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1、The ecommerce explosion of recent years has led many companies to sell online in new ways and in new markets,increasing the risk of failing to comply with ever-changing tax regulations.Heres how to avoid 10 common mistakes.B2BCOMMERCE 360Ecommerce and tax compliance:10 common mistakes and how to avo
2、id in the U.s.and abroad have made many chanGes to compliance rUles in recent years to adapt to the rapid Growth in online sales.In some cases,theyve made collecting and remitting taxes more straightforward for online sellers,and in other cases more complex.While these developments may seem to prima
3、rily concern tax managers,they can have company-wide implications within ecommerce organizations.That includes retailers and consumers brands based in the U.S.,whether they sell domestically or internationally,and for sellers based abroad that sell to U.S.online shoppers.Regardless of a companys hea
4、dquarters,if your business plans to add new products,change suppliers,or enter new global markets,those initiatives can impact compliance obligations.That means its crucial for companies selling online to have a broad understanding of tax developments.They aim to maximize their tax revenue while min
5、imizing the cost of collection.DISCLAIMER:Tax rates,rules,and regulations change frequently.Although we hope youll find this information helpful,this report is for informational purposes only and does not provide legal or tax advice.3Ecommerce and tax compliance:10 common mistakes and how to avoid d
6、evelopments are primarily responsible for this dramatically changed tax landscape in the United States.First,was the U.S.Supreme Courts 2018 Wayfair decision,which held that even companies with no physical presence in a statesuch as a store,warehouse,office,or remote employeescan be required to coll
7、ect and remit sales tax on online orders.Since then,all 45 U.S.states with statewide sales tax have passed laws requiring remote sellers to collect and remit tax.Thats exposed online sellers to the regulations of not just 45 states,but also 13,000 taxing jurisdictions within the U.S.And tax rates ca
8、n vary by jurisdiction.The Wayfair decision has changed the way 83%of U.S.-based companies do business,according to a May 2022 survey sponsored by Avalara.Second,online sales soared during the pandemic as many consumers purchased online rather than going to physical stores.Global online retail sales
9、 rose more than 55%in the first two years of the pandemic,from$3.351 trillion in 2019 to$5.211 trillion in 2021,according to Insider Intelligence.In the U.S.,retail ecommerce sales increased by more than 50%,from$578.5 billion in 2019 to$871.0 billion in 2021,according to the U.S.Department of Comme
10、rce.In 2022,online penetration of U.S.retail sales remained at 20.6%in the second quarter of the year,up dramatically from 14.3%in Q2 2019,the last year before the pandemic struck,according to Digital Commerce 360.That calculation excludes items rarely purchased online such as spending in restaurant
11、s and bars,and purchases of vehicles,gasoline,and heating fuel.And its not just consumers buying more online,so are businesses,government agencies,nonprofits,universities and school districts.4Ecommerce and tax compliance:10 common mistakes and how to avoid sales to those buyers are considered busin
12、ess-to-business ecommerce,and that also increased dramatically during the pandemic:B2B ecommerce sales in the U.S.grew to$1.95 trillion in 2022 from$1.26 trillion in 2019,an increase of 55%,according to Digital Commerce 360.This big shift to online buying by both consumers and enterprises led many c
13、ompanies to expand the selection of goods and services they offer online and to expand into new markets.With supply chain disruptions snarling factories and ports,many purchased from new suppliers or found themselves selling to other companies that were short of merchandise.*Total retail figures exc
14、lude sales of itesm not normally purchased online such as spending at restaurants,bars,automobile dealers,gas stations and fuel dealers.Source:Digital Commerce 360 analysis of U.S.Department of Commerce data;August 2022.ECOMMERCE PENETRATION OF RETAIL SALES RISES DURING COVIDEcommerces share of tota
15、l retail sales by quarter,Q1 2019-Q2 2022Q12019Q2 2019Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q2 2021Q3 2021Q4 2021Q12022Q2202214.6%14.3%15.0%17.3%16.6%21.3%20.2%22.7%21.2%20.4%20.0%22.2%21.0%20.6%5Ecommerce and tax compliance:10 common mistakes and how to avoid them those shifts in business strat
16、egy have tax implications.Little wonder companies selling online are struggling to stay abreast of how to properly register with tax authorities,report what they owe(or dont owe),and then remit any funds due to tax collectors.This white paper will highlight 10 mistakes online sellers often make and
