The Ring-Ting-Tingling of the Cash Register
I, for one, am shocked (i.e., not shocked) by how fast the holiday season came this year. It happens every year, and just seems to come quicker each time. Maybe it’s my fine wine-like aging process that makes me feel that way. Yeah, let’s just go with that. Especially the fine wine part. I do love some good grape juice. But I digress…
A Holiday Spending Spree
With the advent of the holiday season comes Black Friday (read more on its history), Cyber Monday, and a slew of sales across all kinds of shopping platforms and channels. Whether it’s physical storefronts or a retailer’s own e-commerce platform, retailers are hoping to drive record sales this holiday season.
Ten years ago, the National Retail Federation said that 2014 holiday season retail sales amounted to $616.9 billion. In 2023, that same organization said that holiday sales were $964.4 billion, a 56% increase in just nine years. For 2024, Forrester is predicting holiday sales of over $1 trillion. With a “t.”
The State’s Slice of the Pie Of Sales Tax During Holidays
Clearly, there’s a “t”on of money at stake her. Retail giants, mom-and-pops, entrepreneurs, and everything in between want to cash in on this annual spending bonanza.
Do you know who else wants to cash in on this spending spree? You guessed it—the state and local governments across the US. With all of this spending on gifts, holiday meals, travel, etc., there is a significant sales tax during the holidays impact that the state and local governments are counting on.
The Impact of Economic Nexus In Regards to Sales Tax During Holidays
And this holiday season, there are more retailers than ever before that are required to collect and remit sales taxes in multiple, if not all, taxing jurisdictions. Why? Because of the economic nexus laws and related marketplace facilitator laws.
A Look Back: The Wayfair Decision
You’ll recall from the Wayfair decision in the summer of 2018 that the states passed their economic nexus laws at breakneck speed. At least it was considered breakneck as far as governmental action goes.
Nexus Thresholds
Today, every state and home-rule locality has economic nexus and marketplace facilitator laws. Many of the taxing jurisdictions mandate that having over $100,000 of gross sales or (not “and”) 200 unique transactions in the prior or current calendar year is enough to satisfy that jurisdiction’s economic nexus standard.
Here, “gross sales” really means gross – whether for property or services and whether taxable or not. Another subset of jurisdictions has dropped the transaction count portion of the standard, leaving just the $100,000 of gross sales in the prior or current calendar year.
That has been the trend in recent years – one or two states a year dropping the transaction count portion of the economic nexus standard. Then you have an island of misfit toys…er…states that have done something different altogether. For example, CA and TX stipulate that $500,000 of gross sales (gross sales of tangible personal property in CA’s case) meets their economic nexus standard. NY provides that economic nexus is met when a remote seller has $500,000 of gross sales of tangible personal property and 100 unique transactions in the prior four sales tax quarters (i.e., have to satisfy both).
The Complex Sales Tax Landscape
What does this mean for all of these retailers as they enter into the holiday shopping season? States fully understand how easy it is to meet these economic nexus standards. Generally speaking, it takes a truly small business to be able to fly under these economic nexus standards.
For the rest of the retail world, retailers are tasked with knowing where they currently have exceeded these minimum economic nexus standards and have started charging tax appropriately in the various ship-to jurisdictions.
Furthermore, since holiday spending is expected to be over $1 trillion this year, and since most of the economic nexus standards base their measurement period on the prior or current calendar year, if there are retailers that were reasonably close to exceeding the economic nexus standard going into the holiday season, there’s a really good chance they will exceed it when all the cash register tape stops flying by the end of the year. That means that these retailers could easily have new jurisdictions in which to register for sales taxes in early 2025.
Be aware: approximately 17 states require retailers to be registered to collect sales tax by the “next transaction” once thresholds are crossed. We all know that’s unrealistic, but it remains their position.
Simplifying Sales Tax with AkuCalc
Understanding where the retailer has sales tax collection and filing responsibilities is only part, albeit a big part, of the puzzle. Managing your nexus footprint is something we do regularly at Clarus Partners. This exercise takes experience and expertise and can’t be trusted to a “heatmap” or non-sales tax professionals. And since the vast majority of CPA firms do not have dedicated and experienced sales tax professionals on staff, why not trust Clarus Partners with this analysis?
Real-Time Tax Calculation
Outside of nexus, the other significant piece is actually being able to charge the correct amount of sales tax in real time as sales are being made. This is where taxing engines come in. These are typically connected via API to a retailer’s POS system, their ERP or CRM, and/or their e-commerce shopping platform (e.g., Shopify or WooCommerce). So many of these tax calculation engines literally have thousands of products and services to which a retailer’s own products and services can be mapped in order to get the right tax answer when that product or service is sold.
Why AkuCalc?
However, have you ever noticed that in terms of holiday spending, there really isn’t a lot of sales tax nuance needed? Household items, computers, appliances, toys and games, bedding, etc. – these are taxable everywhere during the holidays (not to be confused with sales tax holidays). Yes, clothing often finds its way under the tree, much to the unfathomable chagrin of my children, and it is exempt in seven states, but other than that, most things are pretty straightforward.
Given that, why spend all that money on a tax calculation engine that contains all those nuanced products and services? Those other software engines are expensive for a reason – they are designed to be able to handle almost every type of product or service that could be sold. This means that there is a lot of research behind the scenes to not only determine the initial taxability, but to also maintain that taxability going forward. That’s an expensive proposition and one that would undoubtedly eat into all those holiday profits. That’s where AkuCalc comes in.
AkuCalc is intentionally designed with these types of retailers in mind. It is perfect for those companies that sell products and/or services with straightforward taxability, regardless of how many jurisdictions in which they have nexus. In AkuCalc, these retailers will get an extremely user-friendly, customizable platform with which they can reliably and instantaneously calculate and bill sales taxes on the sale of their goods and/or services, all for a fraction of the cost of the aforementioned solutions.
Wrapping It All Up
Having a trusted advisor that has “been there, done that” with respect to your sales tax and other indirect tax needs is a key factor in ensuring your business is compliant. Not only can we accurately determine where you have nexus and provide a solution to help you charge tax efficiently and accurately, we can help you quantify and remediate any exposure that might have been created, take over your entire sales tax compliance process, and even take on any audits that might arise. So as you enter the throes of the 2024 holiday shopping season, keep in mind that Clarus Partners can have your sales tax issues and needs “all wrapped up.”