Worlds Collide: Predictions for Retail and Tax in 2019 and Beyond
2018 saw a major shift in retail. Yes, the phrase “major shift in retail” has been used quite frequently over the past few years, but the continued surge of e-commerce and emergence of new legislation like the Supreme Court’s decision in South Dakota v. Wayfair brought a completely new meaning to the phrase.
In June, the Supreme Court ruled that a remote seller’s “economic and virtual contacts” with a state could be sufficient to trigger sales tax nexus. The decision in South Dakota v. Wayfair represents an enormous change for retail sales tax: In addition to in-state sales, states now have the authority to tax remote sales. This means compliance just got even more difficult for retailers that sell online, including marketplaces and traditional e-commerce sites.
And with the Supreme Court decision in South Dakota v. Wayfair, the United States is only beginning to catch up when it comes to sales tax compliance and remittance in the 21st century and the era of e-commerce. Progressive countries including Brazil, Italy, Poland and, soon, Hungary are beginning to process tax in real time. The U.S. is far behind when it comes to calculation of sales tax.
Keeping all of this change in mind, I’m here to make four retail and tax-related predictions for 2019 and beyond:
- We’ll continue to see marketplaces and traditional retailers converge. It’s happening both ways, with marketplaces like Amazon.com moving to forms of traditional retail, and traditional retailers like Albertsons making the move to marketplaces to stay relevant in the digital economy. This creates complexity for businesses and governments alike, especially when it comes to how marketplaces are taxed. By 2020, every U.S. state will have a law forcing marketplaces to collect sales tax in that state — whether they have a physical presence or sell remotely.
- Marketplaces will continue to be the new “department store.” 2018 saw the death of the beloved Toys"R"Us. Sears and J.C. Penney are having their fair share of struggles as well, despite once being successful forces in retail. Marketplaces are continuing to thrive. In 2019, we will continue to see marketplaces take over as top revenue drivers in retail vs. the traditional department store. Even though some retailers like Walmart or Target are working to innovate beyond their traditional business models, this won’t be enough to save most department stores from slight (or in some cases, rapid) decline.
- Consumers will be the driving force behind where businesses need to collect and remit taxes. We’ve moved beyond this old historical world where it was the retailer’s choice based on where they had property and people. Now with the South Dakota v. Wayfair case, in which the Supreme Court ruled that states would be allowed to collect internet sales tax, that control is in the hands of consumers. In 2019, every retailer needs to know what is and isn’t taxable everywhere because consumers are determining where a retailer needs to collect. Retailers don’t know where their next customer is coming from, so they need to be prepared.
- By 2025, real-time tax approval and remittance will be a global topic of conversation. Countries like Brazil, Italy and Poland are already implementing real-time compliance and accounting. However, the United States has always been steps behind when it comes to digital taxation. I predict while definitely a topic of discussion, the U.S. government will not approve real-time taxation at the time of sale because this would be a massive technology issue that our current infrastructure cannot support and that the government isn't willing to invest in.
Greg Chapman is senior vice president of business development at Avalara, an automated tax software provider.