17、offer advice and resources that can help your company avoid them.Here are the 10 common mistakes we will cover:1.Failing to account properly for new products and services2.Mismanaging tax-exemption certificates3.Not collecting sales tax in all states where its due4.Incorrectly collecting sales taxes
18、 on digital goods5.Improperly charging tax on delivery charges6.Failing to account for goods held by third parties when determining nexus7.Continuing to report when its not required or de-registering too soon8.Not keeping track of costs on marketplace sales9.Using outdated product codes when selling
19、 internationally10.Not registering or filing properly with international authorities1.Failing to properly classify new products and servicesMany companies responded to the pandemic-driven shift to online shopping by either selling online to consumers for the first time or by expanding the selection
20、on their websites.Among those entering ecommerce were many small independent brick-and-mortar merchants,but also some large consumers brand manufacturers that began selling directly to consumers.In either case,they ran smack into the complexity of sales tax in the United States.A clothing manufactur
21、er,for example,that decides to sell directly to online shoppers would find that some states impose sales tax on apparel and others do not.Some states exempt clothing purchases under a certain amount.In New York State thats$110,in Rhode Island$250.6Ecommerce and tax compliance:10 common mistakes and
22、how to avoid them constitutes clothing also varies.While Massachusetts,Minnesota,New Jersey,Pennsylvania,Rhode Island,and Vermont generally exempt clothing from sales tax,that exemption does not apply to sports apparel.In addition,many states declare sales tax holidays at certain times during the ye
23、ar,particularly in the late summer or fall as parents shop for their kids returning to school.During that period,clothing and other products that would normally be taxed,should not be taxed,either in stores or online.Another way companies took advantage of the ecommerce boom was to offer services as
24、 well as tangible goods.For example,some retailers that sold TV sets began offering installation services to their websites.Are those service fees taxed?It depends.Clothing exemptClothing generally taxableClothing sometimes taxable7Ecommerce and tax compliance:10 common mistakes and how to avoid the
25、m four statesHawaii,New Mexico,South Dakota,and West Virginiaservices generally are taxed,unless specifically exempted.In many other states,services tied to installation or repair of physical goods are subject to sales tax.In those states,the TV retailer would have to charge sales tax on installatio
26、n fees.How to avoid this mistake:State revenue departments websites describe their rules and tax rates.But keeping up with the rules for all the states,not to mention the thousands of other taxing jurisdictions,is difficult,to say the least.Specialist firms like Avalara monitor sales tax rules and r
27、ates across all jurisdictions and can help you determine the proper way to charge online sales tax across product categories,as well as automated software to apply the proper sales tax to online orders.2.Mismanaging tax-exemption certificatesGoods purchased for resale generally are not subject to sa
28、les tax in the U.S.But companies that plan to resell goods to consumers or other organizations must obtain tax-exemption certificates in all the states where they sell.If you sell online,thats likely every state,as buyers everywhere generally can access your website.If youre selling to organizations
29、 that are not subject to sales taxbesides resellers that often includes nonprofit organizations and government agenciesyou must obtain and store valid exemption certificates from those buyers.Otherwise,revenue collectors can penalize you for not being able to produce valid exemption certificates for
30、 your customers.Managing these certificates has always been a hassle,but it became even more of an issue during the pandemic when many companies sought out new suppliers when their established sources were unable to deliver the merchandise required.Thats ongoing,as 29%of retailers surveyed by Digita
31、l Commerce 360 in the summer of 2022 said they planned to order from new suppliers for the upcoming holiday season.Each state has its own exemption form and rules on how long an exemption lasts.Fortunately,there are 24 states that participate in 8Ecommerce and tax compliance:10 common mistakes and h
32、ow to avoid Streamlined Sales Tax Initiativean organization that seeks to make sales tax compliance less onerous for businesses.Those states accept a common exemption certificatethough in some jurisdictions a company must register to use that certificate.In states not part of the SST,exemption certi
33、ficates from another state may or may not be accepted.Companies selling online to buyers in those states must become familiar with their rules.How to avoid this mistake:For starters,all the relevant departments within a company must be aware of the requirement to collect and manage tax-exemption cer
