- How to Prepare for Sales Tax on Cyber Monday
- Cyber Monday surpasses Black Friday
- So what does this mean for you?
- Cyber Monday shoppers will see more sites charging sales tax
- Justices give green light to tax collection
- States rushed to take advantage of ruling
- Etsy, eBay, Amazon in states' sights
- Your holiday shopping sales tax wrap up
- The numbers
- Sales tax for the 2019 holiday season
- Walking the line
- How economic nexus impacts marketplace sellers
How to Prepare for Sales Tax on Cyber Monday
The term Black Friday often incites a bit of hysteria among retailers, be it from visions of restless shoppers or depleted inventory leaving buyers without their favorite items. It’s a holiday most brick and mortar stores plan for far in advance to achieve their highest sales quarters of the year.
Similarly, Cyber Monday has the same, if not more, impact for eCommerce stores in the form of increased online sales. But more sales often equals the burden of new and bigger sales tax responsibilities. Thankfully, with preparation, it doesn’t have to be a scary day on the calendar, but rather one that delivers a major boost to your bottom line.
Cyber Monday surpasses Black Friday
While shoppers used to await Black Friday and its heavy discounts, Cyber Monday has surpassed Black Friday as the go-to-shopping day of the year.
In a recent holiday retail study from Deloitte Insights, 53% of people surveyed said they will rely on Cyber Monday for discounts, as opposed to 44% who say they’re planning to shop the Black Friday promotions this year.
The annual study also predicts that eCommerce holiday sales are projected to grow 14%-18% from last year, with nearly two-thirds of customers planning to shop at online retailers.
So what does this mean for you?
With Cyber Monday happening in December this year, due to a later-than-normal Thanksgiving, consumers have fewer shopping days and are planning to begin their holiday buying in early December.
This equates to a bit of a frenzied shopping season, adding another layer of stress on store owners with only three weeks between Cyber Monday and Christmas.
So, what should you do to get ready for the busiest season of the year to ensure you’re compliant in your sales tax responsibilities?
1. Think about your projected growth
First, think about your projected sales and growth. Are you prepared to handle an influx in sales? Do you have the right software in place? Will your increased sales put you into the category of remitting sales tax when you previously weren’t responsible? A busy sales season is every seller’s dream, but it can also bring about a new burden.
The landmark Supreme Court case, Wayfair vs. South Dakota, gave the states the right to set their own thresholds to trigger sales tax responsibility for remote sellers (known as economic nexus). As a result, many eCommerce stores find themselves on the hook for remitting sales tax after a successful holiday season and are left confused on what to do until it’s too late.
If you think you’ll fall into this category of having “nexus” in a state, be it physical activity ( a physical office or employees), or economic nexus (revenue or transaction activity that surpasses the state’s declared economic threshold), you’ll want to look at the necessary steps to register for a sales tax permit in each state where you’ll be remitting sales tax. To help with this, we’ve got a handy guide on how to register for a sales tax permit in each state, or you can check out this list of vetted sales and local tax partners that we recommend.
Once you’ve identified the states where you’re responsible for remitting sales tax, you’ll begin the registration process to get a tax ID and start collecting sales tax.
When it’s time to file with the state (the state tells you what frequency to remit your sales tax reports), you might find yourself overwhelmed if you have nexus in upwards of 30 or 40 states.
Each state has different tax filing requirements, so researching these will help reduce frustration as you begin to collect sales tax.
But, if you’re most people and would rather “set it and forget it,” a sales tax software solution TaxJar can generate monthly reports and track all your sales across the platforms you use. Even better, our AutoFile program will file your taxes at the right time, to the right state, eliminating any headaches on your end.
2. Get to know state nexus and marketplace facilitator laws
There are a total of 43 states with economic nexus legislation for remote sellers.
With each state’s economic nexus threshold differing as well as marketplaces that collect on your behalf, it’s worth exploring the states’ laws ahead of time to determine where you might be close to having economic nexus.
As Cyber Monday nears, you’ll need to know where you have both physical and economic activity, and where you’ll be expected to remit sales tax.
Marketplace facilitator laws are currently active in 34 states (and counting) and allow for popular shopping platforms Amazon and Etsy to collect on your behalf.
