White paper

How IT and tax teams can improve their business’s e-commerce experience

The recent rise in e-commerce has significant tax and IT implications for businesses
Jesse Shannon
Product Marketing Manager, ONESOURCE Indirect Tax

Accelerated by the COVID-19 pandemic, e-commerce activity around the globe has skyrocketed. The rise in e-commerce has significant tax implications for businesses — as online sales increase, so does the processing of sales tax. As a result, corporate tax and IT teams and their ERP and transactional systems have been put to the test. Tasked with delivering accurate, repeatable, and consistent sales tax determinations, businesses are turning to technology to help them keep up with consumer behavior and the heightened need for performance.

As brick-and-mortar storefronts shut down and consumers practiced social distancing, businesses large and small adapted to the “new normal” of e-commerce and buy online, pick up in-store (BOPIS). Consumers, those already shopping this way and those quick to adapt out of necessity, spent $861 billion online with U.S. retailers in 2020, up 44% from $598 billion in 2019, according to a Digital Commerce 360 analysis. Online spending represented 21% of total retail sales last year, compared with 15% the year prior. This trend in mind, more companies are opting to sell their products online, opening a new channel to meet consumer demands. With the increase in e-commerce, organizations have been hard pressed to ensure the frictionless shopping experiences consumers have come to expect. Behind the scenes, many companies are considering new technologies to support this growing purchasing behavior.

Tax and technology play a key role in customer shopping experiences

To meet changing consumer behaviors, companies need an always accurate and always-on tax engine to determine sales tax on what’s being purchased. Moving indirect tax into the cloud can therefore support the indirect tax department’s growing jurisdictional needs by alleviating pressure on IT, reducing enterprise technology costs, scaling, and encouraging a positive customer experience. However, the issue of latency can often make moving to the cloud more complicated. The need for “always-on” sales tax determination raises scrutiny by tax and IT professionals over network latency, or the potential delay in communication over a network. Different factors impact network latency: the delay due to a network’s physical distance, the amount of time it takes to route data through network equipment, as well as the time to process data and send it back.

Using cloud computing to process tax data requires a company’s ERP or transactional system to make a call outside of their network to receive the necessary tax calculation on a sale. Depending on the location, that call may need to travel over a distance that an otherwise on-premises solution would not. Increased volumes in e-commerce transactions require expanding network bandwidth to accommodate the increased volume of calls. Cloud computing can’t always meet the critical response time required for large amounts of transactions. Additionally, some organizations have concerns over the risk of internet outages. In situations where the internet goes down, the e-commerce system would not be able to calculate tax on a purchase at the time of a sale. This can create a negative shopping experience for customers by delaying the receipt of sales tax calculations on a purchase.

Enter edge computing: A hybrid deployment option that combines cloud and on-premises benefits

What if companies could get the best of both worlds? Is it possible to move tax calculations closer to the transaction system but still get the full power of a native-cloud tax engine? Enter edge computing. Using this technology, customers can speed the performance of tax calculations and still reap the benefits of an enterprise cloud-based system that is always up-to-date, ensuring tax accuracy every time and minimizing user administration. Edge computing allows data to be processed closer to its source and sends only the relevant information back through the network, reducing latency. In addition, edge computing complements cloud computing by lowering the overall system maintenance for tax and IT through auto-synchronization to retrieve necessary system updates, without manual intervention or downtime. Businesses that want faster tax calculations can benefit from edge computing technology; it is especially powerful for companies still converting their technology stack from on-premises to cloud solutions. E-commerce is one of the best applications for edge computing, due in part to the acceleration of e-commerce during the COVID-19 pandemic and the need for high-performing tax services.

Gartner defines edge computing as “part of a distributed computing topology in which information processing is located close to the edge where things and people produce or consume that information.” In the case of indirect tax determination, at its basic level, edge computing is placing tax workloads (the tax calculation) as close as possible to where the data is being created or processed (ERP or transaction system). This is done so that data, especially real-time data, does not suffer latency issues that can affect an application’s performance. In placing the tax calculation inside a business’s infrastructure, there is no call (request) being made outside of their own network, making the business and the tax engine more resilient in the face of internet outages.

How edge computing benefits consumers, tax, and IT

Edge computing offers the speed (reduced latency) and control (reliability) of an on-premises solution, while also maintaining benefits of the cloud. According to a Datometry survey of 166 IT leaders, 61% of respondents cited cost cutting as the number one reason for moving to the cloud. In an edge computing model, necessary content, system, and configurations are automatically updated, similar to a classic cloud-based system, relieving tax and IT of unnecessary administration and downtime. Moreover, no matter how many different systems you use with customers, suppliers, and partners, each one can be maintained centrally and with all data being aggregated into a consolidated view.

While digital business streams have seen an increase in volume over the past year, selling through multiple channels (e.g., physical store, ERP, e-commerce) is not uncommon for large enterprise organizations. Maintaining company tax policy across all systems that support each channel can be a major challenge, especially when faced with on-premises solutions that require any change to be tested and deployed across each individual system. If you are using a cloud-based tax calculation engine, that process can be managed more efficiently — but not all channels are created equal. Some business channels operate via the cloud or on-premises out of necessity. So, what happens if some systems operate in the cloud and others in an on-premises format? Is it a requirement to have a unique tax engine for each system? How do you achieve a complete view of all your transaction data at any given time?

Maintaining tax policy for all business channels and having a consolidated view of all tax liability data is crucial for improving overall tax accuracy and managing indirect tax costs. This is important for not only reporting and strategic analysis but also audit defense. When using edge computing technology for indirect tax calculation, the calculation services are deployed as close to the transaction as possible and in as many places as needed. This allows for each business channel’s transaction system, regardless of whether it’s in a shared or private cloud or on-premises, to have the tax calculation service next to it. You may wonder — wouldn’t that take more maintenance to update each channel’s system and collate data together? However, the benefit of edge computing is that all systems are maintained from a single source, with the data in one place for a complete view. Edge computing offers a clear advantage for companies that serve customers through multiple channels.

How corporate tax and IT teams can keep pace with digital-first consumer expectations

The scale at which e-commerce and BOPIS have accelerated over the past year is giving rise to a new standard for consumer purchasing. There are differing opinions on the future of e-commerce and whether businesses should expand their focus on the digital shopping experience. In my opinion, while we may see some foot traffic restored to brick-and-mortar, the convenience of doing business online is here to stay. This means corporate tax and IT teams should be prepared by evaluating their systems that support e-commerce to ensure they are operating at peak performance.

Doing business digitally across hundreds, if not thousands, of jurisdictions brings complexity to tax accuracy. A cloud-based tax engine that seamlessly integrates with your systems and accurately and repeatedly calculates sales and use tax, VAT, and GST on all sales and purchases is critical. Whether your systems are on-premises, in the cloud, or both, our new edge computing deployment, ONESOURCE® Determination Anywhere, delivers fast and accurate results managed from a single source. Contact Thomson Reuters® today to learn more about how edge computing can support the calculation of indirect taxes.

Part of this white paper was originally published by Tax Executive, the professional journal of Tax Executives Institute.

Shannon, J. (2021, September 8). A rise in e-commerce puts pressure on tax and IT. Tax Executive.

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