While the world has been dealing with the impacts of the COVID-19 pandemic, online retailers have been dealing with an additional issue: the tax implications of increased ecommerce.
As a result of stay-at-home orders, social distancing and health concerns, consumers have turned to online retailers for their shopping. Many of these retailers have seen huge spikes in business, which proved to be a well-timed life preserver as the economic effects of the pandemic took hold last year.
However, in the long term, this jump in sales has created additional tax liabilities and headaches for small retailers that were unprepared to handle it.
According to Digital Commerce 360, consumers spent “$861.12 billion online with U.S. merchants in 2020, up an incredible 44.0% year over year.”
While online retail has been steadily gaining traction over the last handful of years, there’s no question that 2020 was a landmark year. This sort of overnight change (as it was for many retailers offering essential goods) is hard to adapt to, even for larger companies. For a small or mid-sized company, the increased ecommerce can be overwhelming.
Many states offered sales tax filing or payment extensions, as well as penalty or interest waivers to mitigate the impact increased ecommerce had on retailers. However, many of those extensions and waivers have since run their course and businesses are now expected to handle the full brunt of their tax liabilities. Only a few states are continuing to offer tax relief for business impacted by the pandemic, including California, Maryland, Massachusetts, New Mexico, and New York.
When the pandemic hit, many retailers saw increased business. They also suddenly found themselves triggering economic nexus in states they previously did not have it.
We’ve frequently discussed the burden that economic nexus, marketplace facilitation and other Wayfair-inspired laws have created for small retailers. Much of the burden comes from the fact that each state imposes its own rules and regulations, creating a complicated web that’s hard for even experts to unweave. Now multiply that level of complication many times over. That’s what online retailers are dealing with today.
Looking to the future, we expect that the economic impact of the pandemic will be far reaching and that taxes on ecommerce will be an even more important revenue stream for states. As a result, states will likely become even more aggressive when it comes to tax compliance.
So, where does this leave small online retailers? The best way for small business owners to protect themselves is to be proactive about multi-state sales tax compliance and if needed, contact a professional for assistance with their tax liabilities.
If you have questions regarding your online sales tax liabilities, or any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