While marketplace facilitator laws may seem to be helpful at first glance, you could still have a sales tax responsibility if you sell on multiple channels.
Just because a platform collects on your behalf, you’re still responsible for remitting sales tax on other channels where you have activity, so keeping your sales tax permit valid is necessary to be compliant.
For example, Washington state will require you to submit a Business & Occupational Taxes (B&O) return with the state even if Amazon is collecting for you in order to be compliant.
And, just because Amazon collects on your behalf in Alabama, they don’t in Florida.
So, if you have nexus in both states and sell on Amazon in one, you’ll still be liable to report and collect sales taxes in the latter state.
3. Evaluate nexus across your entire business
Remember, nexus is for your whole business, not just the channel where you sell. So if you have nexus from sales of one platform or marketplace, you’ll have to collect sales tax across all of your channels in that state.
It’s also important to note, there can be nexus implications depending on where a marketplace stores your inventory. If a customer chooses to physically come to a warehouse distribution or shipping location, the proper tax calculation should be configured to reflect this.
Further, physical inventory also causes nexus, even if the customer orders from home. So, if due to the holidays your products are shipped to multiple warehouses across the US, you may have growing nexus. TaxJar will show you a brown “Amazon” badge next to the states where we see your products shipping from and help you stay compliant across all your channels.
4. Configure your eCommerce software and sales tax management tools correctly
Are you selling new, bundled or discounted products? Is your eCommerce software ready for any specials or deals you might be offering? Do you have the right product taxability codes enabled on all of your products? Taking proper precautions around what, where and how you’re selling makes for a smooth Cyber Monday. Doing the work upfront ensures you have the right sales tax rates enabled on each product.
Bundled items may include products that are taxable in one state but not another, so make sure you’re collecting the correct amount of sales tax in each state ahead of time. The same consideration should be taken around coupons or product discounts as well.
You may be enticed to offer free shipping as an incentive for customers. Before you incur any fees, it’s worth learning which states allow shipping and handling to be taxed, so you’re not on the hook for shipping sales tax.
5. Test your systems
With online transactions at an all-time high during Cyber Monday, you’ll want to make sure your system doesn’t overload and freeze. Run a diagnostic check to ensure your systems are performing their best.
Just as you’d give your car a tuneup before a cross-country road trip, you’ll want to test your cloud-based, as well as on-prem systems to proactively identify any missteps.
As you aim to give your customers the best shopping experience on Cyber Monday, the last thing you want is a system crash.
Having a reliable sales tax solution TaxJar, with 99.99% uptime, provides peace of mind on the busiest shopping day of the year. Where other sales tax providers have experienced outages on this day, TaxJar will keep you up and running throughout the holiday season.
6. Look to automation to save time
Because IT and finance teams are typically tasked with overseeing sales tax collection and remittance, they are unable to focus on other important tasks and become stretched thin around Cyber Monday and other big shopping holidays.
With more than 10,500 taxing jurisdictions, sales tax can be overwhelming when processed manually.
Thankfully, automation by way of sales tax software can simplify this daunting tax for eCommerce businesses and ensure sales taxes are filed on-time and accurately.
Finding a software solution that can quickly import your sales and transactions, tell you when you’re approaching nexus, and file your returns to the state automatically is a lifesaver during the busy holiday season. In fact, automating sales tax collection can save as much as five hours per state return, which gives valuable time back to your IT teams to focus on more important tasks.
Stay tuned to our blog for the next post in our holiday sales series. In the meantime, want to see for yourself how automation simplifies sales tax? Sign up for a free 30-day TaxJar trial today and import your sales and transactions into our free Nexus tool to learn where you have nexus.
Cyber Monday shoppers will see more sites charging sales tax
WASHINGTON — Shoppers heading online to purchase holiday gifts will find they're being charged sales tax at some websites where they weren't before. The reason: the Supreme Court.
A June ruling gave states the go-ahead to require more companies to collect sales tax on online purchases. Now, more than two dozen have moved to take advantage of the ruling, many ahead of the busy holiday shopping season.
