4 Retail Trends and Their Sales Tax Implications

Shelby Toto
July 27, 2021

This blog was updated on January 4, 2023.

In virtually every market, your sales tax obligations will grow as your retail operations expand. When creating a brand, it’s crucial to have a flagship product or service that creates a sense of purpose in the market. Once a customer connects with your company, growth naturally can occur. Depending on your organization’s growth strategies, new retail sales tax implications can start to creep in. Consider exploring recent growth trends while you gain an understanding of how sales tax doesn’t have to stand in your way. We’ve compiled the top four sales tax trends for ecommerce and omnichannel retailers.

 Different products, different tax rates

New products and services expand your customer’s brand loyalty. Customers rely on new product launches or collection releases to stay engaged with your brand.

An important retail sales tax implication with new products and services is they may not be charged the same way as previous offerings. For example, while shoes can be a natural vertical expansion to consider for a clothing retailer, there may be unforeseen sales tax implications. In some cases, both items may be taxed at different rates, or one item may be exempted. As you expand, it’s important to research the products or services you sell and, in the areas, you are doing business to make sure you are charging and collecting sales and use tax appropriately.

Ecommerce rise enhances in-store foot traffic

Physical retail stores are far from becoming obsolete.  Customers continue to crave the in-person feel and experience that can only happen in a physical retail space.  What businesses have come to understand with ecommerce is that it can enhance and complement the customer experience. Concierge-type services continue to wow customers when successfully deployed. For example, the ability to order another size/item for the customer, and then conveniently ship directly to the customer’s address, right from the store. In other considerations, “In-Store Pickup” gives customers a real-time capability to make a fix if an item doesn’t meet their initial expectations. In most scenarios, businesses will notice trends of increased wallet-spend with customers. When they are in the store, customers tend to buy more items and can see the rest of a store’s inventory.

Tax at a retail store location-level can be manageable for businesses to stay compliant. In some cases of “Send-Sales,” or shipping to your customer’s address of choice, the tax rate should be captured for tax calculation. It’s important to make sure your sales tax compliance system can handle the different location parameters for appropriate tax application to the order. In cases where the customer is returning at your store location, your system should be flexible to understand which corrections to apply and what to balance for your internal compliance reporting. If these considerations aren’t addressed, there may be manual adjustments to anticipate closer to the filing process of remittance.

Creating harmony within flexible return policies

Returns are fairly unavoidable when selling tangible goods, as it’s unlikely that a product pleases everyone. Having a flexible return policy, with a longer return-window period, can benefit your organization immensely as customers will gain a sense that they can rely on your brand. In fact, returns can be a great avenue for gathering feedback for future products and offerings. Customers are likely to shop around when it comes to similar items in the market, meaning your return policy might set you apart from competitors in the market.

There are key factors to consider when creating your return policy that will help to minimize the downstream adjustments your internal resources will need to absorb. First, review the timeframe in which an item’s eligibility is acceptable for return. This can also increase the likelihood of a tax rate update event within your operations. Ensure you capture all pertinent date parameters for the appropriate tax for relocation. Your business will need to adjust for customer monetary spend. This often leads to additional downstream impacts to processes like filing and remittance compliance within the jurisdictions you operate.

The “pop-up” store makes brand loyalty more accessible

Physical locations are a fantastic approach to customer demands, but they can also be a burden. Pop-ups bring products to the public in an accessible, often interactive way. These stores can provide an element of traditional retail where you can sell physical products, perhaps even exclusive inventory, and a week or so later deconstruct to move on to the next business venture. Flexible timing gives additional benefits to your company like less overhead cost and increased community buzz online/word of mouth. It also allows for that in-person experience your customer might not always be able to obtain.

However, pop-up stores can bear implications on both accounts receivable (AR) and accounts payable (AP) operations within your company.

Sales/Accounts Receivable (AR): The first variables you want to scrutinize surround inventory, location and system(s).

  • Inventory of the event should be accounted for ahead of time, especially considering any “exclusive” items or anything not typically sold to ensure the proper tax applications and rules are applied throughout the transactions of the event.
  • Location of the event most often will be the rate at which you will use for the transactions. Be sure to include all appropriate lower jurisdictions too (i.e., county, city, PIF/PUF if applicable).
  • System of record will be necessary for the event, also consider your consolidation requirements for filing as well so you can remit compliantly too.

Purchases/ Accounts Payable (AP): On the purchasing side of your business there are other components to take into advisement:

  • Regarding inventory sourcing, make sure all vendors you work with understand your nature and usage of purchases. For example, reseller arrangements should include your exemption delivered to the vendor for proper exemption of the inventory.
  • Specialty purchases, like eye-catching displays and marketing, can increase customer FOMO (fear of missing out) and turn-out to the event. Ensure your vendors are transparent with these purchases, including details like shipping/ freight and line-item breakdowns of products/services for proper internal record keeping and furthering your audit defense.

As your company grows, the associated retail sales tax implications will also continue to evolve. By keeping track of current business trends, you can maintain compliance without compromising customer satisfaction or future company growth.

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Shelby Toto

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