Collecting Online Sales Taxes: How Smaller Retailers Can Master the Challenge
Many brick-and-mortar and large online retailers are applauding the United States Supreme Court’s decision to overturn the South Dakota v. Wayfair, Inc. ruling. Small online retailers, however, are not — as they now face the possibility of being responsible for collecting and remitting sales taxes in thousands of jurisdictions throughout the United States, whether or not they have a physical presence in a particular state.
Although the largest Internet sellers already have the capability to process online sales taxes in line with the new ruling, smaller and entrepreneurial retailers may not have this in-house expertise. Whether or not you agree with the ruling, what we can agree on is that smaller retailers have a lot of challenges to face as they race to comply with it. This new burden means smaller, entrepreneurial retailers have a wave of new decisions to face, and some of them might mean the difference between expanding their businesses or deciding not to sell to customers in certain states and jurisdictions or shutting down completely.
Fortunately, there are steps that smaller retailers can take to quickly and thoroughly comply with this ruling — and forego shutting down sales or decreasing revenue. First, let’s take a look at some of the challenges this ruling presents, and then we can look at some of the solutions.
The challenge facing smaller online retailers
Several accounts of the Wayfair ruling have already spotlighted the scope and importance of this particular challenge, and what it may mean to the future of smaller retailers. Among the various states, there are thousands of sales tax jurisdictions, and the laws regarding which items are taxable — and who must collect — vary among these jurisdictions. The huge number of taxing jurisdictions, frequent changes in sales tax laws and lack of consistency in the laws will require online sellers to devote a significant amount of time to ensuring sales tax compliance.
Estimates of sales tax revenues lost because of the physical-presence rule are in the range of billions of dollars per year. The General Accounting Office estimated that state and local governments could have collected between eight and 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. It’s critical that online retailers begin assessing their sales tax compliance obligations immediately as tax collection may become a high and immediate priority in various states.
Part of the hurdle for online sellers in this new environment is being able to determine in each particular state which of its goods and services are subject to sales tax. A number of states have already passed laws to trigger tax collection in anticipation of the Supreme Court’s decision, and others have begun to take action on collecting these tax revenues so the pressure is on to conform to the law.
As a small business owner myself, I look to experts to help mitigate any potential compliance issues our firm may have. Fortunately, online retailers also have the option to seek help from experts for viable and immediate solutions to meet this new sales tax challenge and avoid issues of non-compliance.
Compliance: Recruiting an expert to handle sales tax issues
With many smaller online retailers lacking the budget to hire a full-time permanent tax professional to ensure compliance with the new SCOTUS ruling, it can makes sense to seek the expertise of an accounting consultant with a solid track record in tax issues — someone who could be called upon to evaluate your sales and work on an as-needed basis. One method of identifying an appropriate individual of this type who is capable of assuming these responsibilities is by teaming with a staffing agency with a recognized reputation for recruiting contingent talent in the areas of accounting and finance services.
After analyzing a retailer’s specific needs, the staffing agency’s job is to match the company with an individual who has the professional background and capacity to work with them to make sure they are paying appropriate taxes and comply with the new law. This individual could very easily work remotely on behalf of the company, and on a seasonal basis rather than year-round, depending on the online retailer’s tax collection requirements.
An additional advantage of seeking the services of a tax professional on a contingent basis is that retailers have a more flexible workforce at their disposal — and don’t have to spend the money when those workers’ services are not required. A reputable staffing agency will also have a pool of candidates to work with, so you should be assured coverage whenever you need it.
One of the largest advantages to working with a staffing firm, though, comes in the form of compliance with regard to hiring protocols. Hiring independent workers comes with its own set of rules and regulations. The days of being able to effortlessly hire someone as an independent contractor without a lengthy vetting process are long gone. Today the implications for misclassifying staff as independent contractors comes with a huge tax liability for organizations of all sizes. Hiring through an agency mitigates this risk, as the burden to ensure the professional is paid in accordance with the relevant regulations concerning contract workers lies entirely with the agency. This is especially relevant for online retailers that may not have the in-house expertise to determine compliance.
Finally, if the online retailer’s needs increase as its business increases, and it wants to transition the independent contractor to a full-time employee, the staffing agency can oversee the onboarding process so that the hiring process is conducted smoothly and efficiently.
Rebecca Cenni-Leventhal is CEO and founder of Atrium, a staffing and contingent workforce solutions firm that offers clients a consultative and personalized approach to their talent management needs. Atrium services high-profile startups, mid-sized companies and Fortune 500 companies in nearly all industries.
Starbucks Q3 profit soars, but pares full-year growth outlook
Starbucks Corp.’s third-quarter earnings and sales beat analysts’ estimates, but the company slightly lowered its outlook amid a slowdown in sales in China.
The world’s biggest coffee retailer said it earned $852.5 million, or 61 cents a share, in the quarter ended July 1, up from $691.6 million, or 47 cents a share, in the year-ago period. Adjusted for one-time items, the company earned 62 cents a share, compared with 55 cents a share a year ago.
Sales rose 11% to $6.31 billion. Global same-store sales increased 1%, driven by a 3% increase in average tickets.