34、tificates.If a procurement agent purchases from a new supplier,that supplier must be provided with the firms exemption certificate.And if the sales department closes a deal with a new reseller,it must collect the buyers exemption certificate.Using the SST exemption certificate can make compliance ea
35、sier in the 24 participating states.Beyond that,companies like Avalara provide software for managing certificates that can ensure your company has the needed certificates and that they are all up to date.3.Not collecting sales tax in all U.S.states where its dueOnline sellers generally must collect
36、sales tax in U.S.states where they have nexusthe legal term for when a company has a meaningful connection to a state.The rules determining whether a company has nexus keep changing.That makes it easy for companies to wrongly assume they dont have a responsibility to collect sales tax when selling t
37、o buyers in a particular state.Before the 2018 Wayfair decision,nexus stemmed mainly from having a physical presence in a state,such as a store,office,or warehouse.In its decision,the U.S.Supreme Court ruled that any remote company that sold$100,000 worth of goods annually to South Dakota residents
38、had an economic connection to the state.Since then,all states with sales taxes have passed their own economic nexus laws.However,the threshold amount varies by state,reaching as high as$500,000 in California,New York and Texas.9Ecommerce and tax compliance:10 common mistakes and how to avoid additio
39、n,there are several nuances to these economic nexus thresholds that can trip up online sellers.One is whether to account for sales that are exempt from taxation.Some states say a company reaches the nexus threshold when its gross salesincluding sales exempt from sales taxexceed the specified amount;
40、others only count sales subject to sales tax.Another area of confusion relates to sales on online marketplaces like Amazon and eBay.All sales tax states now have so-called marketplace facilitator laws that require the marketplace operator to collect tax on sales made by merchants on their platforms.
41、That saves the states the trouble of pursuing hundreds of thousands of largely smaller companies that sell on these online marketplaces.However,20 states count the sales a company makes on marketplaces when calculating whether a company has reached its nexus threshold,and others do not.In Colorado,f
42、or example,if a company sells$50,000 to Colorado residents via A and$50,000 via its own website it would reach the$100,000 threshold for collecting and remitting.However,in Arizona,only the$50,000 in sales from the companys website would count,and the firm would not have nexus.Its easy for businesse
43、s to slip up if they dont track each states rules on whether to count tax-exempt and marketplace sales in the nexus calculation.Two other common errors related to physical nexus,one involving merchandise held in a state and another to remote employees.In 20 states,a marketplace seller whose inventor
44、y is held in the warehouse of a marketplace operator,such as Amazon or eBay,is deemed to have physical nexus in the state and required to collect and remit sales tax.10Ecommerce and tax compliance:10 common mistakes and how to avoid issue is still in flux.In September 2022 a Pennsylvania court held
45、that simply having inventory in a Fulfillment by Amazon warehouse in the commonwealth does not mean the seller has nexus for tax purposes in Pennsylvania.The second issue relates to changes states are making as the pandemic recedes.Many states consider a company to have nexus if it has employees in
46、the state,but several states waived that rule in the early stages of the coronavirus outbreak,when many people were working remotely.Many of those waivers now have lapsed,so that,in Pennsylvania for example,a remote employee does establish nexus for a company,even if it doesnt have any other physica
47、l presence in the commonwealth.How to avoid this mistake:Keeping up with the ever-changing nexus rules in every state is a tall order for most companies.Software and services that track client companies online sales by state can ease the burden.Avalara,for example,tracks client companies sales in ea
48、ch jurisdiction for purposes of determining nexus.Clients can see on their dashboard how much they have sold that year in each state and receive alerts when they are approaching the threshold that would require them to collect and remit tax in a given state.States where inventory help by marketplace
49、 operator in a state creates physical nexusCalifornia North Carolina VermontGeorgia North Dakota VirginiaIndiana Ohio WashingtonKentucky Rhode Island West VirginiaMichigan South Dakota WisconsinMinnesota Tennessee WyomingNew Jersey Utah 11Ecommerce and tax compliance:10 common mistakes and how to av