“Will your shopping bill look any different? … The answer right now is it depends,” said Jason Brewer, a spokesman for the Retail Industry Leaders Association, which represents more than 70 major retailers.
Justices give green light to tax collection
Carts full of merchandise ordered online are rolled to the packing area for shipping at Overstock.com in Salt Lake City in 2008. (Photo: AP FILE PHOTO )
Whether shoppers get charged sales tax on their online purchases comes down to where they live and where they're shopping.
Before the Supreme Court's recent decision, the rule was that businesses selling online had to collect sales tax only in states where they had stores, warehouses or another physical presence.
That meant that major retailers such as Apple, Best Buy, Macy's and Target, which have brick-and-mortar stores nationwide, were generally collecting sales tax from online customers.
But that wasn't the case for businesses with a big online presence but few physical locations.
Now, states can force out-of-state sellers to collect sales tax if they're doing a fair amount of business in the state. That means retailers such as Overstock.
com, home goods company Wayfair and electronics retailer Newegg can be required to collect tax in more states.
Those companies were involved in the case before the Supreme Court, but a wide range of businesses from jewelry website Blue Nile to clothing and outdoor company L.L. Bean and electronics retailer B&H Photo-Video are also affected.
MORE: How to keep gifts purchased online a secret until Christmas
Before the Supreme Court's decision, Overstock was collecting sales tax in eight states. Now, it's collecting sales tax nationwide.
Jonathan Johnson, a member of Overstock's board of directors, said a small number of customers reached out to ask about the change when it happened, but the company now hasn't had a question about it in months.
Wayfair, for its part, was collecting sales tax in 25 states before the decision. Now it's collecting sales tax in 36 of the 45 states with a sales tax.
States rushed to take advantage of ruling
Where online shoppers live also can affect whether they're being charged sales tax.
States had a strong interest in taking advantage of the Supreme Court's decision by passing laws or publishing regulations prior to this holiday shopping season if at all possible, said Richard Cram of the Multistate Tax Commission, which works with states on tax issues.
Those that did have generally been following the lead of South Dakota, which brought the issue to the Supreme Court.
South Dakota requires sellers who don't have a physical presence in the state to collect sales tax on online purchases if they do more than $100,000 in business in South Dakota or more than 200 transactions annually with state residents.
A host of states — Alabama, Illinois, Indiana, Kentucky, Maryland, Minnesota, Nevada, New Jersey, North Dakota, Washington and Wisconsin — began enforcing their own requirements starting Oct. 1. And about another half a dozen states, including Utah, will start in the next two months.
Lawmakers in the Beehive State held a special session in mid-July and passed legislation forcing online companies to collect sales tax beginning in 2019.
Sandy Republican Rep. Steve Eliason, who sponsored the bill in the state House, said at the time: “It's simply collecting tax that has been and always been owed by the purchaser.”
Utah already collects roughly $140 million in taxes under voluntary agreements with major online businesses such as Amazon and Airbnb. To incentivize those companies, the state has allowed them to keep up to 18 percent of collected sales taxes. That incentive will end once the law requiring companies to collect taxes takes effect in January.
MORE: Online sales tax decision could give Utah another $60 million
But a number of big states, including California, Texas, New York and Florida, do not yet have similar collection requirements in place. As a result, consumers shopping online from those states and others that have yet to act may not be charged sales tax on some websites for a little longer.
Online shoppers in those states — particularly those making expensive holiday purchases televisions, computers and luxury goods — may be motivated to try to purchase from a website that isn't charging them sales tax. While that may look a sweet tax savings, shoppers are generally supposed to pay the tax to the state themselves, but few do.
Etsy, eBay, Amazon in states' sights
Still, it's getting harder to find sellers that aren't collecting sales tax online, said lawyer Eric Citron, who was involved in the Supreme Court case. And Citron said it will become even harder in 2019, with more states putting in place expanded sales tax collection requirements.
States also have websites such as eBay, Etsy and Amazon in their sights.
Amazon collects sales tax when customers purchase goods it sells, but third-party retailers selling products on Amazon make their own sales tax collection decisions. Sellers on eBay and Etsy also make their own decisions.
Now states are working to require those large marketplaces to collect taxes on behalf of sellers using their platform.
