Retail operations have had to change drastically over the last year or so. The pandemic pushed more commerce online and has since accelerated omnichannel commerce as consumers demand flexibility in their shopping experiences. In fact, nearly 90 percent of retailers agree that a seamless omnichannel strategy is critical for business success. However, for omnichannel strategies to work, systems and software must be connected all the time, across all locations and channels.
To achieve the constant state of interconnectedness needed to power omnichannel experiences, retailers must have up-to-date information in real time at every store and customer touchpoint. Most often, when retailers think about the information they need across stores and systems, they think about pricing and discount details, as well as inventory. While these details are necessary for consistent transactions across channels, a critical piece of the transaction is often overlooked — tax.
When we think about retailers that operate physical locations in an omnichannel world, perhaps one of the most confounding challenges when processing transactions is the management of tax. This is because of the complex nature of tax laws and how they're applied when selling across numerous channels and geographies. As retailers look to drive positive customer experiences and consistency at their physical locations, having access to up-to-date, accurate tax content is essential.
Multiple Locations + Multiple Channels = Multiple Tax Obligations
Many retailers have locations across multiple jurisdictions and manage point-of-sale (POS) systems at every checkout lane. In the U.S. there are more than 13,000 sales and use tax jurisdictions — and most jurisdictions define tax rates and rules differently. For a retailer with multiple locations, manually managing these rules can quickly become complex and costly.
Likewise, if a brick-and-mortar retailer is selling online and across multiple channels, it will encounter new tax obligations. This is due to economic nexus laws, which give states the ability to impose a sales tax obligation on remote sellers. When it comes to selling through multiple channels there are several instances where new tax obligations could be triggered. Whether it’s direct-to-consumer via e-commerce or curbside pickup, depending on tax laws in a specific area, retailers can run into new and expanded tax obligations.
Incorrect Tax Creates Inaccurate Checkout Costs
For any retailer, customer experience is always top priority. Much of the customer experience hinges on what's owed at checkout. If those costs are different than what a customer expects, issues will arise.
In addition to different tax rules across locations and channels, the way products are defined and therefore taxed can vary widely by jurisdiction. For example, in Washington state, prepared food is generally taxable, except for “sweet bakery items.” To add to the complexity in this example, there’s no clear-cut definition of what “sweet” means.
Because tax is a line item on most receipts, failing to get it correct leads to incorrect totals overall.
Tax on Merchandise Returns
Another reality for retailers is merchandise returns. When it comes to returns, getting merchandise restocked (when applicable) and adjusting inventory is top of mind, but what about tax? If a customer is issued a refund for returned goods, the tax they paid must also be accurate in the refund. Sounds simple enough, right? Maybe not.
Think about a retailer that you frequently shop at — one that has multiple locations. Let’s say you buy a product at its location in your town, but make a return while on vacation in another state. The retailer must be able to account for where the purchase was made to refund the correct amount of tax because odds are the tax rates aren't the same. To make sure that the correct amount of tax is refunded across locations, retailers need to have access to tax and transaction data across their systems.
Omnichannel commerce is here to stay — as are the tax obligations that come along with it. For retailers, managing tax in an omnichannel environment hinges on technology that can integrate and operate across locations and systems.
At the end of the day, tax must be treated like any other critical business process, including inventory, pricing and discounts. Having the ability to share tax information between stores, systems and channels will help improve the accuracy of tax calculations, maintain the integrity of refunds on merchandise returns, and aid in the overall customer experience.
Cory Evans is general manager, POS at Avalara, a software provider for automated tax compliance.
Cory Evans has over 20 years of experience in tax and technology specializing in the automation of indirect tax for retail sales channels and transaction data collection and management. He has a unique set of skills affording him the capability to contribute to solution engineering and design, the ability to dive deep and focus on the details, and a macro perspective ensuring his vision and strategies are in line with Avalara's corporate focus and the indirect tax needs of the retail industry. As a leader in the Content, Data, and Insights business at Avalara, his mission is to help make sure this team is creating and offering solutions that inspire and give reason for customers and partners to celebrate their automation efforts.