Americas and U.S. same-store sales increased 1%. But same-store sales in China, where it is aggressively expanding, decreased 2% amid increased competition and delivery services regulations.
Starbucks opened 511 net new stores in the quarter, for a total of 28,720 stores across 77 markets. The chain’s loyalty program added 1.9 million active members in the U.S., up 14% year-over-year. Total member spend now represents 40% of U.S. company-operated sales.
“Starbucks record Q3 revenues and profits once again reflect the underlying strength of the Starbucks business and brand all around the world,” said Scott Maw, CFO. “We continue to grow share in virtually every market and channel in which we operate at the same time that our streamline initiatives are enabling us to sharpen our focus — and leverage our resources — against our highest value, long-term growth opportunities.”
The company said it now expects full year global comparable store sales growth to be just below the 3%-5% targeted range, with Q4 expected to be at the lower end of the 3%-5% range.
Starbucks’ third-quarter report comes exactly one month after Howard Schultz stepped down as executive chairman.
Exclusive Q&A: Talking GDPR
The General Data Protection Regulation (GDPR) marks a new era in data privacy and protection — and retailers are in the hot seat to comply.
GDPR, which went into effect on May 25, was created to protect European customers’ data. In addition to defining how companies must safeguard all of the personal data they process going forward, the rules also give consumers more “control” over their personal information. And companies that improperly handle data will have consequences, such as legal actions and fines of up to 4% of their worldwide annual turnover, according to Russell Marsh, managing director, Accenture Digital.
Marsh spoke with Chain Store Age about the new regulation, and what it means for retailers worldwide.
What is GDPR?
Drawn up by the European Union (EU), GDPR strengthens the data rights of European residents and harmonizes data protection law across all member states, making it identical. Perhaps the two most significant additions in GDPR are the right related to automated decision making and profiling, and the “right to be forgotten.”
It increases the potential fines organizations face for misusing data, and makes it easier for people to discover what information organizations have on them. In essence, it seeks to bring more transparency to people about what data organizations collect about them, and what those organizations use it for, as well as enabling people to prevent unnecessary data collection.
The types of data considered personal under the existing legislation include name, address, and images (video and photographic). Under GDPR, an IP address or even a web cookie can be personal data. It also includes sensitive personal data, such as genetic and biometric data, which could be processed to uniquely identify an individual.
What is prompting these changes?
GDPR seeks to expand and update rules that have been in place since 1995, and unify a patchwork of different laws into one piece of legislation. It provides more robust protection for consumers in the digital age, by tackling concerns over big data, privacy and cyber-theft.
What is the retail industry’s mindset when it comes to preparing for GDPR?
Implementing GDPR is not only about compliance or security. It’s essentially about changing the culture to become an organization that asks questions like: “Why do we collect these data?,” and “Do we have a legal right to do so?,” in order to embrace privacy and protection of data. Furthermore, retailers must maintain a high level of trust with their consumer base to retain brand loyalty.
What do companies need to be aware of to become complaint?
Retailers need to know where all customer data has come from, show how all data was processed, and where automated processing (algorithms) were applied. They also must be able to prove they have the customer’s consent to use each piece of their data for each specific purpose. If they don’t have this consent, they need to stop using a specific piece of their data for a specific profiling purpose.
How do retailers obtain consumer consent?
Retailers must use clear and transparent language when securing consent from their customers, and ensure they understand the potential uses of the information. They must also actively seek their consent, meaning opt-out and pre-ticked consent methods will no longer be considered sufficient.
The most obvious implication of the changes relates to the collection and use of data for online direct marketing purposes. Compliance could well mean fewer marketable addresses for retailers who aren’t engaging in best practices.
To innovate and grow, retailers will need to find ways to help customers navigate the choices they have on data sharing and educate them on why sharing information can be beneficial.
How will GDPR impact U.S.-based companies that operate globally?
GDPR provides protection to European citizens no matter where their data travels. This means that any company, anywhere, that has a database that includes EU citizens is bound by its rules. Businesses of all sizes are affected — no one is exempt.
In order to comply, American companies can either block EU users altogether (an impossible choice for a multinational brand) or have processes in place to ensure compliance.
Beyond compliance, what other value does GDPR provide?
GDPR-compliant companies are good custodians of data, a characteristic that drives greater consumer confidence. GDPR also lays the groundwork for improved data security since the guidelines require organizations to disclose any breach within 72 hours of its occurrence.
GDPR will also force organizations to improve their network, endpoint, and application security, a move that will further increase alignment with evolving technology, such as virtualization, cloud computing, BYOD, and IoT. This can serve two purposes.
First, it gives retailers a way to more effectively manage the growing demand for data. Second, it allows companies to offer end users augmented products, services, and processes.
GDPR is forcing organizations to have more consolidated data, to ensure that data is easier to use, and that they have a greater understanding of its underlying value and of the risk. This insight will let an organization learn more deeply about its customers, and identify areas where customer needs are unmet. By using customer information effectively, retailers have an opportunity to make better decisions, and consequently, get a better return on investments.