Laptop-based businessperson making sales report or a forecast of the market
A recent Seinfeld watch on Netflix has me thinking of local taxation. There’s a subplot within the eighth season in which Elaine would like to have the most delicious Chinese food available in the area, but she cannot deliver the food since she lives just across from the delivery zone. To get around the issue, she puts her camp in a closet for janitors located in the building across the street and tries to have the food delivered to her. In the typical Seinfeld way, chaos follows.
Elaine’s story and the restaurant’s inability to extend their delivery beyond the city block boundaries is an oddly fitting analogy for the emergence of local taxes, which has created a need for accurate indirect tax estimation, an issue in the present. This isn’t an analogy that everybody could make, yet when you’re helping businesses navigate the complexities in tax-related compliance, it is easy to find tax implications in every aspect.
Across the U.S., all manner of medium and small-sized enterprises and gig economy delivery services and streaming services deal with the maze of local taxes that may differ significantly based on you live on the other side a client lives on.
In past times, it was the case that a company that had a physical presence in the state of origin that provided goods and services to clients was required to handle the complex taxation for local and state taxes. Today it is more common for businesses to be accountable for tax administration reforms that have raised the complexity of companies offering services and goods in the United States. U.S. consumers.
The core problem lies in the Supreme Court decision in South Dakota v. Wayfair, which ruled that states may require businesses that have no physical presence to pay and pay sales tax on transactions within the state. This was a critical moment in history. It meant that e-commerce businesses such as Wayfair in Massachusetts must pay sales tax and remit it on all sales in states like South Dakota, where it had no physical presence. Still, it had over 200 deals or more significant than 100,000 in revenue during a calendar year. In addition, states could adopt their laws following this precedent’s precedent. This, in time, led to an array of local sales tax laws across the nation.
In the prior years, before the Wayfair decision, it was utterly feasible and expected for a reasonably sized online firm to sell its products across all 50 states, but only collecting and remitting tax in the state in which it was located. Following the ruling, nearly all states in the nation implemented taxing remote sellers.
A Small World Could Micro-Businesses Help to level the uneven British economy?
Additionally, the tax authorities of state governments also introduced new indirect taxes for streaming and digital services, like Chicago’s infamous “Netflix tax” and many other taxes that target those who work in the gig economy. They’ve also created an ever-growing list of tax jurisdictions used to fund public services like transportation, safety, and recreation.
Combine all that, and you’ll get a scenario in which companies that offer products and services to diverse areas of the country need to be capable of determining their customers’ locations with pinpoint accuracy to ensure that they are making payments and receiving the right amount, based on the address of their customers’ delivery for purchases of goods as well as billing addresses when they deliver specific services.
For instance, an online seller selling products to customers who are that is located outside of the boundaries of the city of Pierce County, Washington, in the quarter ending March of 2021 had to pay a tax that ranges between 8and 10 percent according to the location of the delivery address is within the Regional Transit Authority boundary, Pierce County Public Transportation Benefit Area or the Hospital Benefit Zone. According to the data I collected from my company, Thomson Reuters, nationwide, there are between 400 and 500 of these special districts that remote sellers have to confront in tax-related decisions.
The variance in tax rates between one end of the highway to the other is a detail that sellers should include into their tax determination processes to remain within the continuously evolving local tax laws. This customized method for tax collection has been standard in large companies for many years. Yet, it was only recently that smaller companies had the opportunity to expand their customers via the internet. The widespread exposure, along with increased state-level enforcement of tax compliance for sales for small-sized businesses, suggests entrepreneurs need to be vigilant about the particulars of local tax laws to avoid tax audits, penalties, and fines.
The wide availability of indirect tax software for smaller companies allows them to automate vast swaths of tax compliance processes in the local area. However, not all tax software is made in the same way. (Disclosure: My company provides tax software.) Solutions range from simple billing and sales orders, including tax processing tools, to more sophisticated cloud-based tax management solutions available in various sizes and shapes that may not be suitable for every kind of company.
When looking for a vendor, select an expert in your field. Many industries are subject to complicated regulations, so the vendor must thoroughly know the tax laws involved. Also, look into how the technology can integrate with the software you currently utilize to manage your business. Tax technology will live or die based on its ability to integrate with other business systems. Therefore it is essential to ensure that any new system can work with your current configuration.
Additionally, it would help if you considered the versatility of a tax software system. We’ve witnessed the emergence of local taxation authorities introducing new taxes in the last few years. Keeping up requires technology that can adapt to changes in code in real-time.
Today’s delivery services, local restaurants, and online retailers aren’t engaged in turning off potential customers across the street. Their business models depend on unlimited access, and–increasingly–their ability to deliver on that promise rests on an ability to navigate a complex landscape.