Imagine scaling a towering mountain. The journey is fraught with challenges, requiring meticulous preparation, resilience, and continuous vigilance. In many ways, this mountain-climbing expedition mirrors the daunting path of eCommerce businesses seeking to navigate the complex terrain of sales tax compliance.
With the US eCommerce market set to grow at a CAGR of 14.7% by 2027, it’s understandable that it’s a mountain so many businesses want to scale.
And just as with actual mountain climbing, the steps to sales tax compliance can be split into surprisingly similar stages.
Stage 1: Preparation – Nexus Checks and Jurisdictional Complexities
In mountain climbing, the preparation stage involves understanding the terrain and knowing the challenges you’ll face. Similarly, in eCommerce sales tax compliance, the journey begins with laying the foundation of the journey ahead.
Establishing your existing nexus
Establishing nexus is the foundation of sales tax compliance. To do that you need to determine in which states your business has created either a physical presence (such as a n office or warehouse or employees) or an economic nexus (crossing the revenue threshold or a specific number of transactions). Different states have varying rules for what constitutes nexus, so a thorough nexus check is essential.
Understand the impact of a borderless business
eCommerce businesses often operate in a borderless environment, reaching customers nationwide. This expansion brings both opportunities and challenges, because each state has its own nexus regulations and sales tax laws that determine the taxability of products and eCommerce transactions. So just because your products aren’t subject to sales tax in one state, doesn’t mean they’re exempt in the next state over.
Checking your compliance toolbelt
Just as mountain climbers acquire the right gear for their ascent, eCommerce businesses need the right tools for compliance. This can be in the form of time-consuming and error=prone spreadsheets or streamline automated sales tax compliance software.
Stage 2: Base Camp – Registering as a Sales Tax Collector and Keeping Compliance Top of Mind
For mountain climbers, the base camp serves as a hub for supplies and a starting point for the final ascent. Similarly, in eCommerce sales tax compliance, this stage acts as the point of departure before the journey begins.
Registering for sales tax permits
Once that nexus has been created, you need to register for a sales tax permits with the tax authorities in those states. Registering in the appropriate jurisdictions is like securing your base camp, ensuring you’re on solid legal ground as you navigate the complex terrain of sales tax.
Aligning compliance with business growth
Just as climbers rest and regroup at base camp, businesses need to assess their growth and adjust compliance strategies accordingly. As your eCommerce business expands, your sales tax obligations evolve.
Where it may be easy to keep track of tax obligations in one or two states, that task becomes increasingly complex the more states you reach, especially when you establish a nexus in a state with sales tax regulations drastically different from the ones you’re used to.
Stage 3: Advance Base Camp – Monitoring Liabilities and Nexus Triggers
The advance base camp is positioned higher up the mountain, midway on the climbers’ journey. It provides a breathing point for climbers to gather their wits and strengths as they embark on the big climb. Similarly, this stage represents an elevated phase for eCommerce sellers, where you revisit the foundation created in Stage 1 and 2 as the business grows.
Take continuous monitoring seriously
As you advance in your eCommerce operations, you need to establish a practice of continuous monitoring. Just as climbers need to keep a constant watch on the changing weather conditions, you must stay vigilant in tracking your sales tax liabilities. This involves regularly reviewing your sales transactions, new sales channels, customer locations, changes in product offering, and any shifts in your business model that might trigger new compliance obligations.
Increased operations call for increased compliance controls
Elevating to the “advance base camp” often means expanding your eCommerce business to operate in multiple states. This creates a more complex tax landscape with diverse rules and regulations. Keeping track of diverse multistate tax laws and keeping meticulous records of exemptions and sales tax remittance becomes trickier as the business expands.
Stage 4: Summit Push – Collecting, Remitting, and Navigating New Sales Tax Waters
As the name suggests, the summit push is the final ascent to the peak. For eCommerce businesses, this stage represents “ground zero” of the sales tax journey, where sales taxes are calculated, collected, and remitted.
Collecting the right amount of sales tax
Similar to climbers making their final ascent and facing extreme conditions, your eCommerce business must ensure that it collects the right amount of sales tax. This involves accurately calculating the tax due on each transaction, accounting for varying tax rates, exemptions, and complex tax rules in different states and jurisdictions.
Remitting taxes on time
Just as climbers must adhere to a strict schedule during the summit push to make the best of weather conditions, businesses must remit the sales tax collected on time. Failure to do so can result in penalties and compliance issues.
Double-checking exemptions and resale certificates
Navigating new sales tax waters often means dealing with exemptions and resale certificates. Ensure that you have a process in place to confirm the validity of exemptions claimed by customers and to manage resale certificates accurately. This helps you avoid over-collecting tax on exempt transactions.
Stage 5: Descent – Monitoring and Continued Audit Readiness
In mountain climbing, the descent is as critical as the ascent, and the same holds true for eCommerce sales tax compliance.
Sales tax audits happen when you least expect them, and your business must be prepared for them, similar to climbers who are ready for unexpected weather changes and the risks inherent to the landscape. Comprehensive record-keeping, accurate transaction data, and compliance with sales tax laws help you stay audit-ready and manage the process efficiently if a sales tax audit occurs.
Just as climbers need to adapt to changing conditions during their descent, eCommerce businesses should remain informed about evolving tax laws, rate changes, and compliance requirements as eCommerce and digital business operations become a more established part in the US tax landscape. Continual learning is essential to maintaining accurate compliance.
Complyt is here to help you scale your mountain
Scaling a mountain and managing eCommerce sales tax compliance for a growing business draws more similarities than you’d expect.
But every climber knows that you don’t climb Everest alone. That’s why complyt is here to scale that mountain with you.
Having access to expert guidance is invaluable when working with a borderless clientbase. With Complyt, you get the advantage of streamlined, automated sales tax compliance as well as access to a team of tax experts that can help you make the most of the tax advantages and exemptions available in the eCommerce marketplace.
So get in touch with us today and let’s help you scale your mountain for continued growth and sales tax compliance.