50、oid collecting sales taxes on digital goodsConsumers used to buy printed books and music in the form of vinyl records and later tapes or CDs.Now many buy comparable products in digital form,such as e-books or music files.The same is true with games:What used to come in a box now may be downloaded to
51、 a smartphone.Sales tax policies have evolved along with this evolution.Whereas at one time sales tax mainly applied to products you could hold in your hand,now about two dozen U.S.states tax at least some digital goods.Those taxes frequently also apply to software downloads,licenses,training and up
52、grades.What each state taxes and at what rate varies,and laws and regulations are constantly changing.For example,Arkansas and Colorado exempt digital games but ax other digital products such as software.But New York and Massachusetts only tax digital games,while exempting all other digital products
53、.To further complicate matters,some of the rules on digital goods are covered by state laws while others are rules set by the states revenue departmentrules that can change without legislation.Whats more,many states set tax rates based on where the buyer is located and others on seller location.Sinc
54、e someone who lives in Missouri might be vacationing in Ohio when she downloads an e-book,the online seller needs to know whether Ohio applies tax rates based on the buyer or sellers location and charge tax accordingly.These inconsistencies and complexities make it devilishly difficult for companies
55、 selling digital goods to know when to tax a transaction and at what rate.Its hard to imagine that all sellers are getting those taxes right.One final note:Digital goods evolve rapidly.A clear example are NFTs,non-fungible tokenswhich means they cant be alteredwhose authenticity and security is guar
56、anteed by the kind of blockchain technology behind Bitcoin and other cryptocurrencies.An NFT can be an image of an object or a design,or it can convey to the holder access to services,such as tee times at a golf course or dinners at a private club.12Ecommerce and tax compliance:10 common mistakes an
57、d how to avoid sales of NFTs reached nearly$25 billion in 2021,according to market research firm DappRadar,and that kind of money is going to attract the attention of tax collectors.The problem is revenue collectors in U.S.states,including the multistate SST,have yet to define what an NFT is or unde
58、r what conditions a sale might be taxed.If tax authorities fail to make clear their stance on NFTs and sales of the tokens grow,it could be“another Wayfair”when a decision finally comes down on how or whether to tax NFTs,says David Lingerfelt,senior director of North America tax content at Avalara.F
59、or now,any company engaged in the sale of NFTs will want to keep a close eye on regulators thinking.How to avoid this mistake:The 24 Streamlined Sales Tax states at least have adopted common definitions for digital goods,so sellers of such products will want to be familiar with those definitions.How
60、ever,the SST states still tax these products differently.In general,sellers of digital goods either must keep track of each states rules and rates as they apply to these products or use tax software from firms like Avalara to ensure they are applying the correct tax.5.Improperly charging tax on deli
61、very chargesIs the delivery fee on an online order subject to sales tax in the U.S.?It depends.States that generally tax digital goodsAlabama Missouri PennsylvaniaArizona Nebraska South DakotaConnecticut New Jersey TexasHawaii New Mexico UtahIowa North Carolina WashingtonLouisiana New Hampshire Wisc
62、onsinMaine New York WyomingMaryland Ohio Washington DC13Ecommerce and tax compliance:10 common mistakes and how to avoid them tend to tax delivery of taxable items and not fees for shipping tax-exempt items.When an order contains both taxable and non-taxable items,the portion of the delivery fee ass
63、ociated with the taxable products is subject to tax.But many states have their own variations on those general rules.In some states,it depends whether the shipping fee is separated on the invoice from the cost of the product.If the shipping fee is broken out separately,states such as Arizona,Colorad
64、o and Iowa exempt the fee from sales tax.But Connecticut,Georgia,Indiana,and several other states require that the shipping fee be taxed,whether or not its broken out separately.And many states have idiosyncratic rules that can easily trip up online sellers.Here are some examples:In Maine,a separate
65、ly stated shipping fee is exempt from tax if the order is delivered by a common carrier,such as UPS or FedEx.But its taxable if the seller delivers the parcel in its own vehicle.In Florida,delivery fees generally are taxable.However,they are not taxed if the fees are stated separately and the buyer
66、has the option to pick up the order.California exempts delivery fees from taxation when these three conditions are met:the product is delivered by a common carrier or the U.S.Postal Service,the delivery charge is broken out and the fee is not more than the actual cost of delivery.Handling charges an
67、d any delivery fees above actual cost of delivery are taxed.In some cases,the portion of the delivery fee that applies to actual delivery costs may be exempt,while additional charges are taxed.In Massachusetts,too,shipping fees that exceed the actual cost of delivery are taxable.Just to make matters
68、 more complicated,a Colorado law that took effect July 1,2022,requires that any company shipping an order via a motor vehicle to a Colorado resident must charge an additional 14Ecommerce and tax compliance:10 common mistakes and how to avoid them fee that must be broken out separately on an invoice
69、or website checkout page.That means any online seller will have to identify shipping addresses in Colorado,add that fee and remit it along with the other sales taxes it collects.How to avoid this mistake:Its important for any company selling online to monitor its cost for each delivery,at least in s
70、tates like California and Massachusetts that only exempt from taxes the actual cost of delivery.More broadly,any company selling online must stay on top of every states rules on delivery fees.Tax-automation software from Avalara and others builds in the rules for each state,determines whether and ho
71、w much of a delivery fee is taxable,applies the tax rate and reports delivery taxes collected.6.Failing to account for goods held by third parties when determining nexusAs consumers have become increasingly accustomed to buying on multi-merchant online marketplaces like Amazon,eBay and Etsy,more and
72、 more retailers and brands are offering their wares on these shopping portals.And its not just small entrepreneurs operating from their kitchen tables.In 2021,1,168 of the Top 2000 North America-based sellers by online retail volume were selling on at least one marketplace,according to Digital Comme
73、rce 360.And that included three-quarters of Top 2000 consumer brand manufacturers,which tend to be midsized and larger companies.Tax collectors have figured out its easier to collect taxes from a handful of big marketplace operators,such as Amazon,rather than the nearly 2 million merchants that sell
74、 on Amazons worldwide sites.With that in mind,all the U.S.states with sales taxes(and some other countries including the United Kingdom)have passed marketplace facilitator laws that put the burden of tax compliance on the marketplaces.15Ecommerce and tax compliance:10 common mistakes and how to avoi
75、d them generally makes life easier for sellers,as the marketplace operators take responsibility for calculating,collecting,and remitting sales taxes on sellers behalf.But it doesnt mean there arent complexities that can trip up marketplace sellers.A big one is whether storing inventory in the wareho
76、use of a marketplace operator or other third-party logistics provider triggers a requirement to register with the state,even if the marketplace operator remits tax revenue.As with most everything related to online sales tax,the rules vary by state.Companies that only sell online through marketplaces
77、 must register in eight states,whether or not they keep inventory in that state.In another nine states,registration is required only if the seller has inventory in the state.That impacts many marketplace sellers,as Amazon alone operates more than 1,250 warehouses of various types in the United State
78、s alone,with facilities in more than 40 states,according to logistics consulting firm MWPVL.Further complicating matters is Amazons practice of“commingling”identical products stored by different sellers in various warehouses.Heres how it works:Two sellers offer the identical product on A,with Seller
79、 As inventory in an Amazon warehouse in New Jersey and seller Bs merchandise in a Washington state facility.A shopper in Oregon orders the product from Seller A.Amazon may ship the item from the Washington warehouse,taking it from Seller Bs inventory,and digitally adding an item from the New Jersey
80、inventory to Seller Bs stock.The question is:Does that give Seller A,the one whose inventory was in New Jersey,nexus in Washington?Washington tax authorities have decided that it does,even if the assignment of the inventory to Seller A was merely an accounting entry.Tax authorities are still learnin
81、g about online marketplaces and their regulations will no doubt evolve over the coming years.The many 16Ecommerce and tax compliance:10 common mistakes and how to avoid them selling on marketplaces must develop procedures to keep up with this rapidly changing compliance arena.How to avoid making thi
82、s mistake:Amazon provides information for sellers about where their inventory is stored on SellerC and Sell.A.Avalara can help companies evaluate how marketplace sales impact their compliance obligations and provide a variety of services,such as managing tax registrations in states where its require