“States tend to use the powers that the Supreme Court gives them, especially when it comes to collecting taxes,” Citron said.
Associated Press reporter Julian Hattem contributed to this article.
Where to save big this Cyber Monday
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Your holiday shopping sales tax wrap up
The mad-dash 2019 holiday shopping season is here, when retailers bag roughly 30% of their sales for the year. Total sales in November and December could exceed $727.9 billion, or perhaps even $1 trillion. And more of them will be subject to sales tax than ever before.
- More than 165 million people are predicted to shop Thanksgiving Day through Cyber Monday, spending about $29 billion online.
- Total online sales during the holidays are expected to be between $162.6 billion to $166.
9 billion, roughly $20 billion more than in 2018.
- An estimated 39.6 million people may shop Thanksgiving Day.
- 114.6 million people are expected to shop on Black Friday. Sales could reach $7.5 billion — a 20% increase over 2018.
- Cyber Monday sales could approach or exceed $10 billion. The busiest period will ly be 7 p.m. to 11 p.m. PST.
- Cyber Monday sales are expected to spill into Cyber Tuesday.
- Mobile sales this holiday season will ly increase by $14 billion over 2018.
- Out-of-state sellers may have to collect and remit sales tax in up to 42 states.
Sales tax for the 2019 holiday season
In 2018, 20 states required certain remote sellers to collect and remit sales tax:
- 14 states were enforcing economic nexus prior to the start of the holiday shopping season (plus one state that didn’t tell anyone it was enforcing it)
- 4 states started enforcing it on November 1, 2018
- 1 state started enforcing it on December 1, 2018
Today, 42 states require certain remote sellers with no physical presence in the state to register with the tax department and collect and remit tax on their sales in the state.
The states that don’t require remote sales tax are the five states that lack a general sales tax — Alaska (though local sales tax may apply), Delaware, Montana, New Hampshire, and Oregon — as well as Florida, Louisiana, and Missouri.
Thus, more retailers than ever before will have to deal with sales tax in more states during the holiday rush; and as the numbers above reveal, sales are expected to be strong this holiday season.
Walking the line
Most states require remote sellers to collect sales tax only if the seller surpasses a certain threshold of sales in the state during a set timeframe (the economic nexus threshold). For example, Virginia’s economic nexus threshold is $100,000 in retail sales of goods or taxable services or 200 transactions of the same in the current or previous calendar year.
While this is undoubtedly a relief for small retailers selling safely below the economic nexus threshold, it adds a layer of complexity to businesses whose sales into an economic nexus state walk the line. They need to constantly monitor their sales into such states.
Once they cross a state’s economic nexus threshold, retailers need to register with the state and prepare to collect and remit sales tax within a specific time. For some states, that may be the very next sale, although other states give businesses more leeway.
With approximately 30% of most sellers’ annual sales taking place in the coming weeks, the lihood that an economic nexus threshold will be crossed in one or more states is high.
Tip: If there’s a spare minute, figure out how close you are to crossing economic nexus thresholds in all states where you make sales but aren’t registered. This will help crystalize which states need to be watched most closely, and where it may make sense to register to collect now, before the onslaught begins.
How economic nexus impacts marketplace sellers
There’s another complicating factor: Most of the states that have economic nexus now require marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers.
Retailers that only sell through a marketplace that collects on their behalf aren’t required to register in some states, such as Alabama. However, they do have to register in other states, such as California. And in some states, registration requirements for marketplace sellers aren’t yet clear.
Businesses that make direct sales in addition to marketplace sales are required to register and collect due on those sales if they have an obligation to collect sales tax (e.g., economic nexus or a physical presence). They may or may not need to report marketplace sales that are taxed by the marketplace facilitator — it depends on the state.
Tip: Because every state marketplace facilitator law is unique, circumstances that require registration in one state may not in another state. The only way to know for sure is to study state marketplace facilitator laws and registration requirements for marketplace sellers.
The holidays are often hectic, especially for retailers. Understanding and preparing for the new remote sales tax reality can help make the 2019 holiday shopping season a success.
Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author Gail Cole
Gail Cole is a Senior Writer at Avalara. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals.