When it comes to sales tax for e-commerce, do you have the data and technology you need to stay compliant and avoid fines?
Sales tax compliance is complicated enough independently, let alone when adopting a new sales channel, expanding to a new market, or both, it’s important to do your due diligence on the necessary processes.
However, uncharted fiscal territory is no reason to let opportunity pass you by, particularly when there are technological solutions to make it easier to understand and follow complex, unfamiliar tax laws.
To help better understand the indirect tax challenges of expanding your sales either across borders or across demographics, we’ve interviewed experts at Avalara, a Sana partner specialized in indirect tax solutions: Scott C. Peterson, Director of Governmental Affairs, and Richard Asquith, VP of Global Indirect Tax.
What is B2B e-commerce sales tax?
B2B e-commerce sales tax refers to the tax levied on sales made between businesses over the internet. The tax regulations and rate vary by jurisdiction, but in general, B2B e-commerce transactions are subject to the same taxes as those made in brick-and-mortar businesses. The responsibility for collecting and remitting the tax typically falls on the seller, which is why it especially important to be conscious about the regulations that might apply to your business.
A renewed focus on sales tax and compliance occurred in 2018, after South Dakota vs Wayfair, which stated states can require businesses with a physical presence in their state to collect and remit sales taxes. Prior to the ruling, businesses were only required to collect sales tax in states where they had a physical presence, such as a store or warehouse.
The ruling also consolidated the importance of economic nexus. The concept of nexus, which refers to the connection between a business and a state that gives the state the right to tax the business, is important for B2B e-commerce companies to understand. In addition to physical presence, there are other factors that can create nexus, such as having employees or affiliates in a state.
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Which tax laws should B2B e-commerce businesses be aware of?
For B2B organizations with web stores, it’s important to stay aware and up-to-date on changes within tax regulations, which can vary across countries, and in some cases, even within them. A partnership with Avalara ensures Sana Commerce’s e-commerce platform simplifies tax compliance and provides accessible expertise.
Some of the most important kinds of tax B2B e-commerce organizations should be aware of include:
- Sales Tax: Businesses selling goods or services over the internet are typically required to collect sales tax in states where they have a physical presence, as well as in states where they have economic nexus (significant economic activity) after the South Dakota v. Wayfair ruling.
- Use Tax: In some states, businesses may also be required to pay use tax on goods they purchase for use in their business operations, but do not pay sales tax on at the time of purchase.
- Value-Added Tax (VAT): If a B2B e-commerce business sells goods or services to customers in countries outside the US, they may be subject to VAT in those countries.
- Taxable Property: Businesses should be aware of the types of goods and services that are subject to sales tax in each state, as well as any exemptions that may apply.
What do B2B e-commerce businesses need to know about entering new markets?
Selling overseas opens new avenues for growth, but not without a price. Not understanding and complying with your new market’s tax laws can have serious consequences. There are differences between Europe, the US, the UK, and ANZ to be aware of.
The US Federal Government doesn’t have indirect taxes – in the US, the challenge is keeping up with all the state and local governments that do have this type of tax. There are over 16,000 indirect tax jurisdictions in North America, and many of them have distinct tax rules and rates.
When it comes to selling in the U.S. companies must deal with indirect taxes on a state and local level. This greatly increases complexity. A company must know where to register on a state-by-state basis — sometimes companies are even required to register with cities and counties. In addition, local rules vary, including what gets taxed, how much tax to apply, and how to file a return and pay the tax.
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E-commerce sales tax compliance across regions: what you need to know
In the US, e-commerce sales tax regulations vary by state. Since the exact regulations and requirements for collecting sales tax in each state vary, it’s wise to consult with tax professionals and check the regulations in each state where they have customers. State variances in tax can create variations in:
- The types of goods and services that are liable to tax
- Requirements for: tax, registration with state authorities
- Sales tax returns and tax audit processes
- Reporting timetables and deadlines
- Penalties and fines for non-compliance
In the U.S., the primary challenge is being audited, as well as owing tax, penalties and interest due to noncompliance. Also, in most states it is a crime to conduct business without being registered, and it is a crime in every state to collect the tax without being registeredScott C. Peterson, Director of Governmental Affairs, Avalara
In Europe, e-commerce sales tax is known as Value Added Tax (VAT). The VAT regulations for e-commerce sales in Europe are governed by the EU VAT Directive. Each EU member state sets its own VAT rate, which can range from 15% to 27%. Businesses that make sales above a certain threshold in an EU country are required to register for VAT in that country and charge VAT on their sales.
Under the EU VAT rules, e-commerce businesses must comply with the VAT regulations in each EU country where they have customers. This means that businesses may need to register for VAT in multiple EU countries and keep track of VAT obligations in each country.
For the European countries, not being properly registered will mean potential fines and penalties. Most come with cumulative late interest payments, too. If a U.S. company tries to land stock in one of these countries without the right VAT registration number, the goods will be held up in stockand Richard Asquith, VP of Global Indirect Tax, Avalara
Prior to Brexit, the UK followed much the same process as the EU, and things aren’t too different now. The current standard VAT rate in the UK is 20%. Businesses that make sales above a certain threshold (currently £85,000) are required to register for VAT and charge VAT on their sales. If a business is based outside the UK but sells to customers in the UK, they may still be required to register for UK VAT if they exceed the threshold or if they sell digital services to UK consumers.
Australia & New Zealand
In Australia and New Zealand, e-commerce sales tax is called Goods and Services Tax (GST). Businesses with an annual turnover of AUD 75,000 or more are required to register for GST and charge GST on their taxable supplies, which includes most goods and services sold in Australia. This applies to businesses located both inside and outside of Australia that sell goods and services to customers in Australia.
The solution to simpler e-commerce sales tax compliance
Tax automation is one solution to making e-commerce sales tax compliance simpler. As Asquith explains, “Avalara goes to the heart of the indirect tax compliance challenge. It can accurately calculate the VAT or sales tax amount due at the time of the transaction, and then help produce a fully compliant return at the end of each month or reporting period. This means companies do not have to track all the local legislation, tackle foreign language obstacles, or manually try to file tax returns.”
Your e-commerce tooling should also make it as simple as possible for you to calculate sales tax on customer orders. Sana Commerce ensures sales tax compliance is made as easy as possible for both your customers, as well as your finance teams.
Here’s a quick overview on web store features that demonstrate this:
- Accurate & immediate sales tax calculation
Let clients see the real price, right away. The seamless integration between your Sana store and your ERP system means that if your clients are logged in or have their address data, they immediately see the sales tax calculated by your ERP system or specialized add-on when they add items to their shopping carts.
- All shipping fees upfront
Don’t let unexpected shipping fees be an obstacle on your client’s path to purchase. Sana Commerce uses your ERP’s business logic to display the correct fees up front every time, no matter how complex the calculation. For carrier-calculated shipping, you can also use our add-ons for real time integration with FedEx, UPS, and USPS.
- PCI DSS Payment Processing
Sana Commerce web stores work with a variety of Payment Service Providers. This makes it easier than ever to provide your customers with a secure, reliable way to pay for their orders.
- Multi-currency support
Do you sell internationally, or do you plan to in the near future? Sana Commerce is the ideal tool for international sales, using your ERP’s local conditions, including currency. No need for your clients to bookmark exchange rate calculators.
The surprising solution to sales tax compliance
ERP-integrated e-commerce can bring more benefits than you think. Learn more.