This blog was last updated on February 9, 2023
Whether your retail company is planning to advertise in the Big Game this weekend or just watch the excitement with family and friends, there are always key things to prep for with regard to sales tax compliance. Special events can be a boon to retailers, but realizing taxes are impacted in numerous ways can help propel your organization into a winning strategy. We’ve highlighted key things for retailers to keep in mind when it comes to sales tax compliance and audit preparation.
Identify your peak season(s)
Most retailers will have times when customers make more purchases, whether it’s around the holiday season (Black Friday, anyone?), back-to-school time or something else entirely. This can happen in terms of customer engagement and product demand volume.
Familiarizing yourself with your customers’ buyer journey, trends, detractors and habits can give your team insight into what your industry’s peak season is and how to be ahead of the game to attract more customers throughout the year. With peak sales events, it’s imperative to keep a pulse check on your nexus obligations, as this could present more requirements than may have initially been present. For example Arkansas, Georgia and the District of Columbia have economic nexus requirements based on thresholds of transaction counts OR revenue thresholds. Each state, and even local jurisdictions, have their own requirements, so incorporate a review of your sales as a best practice. This is especially important after larger sales volume spikes, so your company does not incur unwanted penalties.
Ensure online sales can handle the traffic
When it comes to shopping, buyers could be flocking in-store or online to get their hands on desired products. Safeguarding your ability to handle this demand starts with inspecting your infrastructure and solutions. This thorough inspection can include website latency, inventory supply, customer account data and so much more. Any bottlenecks can create a poor customer/brand experience or worse loss of sales.
Studies have proven that the longer your site visitor waits, the less likely they’ll convert. Amazon found that, for every 100 milliseconds of latency, they lost 1% in sales. Latency isn’t just your POS or ecommerce sale. Systems integrated into the journey can also implicate the overall time to process transactions for your customers’ experience. For example, a SaaS-based tax engine can bare latency as it determines the tax based on the transactional details. Work with your IT teams to know:
- Which vendors are integrated into your customers’ buying journey?
- What is the performance of the vendors under peak performance and unplanned spikes?
- What is the back-up plan for technical issues?
Having a slow, cumbersome customer journey is a detractor for completing the sale or ensuring that customers return for more sales in the future.
Know your company’s best sellers
Accessibility to your inventory during peak seasons is critical for maintaining positive brand reputation and customer reliability. For example, retailers making sports apparel may need to gear up for the Big Game this weekend as football fans gather to purchase items reflective of their teams and favorite players. Preparation for this could entail having the inventory mocked up and ready for production ahead of transactions taking place.
What to do you do with inventory left over from these peaks or trends? Some businesses have created mystery bags, or kits, in which a customer can select a few items like size or color preferences. Customers then receive their items without fully knowing what’s inside. Businesses can even include bestsellers and items that may typically be harder to unload.
As tax compliance finds its way into all aspects of sales, consider these grouped items and how to appropriately charge taxes. It may be helpful to keep items of similar nature together to ease tax analysis later, such as a mystery bag that includes three t-shirts only. Including things like hats, gloves, shoes, etc. could adjust the tax considerations, as some items may be taxed differently in the various jurisdictions in which your organization operates.
Prioritize customer satisfaction
In efforts to increase sales, retailers may also choose to run promotions throughout the year. This can include buy-one-get-one, free shipping or even 50% off select items. But all can help increase product appeal to your customers.
Remember that tax compliance efforts start with getting the taxes right at the time of sale. However, depending on the retailer policies with customer returns, other tax implications are often overlooked. For example, there has been a rise in “buy online, return in store” models over time, posing exposure to interjurisdictional travel. Keeping track of your organization’s returns can help expose any potential risk, ensuring you can comply with all sales tax obligations accordingly.
Overall, there is no wrong time to put a strategy in place for sales tax compliance. Tax should be considered in system upgrades to ERPs, company acquisitions, operation expansions and in all aspects of your customer-facing strategy.
Take Action
Still have questions about sales tax compliance as a retailer? Reach out to our team to learn more.
