Tax & Accounting Blog

Black November: Determine the Right Tax

Blog, Indirect Tax, ONESOURCE, ONESOURCE Indirect Tax November 21, 2017

We established in our previous post that Black November is today’s newest buzzword for the holiday shopping season, and that it actually began not in November but in October. Retailers are already in the throes of holiday shopping season, even though they might not be marketing like it.

There are many considerations when determining the correct tax to charge customer: what’s being sold, where it’s being shipped, how it’s being used, and even to whom it’s being sold. In order to properly calculate tax liability, retailers should have a tax policy in place that not only supports the business’s requirements, but also keeps pace with the many changes in tax law and regulation.

  • Know the products and customer base. What is being sold, how customers will use it, and where the business is selling are critical elements that drive tax policy. Planning for product or service expansion and looking ahead for the tax impact ensures owners remain in compliance as they venture into new business activities.
  • Determine the company’s tax reach. Commercial activities within each tax jurisdiction drive the requirements for whether a company must collect tax from its customers and correspondingly remit the tax. The minimum activity that creates nexus and the need to register with a tax jurisdiction continues to change so it is critical to understand the company’s footprint in each jurisdiction.
  • Shipping and Freight Charges. These items are frequently overlooked, but can have an impact on the overall tax calculation. Incorrectly taxing shipping and freight can place the burden onto customers and introduce audit assessments.
  • Consider transaction volumes, load testing, and actions plans. Have an estimate of transaction volume as well as a contingency plan to enact if the company is fortunate enough to have more engaged shoppers than expected. Retailers have, in recent memory, been unable to sell because of bandwidth issues borne from too many customers. Establishing a tax calculation through-put baseline is helpful with load testing.
  • Test all of the above. Performing a self-audit and verifying that the tax calculation processes and procedures work is best practice. Sales tax audit exposure can add up quick when sales taxes are not calculated correctly – especially during high-volume periods like Black November.

Know the Products and Customer Base

What is being sold and how a retailer’s customers will use it are critical elements that drive a company’s tax process. Planning for product and service expansion during the holiday season and looking ahead for the tax impact can help a tax team remain in compliance as marketing institute’s new promotions or if the company ventures into new business activities

  • How well does the team know the customers and products?  It’s a question tax professionals need to ask themselves in preparation for Black November. The accuracy of sales tax calculations is directly related to the team’s understanding of what the company is selling, who is buying, and how they are buying.
  • What is being sold? From apparel to software, states differ on how they tax just about everything. The more the tax team knows about what it sells, the better equipped it is to formulate tax policies that contemplate the idiosyncrasies of sales tax laws. Inventory may change in order to support not only the increased volume of holiday shoppers, but also to accommodate their desire to grab specially priced products. Ensuring tax has accounted for these seasonal items’ taxability is critical.
  • Who’s buying?  While most customers may be end-consumers, some may be resellers or even non-profit organizations, possibly exempt from paying sales tax. Knowing if and why the company’s customers are exempt from tax will impact the accuracy of its tax calculations, and, in turn, elevate the customer experience.
  • How are customers using products?  Knowing the customers includes understanding how they’re using products. If a company sells items that are taxed differently based on use, it needs a solution for distinguishing between business and personal use, for example.

Part three of this three-part series will focus on the issue of tax nexus — particularly, how it is changing and the many variables companies need to be mindful of.

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