83、d.7.Continuing to report when its not required or de-registering too soonSales tax laws keep changing as states streamline the processes they put in place since the 2018 Wayfair decision.As a result,some sellers that have registered in a state can de-register.But its not always easy to know whether
84、you can de-register and,if so,when.There are several reasons why an online seller may no longer be obligated to register and report its sales.A retailer may close a store,office,or warehouse,eliminating its physical nexus there.Or employees who may have been working remotely in that state,may have r
85、eturned to the home office,again eliminating the connection to that state.With the passage of marketplace facilitator laws,most states no longer require a seller to register if its only sales in the state are through marketplaces.Companies that previously registered,may now be able to de-register.Bu
86、t when can you de-register?It varies.In a handful of states,a companys tax-compliance obligations end when its physical nexus ends,so they can stop reporting immediately once the condition that caused nexus ends.Among those states are New York,Tennessee,Vermont,and Virginia.But at least 35 states re
87、quire sellers to continue to report for some time after nexus ends.For example,they must report for an 17Ecommerce and tax compliance:10 common mistakes and how to avoid them 11 months in Michigan and Minnesota.In some states,the reporting requirement continues through the entire calendar year after
88、 nexus no longer exists.A company should check the rules in each state where before letting its registration lapse.Home rule makes it more complexWhile in most states online sellers only have to report to the state revenue department,there are six states where local governments both impose their own
89、 sales taxes and collect them as well.That means in some cases sellers may have to register in those localities.Those states are Alabama,Alaska,Arizona,Idaho,Louisiana,and Colorado.Most of these states have made it easier by allowing a company with online sales to register through a single online po
90、rtal and remit to the state,not each locality.But there are variations.For example,not all taxing localities in Colorado participate in the centralized system.And in Alabama a remote seller must register with the Simplified Seller User Tax system to file a unified return;a company that doesnt regist
91、er,must still report to each locality where it has sales.Alabama also changed its law in 2021 so that companies selling in the state must renew their sales tax registrations every year.In many other states,a seller need only register once.You need to know the rules in every state where you sell.How
92、to avoid making this mistake:For starters,be aware that the rules keep changing and that your company may need to register where it hadnt before or be able to de-register in states where it had previously signed up.As for how to keep up with the rules,a tax attorney should be abreast of state-by-sta
93、te laws,and there is valuable information available for free on the A website and from organizations like the Sales Tax Institute.18Ecommerce and tax compliance:10 common mistakes and how to avoid them keeping track of costs on marketplace salesThe Internal Revenue Service has for the past decade re
94、quired online marketplaces and payment processors to report payments to individuals and companies who had at least$20,000 in sales in the year and 200 transactions.Those sellers received form 1099-K showing their sales,and that information was reported to the IRS.The aim was to deter tax avoidance.I
95、n 2022,the IRS extended that requirement significantly.Now anyone who sells$600 in a year through an online marketplace or a digital payment processor receives a 1099-K.And,of course,the IRS also gets that information.This change will result in a hobbyist who sells a small number of candles or quilt
96、s on a website like Etsy having to report their income.But it will also impact larger companies.For example,a retailer or consumer goods manufacturer that sells$15,000 in excess inventory on eBay as a one-time liquidation measure will now get a 1099-K from eBay.The important thing to note is that th
97、e 1099-K only reports gross revenue,not costs.Any company that sells through an online marketplace will want to keep track of the cost of the goods sold through that portal,as well as such other expenses as marketing and shipping.The net revenue after deducting costs is what the company should pay i
98、ncome tax on,not the gross revenue on the 1099-K.The 1099-K will also capture sales to buyers exempt from sales tax,such as resellers,government agencies or nonprofit organizations.Sellers will want to keep track of what portion of their sales on all marketplaces are exempt from tax so that they do
