from this changing tax landscape. With the correct software, monitoring systems, and tax professionals issuing guidance, eCommerce business owners can relax knowing they have a system in place to respond to the changing tax structure.
In this article, we take a closer look at some of the most proven ways eCommerce businesses can guarantee their tax compliance, no matter how many states they sell in. At Fully Accountable, we believe eCommerce companies should be able to focus on what’s most important: reaching new markets and building their brand as large as possible, without worrying about the tax implications of doing so.
Our full-service team of financial professionals can implement proven measures and issue strategic advice that keeps you at the top of your industry. Continue reading to learn about the measures you can implement as an eCommerce business to ensure you stay tax compliant this year.
How Do You Comply With Sales Tax Complications As an eCommerce Business?
Many of the complications that arise for eCommerce companies are concerned with complex tax structures. Since you sell across state lines, you have to pay sales taxes in all of the states where you sell. As an online seller, you must be aware of the laws and regulations that govern the tax coding so you can stay compliant and avoid issues. Here are some examples:
- The US Supreme Court determined eCommerce retailers were required to pay sales tax in the case South Dakota v. Wayfair. All eCommerce retailers should be aware of the changes this case caused.
- State laws vary regarding which businesses are required to collect and pay tax.
- eCommerce businesses should utilize software options and consider seeking digital accounting services to determine the various tax rates.
Staying current with eCommerce accounting is a challenge no matter how savvy you are as a business owner. In many ways, it requires a full-service accounting team to ensure compliance. The changing legislation and nascent elements of eCommerce have prompted changing legislation that can quickly cause confusion.
In the wake of the South Dakota V. Wayfair case, 43 states require sales taxes for eCommerce companies. Additionally, an article published in Forbes found that 50% of eCommerce businesses struggled to cope with the changing tax laws in their industry.
What Is a Sales Tax Nexus and How Does It Affect eCommerce Companies?
A sales tax nexus is the system governing the relationship between the state or taxing jurisdiction and your business. For brick and mortar businesses, determining the sales tax nexus is straightforward. The physical presence of the store determines the state nexus.
However, states can now tax out-of-state eCommerce businesses. With goods theoretically available to customers in all 50 states, eCommerce businesses must stay on top of their tax situation, which can be a feat in itself considering these states have varying rates. These varying rates might not affect businesses recording smaller sales, but for eCommerce companies producing larger numbers, it’s imperative they receive guidance on their tax situation.
How to Adjust to New Sales Tax Nexuses for eCommerce
Staying on top of these changing sales tax laws is not easy. How much sales tax you get charged, how it will be collected, tracked, and paid, and setting up new systems and processes to ensure you meet responsibilities will all determine how well you can stay on top of your tax situation. This challenge falls squarely on the shoulders of your accounting team.
Decide How to Track eCommerce Sales Tax Laws
Large retailers have an advantage over smaller retailers in this arena. They have the resources to dedicate to creating full, in-house teams devoted to staying on top of the changing regulations and devising strategies based on how to respond to these challenges.
Hiring a fractional CFO can help you navigate the murky waters of eCommerce regulations and compliance. CFO advisory offers insight on how to adapt your financial plan to your business while implementing the latest software dedicated to staying ahead of the curve regarding your tax obligations.
Choose a POS Platform That Tracks Liabilities
Some POS systems can integrate accounting software that processes different state sales tax laws. As an eCommerce business, it is virtually impossible to operate in compliance without enlisting the help of software to remove some of the tax burdens from your shoulders.
This is even more apparent for small businesses reaching their minimum sales thresholds. It requires thorough preparation and ongoing work to stay on top of the nuances of taxes in each state. You might also have to apply for additional tax permits in states that require your business to pay sales taxes.
Monitoring Sales Tax Rates In All States
eCommerce sales laws change every year, and as long as eCommerce grows, you should expect to see more of the same behavior. Many states have followed the guidelines laid by the Supreme Court. Others haven’t enacted the exact standards set forth by the Supreme Court. Wherever you sell, you must closely monitor tax changes.
Tips for Managing eCommerce Sales Tax Nexus
Track All of Your Sales
The most advisable thing you can do to stay on top of your sales tax obligations is to track everything meticulously. Effective accounting solutions help you track your invoices and sales so you know exactly where all of your sales emanate from. You should work with professionals to determine the best course of action for this area.
Track Each State’s Payment Deadline Dates
The time periods for remitting the sales taxes you collect on eCommerce sales vary by state. You should create a calendar or mark up an existing calendar denoting each state’s due date to ensure proper payment schedules get delivered on time.
Understand How to Remit Sales Taxes
Every state has specific laws requiring eCommerce sales tax. Some states accept checks while others require you to pay online.
Obtain the Proper Permits
Your business should obtain any sales tax permits it needs at the beginning of the year so you aren’t scrambling to do so when tax season approaches.
Be Aware of the Various Penalties for Mistakes and Delays
Late or incorrect payments can drastically hinder your business’s ability to operate and remain in a positive state of cash flow. Failure to comply with the proper filing methods can result in ongoing issues for your business and even cause legal action.
Consult Tax Experts
Because of the sensitive, ever-changing nature of eCommerce taxes, you should seriously consider consulting a tax professional to determine the best course of action for your business. Tax professionals’ insight can help you make the best decision for your eCommerce business, as well as ensure your business stays compliant and remits its sales tax correctly.
Deductions for eCommerce Companies
eCommerce companies should be aware of the many opportunities for tax deductions. The following is an overview of those deductions:
- Home Office Deduction
- Inventory Storage
- Cell Phone
- VoIP Services
- Coworking Space
- Shipping Costs
- Office Supplies and Packaging
- Online Services
- Plugins, Apps, and Software
- Website Domain and Hosting
- Business Meals and Hosting
- Business Insurance
- Auto and Travel Expenses
- Business Interest and Bank Fees
- Professional Services
Conclusion – End of the Year Tax Tips for eCommerce Companies
Staying compliant with the ever-changing sales tax landscape is an ongoing battle for eCommerce companies all over the nation. With recent changes, it’s more important than ever for eCommerce businesses to implement the correct software tools and measures necessary to stay compliant and succeed in an increasingly competitive landscape.
As an eCommerce business owner, you can’t afford to let something as innocuous as taxes hinder your business. You should not dread your tax situation and there are effective, accessible ways to ensure your tax infrastructure operates smoothly.
At Fully Accountable, we understand the eCommerce tax landscape is difficult to navigate. That’s why our full-service team of tax professionals and fractional CFOs provides you with all the financial tools you need to create a successful eCommerce business.
Contact us today to see how our team of financial professionals can help you get the most out of the eCommerce industry.
Chris Giorgio is the President of Fully Accountable. Fully Accountable is an outsourced accounting firm specializing in eCommerce and digital businesses. Chris has served as a CPA, CFO and has over 14 years of experience in the accounting and finance industry. Chris has dedicated his career towards helping entrepreneurs and high-level business owners achieve greater profitability through specialized outsource accounting functions.
