The eCommerce community has entered a new frontier when it comes to sales tax compliance. The post-Wayfair landscape will be tricky to navigate for remote sellers, especially considering not all states have the same economic thresholds for determining whether or not a seller has triggered nexus. These new challenges will be amplified over the next couple of months, as the busy holiday season draws near and the eCommerce community’s biggest day of the year approaches: Cyber Monday.
What Should eCommerce Retailers Expect From Cyber Monday This Year?
According to a Digital Commerce 360 study, last year consumers spent $19.62 billion on web purchases during “Cyber Week” – Thanksgiving Day through Cyber Monday – which accounted for $6.59 billion of that total on its own. This was a 16.8 percent uptick in Cyber Monday sales from 2016, indicating continued healthy growth in this segment of the market. Nearly 30 percent of all online sales during Cyber Week took place on Amazon, which is promising for FBA sellers looking to score big. Overall, the holiday season – late November and most of December – has accounted for 30 percent of all annual retail sales.
This is great news for your eCommerce business: Cyber Monday will likely be your biggest sales day of the year once again. However, the new landscape necessitates a deep dive into any states in which you may have newfound obligations to collect and remit sales tax.
How Does Wayfair Impact This Year’s Cyber Week?
With the massive South Dakota v. Wayfair decision only four months behind us, more than half the country has enacted laws, rules, or regulations that seek to tax remote commerce. In fact, October 1 was widely recognized amongst those of us in tax circles as “Economic Nexus Monday” where we saw 9 states begin enforcement of their new rules. At this pace, it seems that the vast majority of the country will have a plan to tax remote sellers by year end.
Each state’s new standards vary, but all are operating with the goal of increasing tax revenue by taxing remote retailers. The thresholds they set to determine whether a remote seller has nexus are based either on the total dollar value of the remote seller’s sales in the state, or on the number of individual transactions the remote seller makes in the state.
South Dakota’s threshold, which the United State Supreme Court deemed to be appropriate after overturning the old Quill doctrine, dictates remote sellers have nexus when they either make $100,000 of sales into the state or 200 individual transactions with South Dakota residents. This has served as a benchmark for other states adopting their own economic nexus thresholds in the wake of Wayfair, so you may see a number of similar standards. You can find a comprehensive list documenting existing and forthcoming state nexus laws over on the Sovos site.
How Should I Approach the Busy Holiday Season?
Given that you will likely be selling more products into more areas than at any other time of the year, it’s imperative to prepare accordingly. Check your historical records and cross-reference them with the economic nexus threshold table linked in the previous paragraph. Did you exceed the thresholds in any state last year? You may soon – or already – have nexus in these states, depending on when their economic nexus rules become effective. But also be aware of any other states where your past sales approach or exceed the $100,000 or 200 transactions thresholds.
Another component is anticipation. Which states are ripe for your business to see the most growth? Keep track of these states and prepare to file accordingly well in advance, so you can avoid insufficient filings.
Remember, failing to accurately collect and file taxes in any state where you have nexus results in back taxes, which is cause for state governments to audit you, leading to additional penalties and interest, on top of the tax revenue that you likely will need to pay out of your own pocket. Our Sales Tax Penalties and Audit Risks Guide for eCommerce Sellers can help you track where and when you are most likely to be audited, as well as what any penalties you may incur could look like.
This year’s holiday shopping season, and Cyber Monday in particular, is going to be more challenging than ever before as a result of new post-Wayfair regulations across the United States. But this isn’t a death sentence – be diligent, prepare accordingly, and stay on top of your obligations to ensure the continued health and growth of your eCommerce business.
Struggling to keep up with new obligations in the wake of the Wayfair decision? See how Taxify by Sovos can help you tackle sales tax filing in every state.