99、not pay more sales tax than they actually owe.How to avoid making this mistake:Everyone within an organization involved in selling on marketplaces or liquidating excess inventory should be aware of these changes and the need to track costs and tax-exempt sales.19Ecommerce and tax compliance:10 commo
100、n mistakes and how to avoid them outdated product codes when selling internationallyTo facilitate global trade,the World Customs Organization maintains a set of product codes that more than 200 countries use.Putting the correct code on a parcel being shipped into a particular country ensures that th
101、e destination country will charge the correct tariff.Sounds straightforward so far.But there are more than 40,000 of these 6-digit Harmonized System codes.Plus,many countries add two to four additional digits that enable them to distinguish goods by material,origin,and other parameters.Country-speci
102、fic codes for the United Kingdom,for example,are 10 digits long,and for Japan nine digits.And these codes change every five years.The latest revision took effect in 2022,with the WCO adding 940 HS codes and removing 870.Putting the right code on a product can make a big difference in the tariff char
103、ged.A country may charge a 30%tariff on silk blouses but only 5%on cotton ones.If an online seller uses the generic 6-digit code for blouses the customs agency will default to the highest tariff,in this case 30%.Thus,a seller might end up payingand charging the consumer25%more unnecessarily.Improper
104、 coding of products can lead to charging the wrong duty amount and in some cases delay products from entering the country where the customer lives.That can lead to delays that prompt bad online reviews and undermine customer loyalty,putting the seller at a disadvantage when compared to competitors.T
105、hus,having the correct HS codes for all the products you sell internationally is crucial for competing effectively in cross-border ecommerce.And thats a lucrative and growing market.Polaris Market Research estimates cross-border,business-to-consumer online sales totaled$765 billion in 2021 and will
106、grow by 26.2%annually through 2030.Selling internationally is also appealing because many of North Americas top retailers and brands dont offer their wares to online shoppers in other countries.Only about 46%of the 1,000 leading 20Ecommerce and tax compliance:10 common mistakes and how to avoid them
107、 America-based online retailers and consumer goods manufacturers by ecommerce sales ship to consumers in the United Kingdom,and the percentages are even lower for other countries in Western Europe.That means companies that do master the complexity of cross-border sales wont have to compete with all
108、their North American rivals.One of the complexities to master is putting the right HS code on every shipment to a consumer in another country.How to avoid making this mistake:Avalara maintains an up-to-date database of all country-specific HS codes and can ensure all your cross-border shipments are
109、properly coded.10.Not registering or filing properly with international authoritiesIts not just U.S.states seeking more revenue from online transactions.Governments around the world are imposing new rules to ensure that Source:Digital Commerce 360 2022 Top 1000010%20%30%40%50%60%70%WHERE NORTH AMERI
110、CAS LEADING ONLINE RETAILERS SHIP(Percentage of Top 1000 retailers that ship to each country)62.9%46.3%44.0%43.5%43.2%41.0%38.8%37.3%35.2%33.6%33.3%CanadaUnited KingdomGermanyFranceAustraliaJapanMexicoSouth KoreaIsraelUnited Arab EmiratesChina21Ecommerce and tax compliance:10 common mistakes and how
111、 to avoid them online transactions are reported automatically,so that they can collect all the tax revenue thats due.In many countries this takes the form of e-invoicing rules.These rules require that sellers report to tax authorities all invoices at the same time as they invoice the customer or wit
112、hin a few days of the sale.Initially,these rules in some countries applied only to sales to government agencies and businesses,i.e.,B2G and B2B transactions.But several nations have extended e-invoicing to business-to-consumer(B2C)sales.In Europe,that includes Italy and Hungary,with France taking th
113、at step effective Jan.1,2023.In China,a similar system called e-fapio is now widely in use in B2C ecommerce transactions.Penalties for violating these e-invoicing rules vary by country,but generally include fines and the possibility of a company losing its tax registration and thus the right to sell
114、 within that nation.On a positive note,the European Union has simplified compliance for retailers and brands selling into the EU by creating the Import One Stop Shop that enables non-EU businesses to register once to sell into all 27 countries in the EU,as long as the value of the goods is below 150
115、 euros.IOSS reduces compliance costs and improves the customer experience by ensuring accurate pricing at checkout and faster processing through customs,leading to fewer shipping delays.The UKs Making Tax Digital systemThe United Kingdom has implemented its own,quite significant,changes to how onlin
