There are certain years (and events) that represent significant shifts in business, where there was a way things were done — until everything changed.
In an interview with PYMNTS, Liz Armbruester, senior vice president of Global Compliance at Avalara, said 2019 represented a watershed year for tax compliance as states embraced the economic nexus model and passed marketplace facilitator laws. The ground zero, of course, was Wayfair, the 2018 case in which the Supreme Court ruled online retailers could be mandated to collect sales tax — and taxes could be levied by states on firms that do not have physical presence in those states.
“Going back to 2018, it was kind of like the world exploded,” Armbruester told PYMNTS, with a nod toward the Wayfair decision. “We knew it was going to happen. We knew that economic nexus was going to happen. And 2019 was about ‘How does each and every state take that opportunity and figure it out for themselves?’”
The New Normal
Imposing state taxes on out-of-state sellers is now the new normal, she said.
For the states, “figuring it out for themselves” has meant establishing everything from effective dates for new policies to take effect, to thresholds, to exemptions.
“All of the states do it differently,” she told PYMNTS. “And we’re not done.”
That’s because there are still two states — Florida and Missouri — that have yet to finalize their own economic nexus initiatives. Other states are tinkering with laws already in place post-Wayfair. In other examples of how patchquilt the landscape still is, Armbruester stated that Texas is on the cusp of changing its policies, with a uniform local tax rate to be implemented. Georgia stands ready to lower its remote seller sales threshold and eliminate some reporting requirements as of January 2020.
Even the consequences of non-compliance can be fragmented. Armbruester said states have adopted several strategies to target companies that do not collect what is owed. Some states have grace periods in place for individual sellers to embrace, while in other states, tax authorities may opt to go after the online marketplaces themselves rather than pursue individual firms.
It can all be unsettling for online sellers as well as online marketplaces, which are likely to increasingly be in state authorities’ crosshairs.
State taxation officials, she said, are looking at the marketplace facilitators and determining that these platforms can centralize, collect and remit taxes to the states as quickly as possible.
“At a minimum the marketplace facilitators are having to calculate the taxes owed, and at a maximum they have to remit and report,” she said. “These marketplaces do not, inherently, have that ability. They didn’t build marketplaces to facilitate tax collection — they did it to facilitate sales.”
The urgency is palpable; as many as 38 states have mandated that marketplace facilitators have a role (and liability) in the cycle of tax compliance.
It is early days yet, she said, but at least some marketplaces have been embedding tax calculation and other activities into the services they provide merchants, with a nod toward the fact that such activities simply lie beyond the scope of smaller firms’ expertise. Others are moving into more complex scenarios, such as reporting transactions, or collecting taxes on the behalf of sellers.
“The marketplace may be the piece of the puzzle” that tips merchants toward tech-driven automation solutions (such as Avalara) that ensure compliance, she predicted.
Cross Border Complexity
There will be another tailwind and challenge in tax compliance that lies just over the horizon, especially as commerce moves inexorably toward a global stage. She noted the hurdles of complexity are not just contained within the United States.
Cross-border commerce, said Armbruester, is slated to be as much as 15 percent of the online retail market.
“We want things now, and we want them from everywhere,” she said, stating firms that want to sell across borders have to take VAT, tariffs and other costs of doing business into their strategic plans.
Firms that are based in the U.S. but sell across borders — and their marketplace facilitators — will see a European arena in which tax collection and mandates vary from country to country.
“It’s a compliance journey,” she said, that must be navigated as firms look at classification data, how items are coded, how and where goods and services are sold, and where those sales are taxable. “All of this is content, and content can be automated” by firms like Avalara.
Wayfair has represented a pivot point for a lot of companies operating state side or across borders, said Armbruester, with the realization that compliance may be just too much to manage without an embrace of automation.
Looking ahead, in the post-Wayfair world, and coming into a new decade, automation of tax compliance is neither a “nice to have” or a luxury for sellers and/or marketplaces. They have to have something powered by artificial intelligence (AI) to streamline operations. Accurate sales tax calculation and collection, powered by AI and other technology, can help professionals better navigate the fragmented (and still evolving) landscape.
“As a business, the last thing you want to focus on is the sales and use tax,” Armbruester told PYMNTS. “You want to focus on your business itself.”