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Sales tax 2021 – What is changing and what new trends are emerging as a result

Article written by: Maxi Gampl

Like our society, our economy is in a constant state of change. This affects governments as much as corporate and business owners. Special times like the current pandemic are accelerating digitization processes and strengthening e-commerce over local commerce. We monitor the market and tell you what’s changing and what new trends this means for your business.

E-commerce is becoming increasingly important

In times of social distancing, mandatory masks and the risk of contagion, many Americans are giving up shopping in the city – but not shopping per se. Rather, they continue to consume, just online. Even before the pandemic, e-commerce was growing steadily, but COVID-19 has now accelerated that process. In the third quarter of 2020, e-commerce accounted for nearly 20% of total retail sales in the US.

The big beneficiaries are currently the retailers who are represented online. Those who only operate a local business but do not offer their products online are currently facing major challenges. If it hasn’t been relevant to be represented online recently anyway: now at the latest, retailers should get their online strategy right and discover e-commerce for themselves. E-commerce will continue to grow.

Software for the management of the goods

Setting up an online store is easier than ever these days: there are a wide variety of store software that enable even non-professionals to start their own e-commerce business in a short time.

But an online store alone is often not enough. In particular, brick-and-mortar retailers who now want to take off online face challenges when it comes to processing sales. Ideally, an enterprise resource planning system should be established or expanded to handle both online and in-store sales – as well as sales that were generated online, for example, but are collected in-store. Both the employee in the store and the online store must be able to see at any time which products are still in stock and how often.

United Kingdom leaves the European Union

As of January 1, 2021, United Kingdom has left the EU Single Market and Customs Union. With this date, many dealers in the US will need to be registered for VAT in the United Kingdom.

Otherwise, the packages will already be intercepted at customs and can no longer be delivered to buyers in the United Kingdom. If you sell products there, you should check accordingly.

Will platform operators soon be responsible for collecting sales tax?

In the U.S., there are only two states with a general sales tax – namely Florida and Missouri – that do not tax online sales by out-of-state sellers through economic nexus.

2021 will possibly be the year in which various states, such as the aforementioned Florida and Missouri, but also Kansas, will no longer hold sellers or dealers responsible for paying sales tax on third-party sales, but rather the operators of the platforms, such as Amazon or eBay. After all, it is often the platforms that store the sellers’ goods in their own warehouses like Amazon for example, and ship them from there. States such as Washington or California therefore hold the platforms liable for sales tax arrears.

It is expected that other states may soon follow suit with such a regulation.

States hunt down unregistered sellers

Due to the stringent requirements for sellers to be taxed on remote sales, many states have still been lenient in tracking unregistered sellers. However, as three years have now passed since the law went into effect in 2018, states’ patience is wearing thin and they are beginning to track down unregistered out-of-state sellers.

For traders, this means that it is now necessary to catch up on the corresponding registrations and to pay the tax on distance sales with immediate effect in order to be safe from possible penalties.

Virtual events can lead to new taxes

As a new form of commerce took over the market with e-commerce, this naturally had an impact on tax and even today there are regular changes to tax laws to accommodate the progress of e-commerce.

We could see a similar development in the future with virtual events. These have been around for a while, but COVID-19 has made them enormously popular, making them attractive to the tax authorities. We expect the first tax changes here in the near future.

Manufacturers and productions reconsider distribution

Companies in the manufacturing and production of goods have often worked with middlemen who eventually sold their goods in their stores. However, due to the COVID-19 pandemic and the accompanying reduction in face-to-face contact and shopping experiences in the city, manufacturers and productions are now rethinking their distribution activities.

Thus, online sales are becoming more and more attractive in current times, making direct sales an easy way to sell products directly with a larger margin – which in turn has tax relevance for businesses.

Summary

The year 2021 will be dominated significantly by the COVID 19 pandemic and will have an impact on the work of many companies, which will have to rethink previous processes and revise their business models. This, of course, has fiscal implications for businesses and accelerates the growth of e-commerce. Individual states are monitoring these developments and responding with appropriate tax changes.

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