116、e retailers report value-added tax(VAT),similar to sales tax in the U.S.This is particularly important for North American online sellers as more of them sell to online shoppers in the UK than to any other country in Europe.As of Nov.2022,the UK tax authority,His Majestys Revenue and Customs,will no
117、longer allow ecommerce sellers to file monthly or quarterly tax returns using their old VAT accounts.Instead,every company must be registered with the new Making Tax Digital system and file returns using MTD-compliant software.22Ecommerce and tax compliance:10 common mistakes and how to avoid them m
118、ore,the MTD rules,require that there be an unbroken electronic link between transaction data held in an online sellers accounting system and whats reported on the MTD return.No more manual cutting and pasting of transaction data is permitted.That may require some significant investment in updated ac
119、counting and enterprise resource planning(ERP)systems for companies selling to UK consumers.How to avoid making this mistake:Financial managers within companies selling online internationally must be aware of the proliferation of these electronic tax-reporting regulations.Avalara tracks changes by c
120、ountry and provides software and services to ensure compliance with e-invoicing rules and the UKs Making Tax Digital system.CONCLUSION:ECOMMERCE WILL FACE STRICTER SCRUTINY FROM TAX AUTHORITIESOne thing we can say for sure:As more shopping takes place online,governments will take further steps to en
121、sure they are receiving all the tax revenue they are due from ecommerce transactions.That means executives in every department involved in ecommerce must be aware of potential tax implications of new initiatives.If a company introduces a new product,it must ensure that its tax software is aware of h
122、ow that product is taxed in all the jurisdictions where the firm sells.If it moves into new markets,it must be aware of the rules in that locality.Tax-exemption certificates must be kept up to date whenever a new supplier or exempt customer is onboarded.Whats more,there must be an awareness that the
123、se tax rules are changing rapidly and procedures in place to keep up with new laws and regulations.Doing this manually is daunting,if not impossible.Automated systems are increasingly a must for online sellers,whether theyre selling to consumers,businesses,government agencies,schools,or nonprofit or
124、ganizations.23Ecommerce and tax compliance:10 common mistakes and how to avoid them peek at the immediate futureLooking to the near future,its important for companies to factor in the impact of inflation on tax compliance.As sellers raise prices,theyre likely to reach economic nexus in more U.S.stat
125、es.A company that sold$90,000 in a state last year may exceed$100,000 the following year through prices increases alone,potentially putting that company over tax-collecting threshold for that state.Inflation also may lead more states and local governments to offer sales tax holidays.Many companies s
126、truggle to keep up with the dates of these tax-waiver periods and the products covered in each locality.Thats where a company like Avalara that tracks sales tax holidays can help.Another development weve already started to see is the ending of amnesty programs many states adopted after they began re
127、quiring online sellers to collect sales tax in the wake of the Wayfair decision.Companies that dont get their tax-compliance systems in order are likely to face audits and demands for payment of back taxes.Finally,many online sellers would like to see the rule on online sales tax made consistent acr
128、oss the United States,so that they would not have to comply with rules from 13,000 taxing jurisdictions.Sadly,there seems little movement in that direction in the U.S.Congress.While a nationwide sales tax rate could be set at below the national average of about 9%,thus saving consumers money,any leg
129、islation that looks like a new tax is anathema to many congressional representatives.In all likelihood,online sellers will continue to face a patchwork quilt of tax rates and rules,and stricter enforcement by tax authorities,both domestically and internationally.Software and services that automate t
130、ax compliance figure to be ever more important for companies selling online in the years ahead.AVALARA INTERNATIONAL TAX SOLUTIONSAvalara helps businesses of all sizes get tax compliance right.In partnership with leading ERP,accounting,ecommerce and other financial management system providers,Avalara delivers cloud-based compliance solutions for various transaction taxes,including sales and use,VAT,excise,communications,and other indirect tax types.Headquartered in Seattle,Avalara has offices across the U.S.and around the world in the U.K.,Belgium,Brazil,and India.More information at