On this episode of The eCommerce Growth Series, we sit down with Nate Stohrer, a Solutions Manager at Vertex to discuss what eCommerce merchants need to know about tax and where the future of enterprise eCommerce is heading.
A few of the things you’ll hear about:
- Tax compliance and how to make sure you’re covered
- What you need to know and look for when it comes to auditing
- How COVID is affecting taxes and eCommerce in general
- The future of food and beverage in eCommerce
- How to manage taxes when using marketplaces
- How the cloud is helping security and scalability
- How platforms make it easy for merchants to set up online
For any questions, feel free to reach out to email@example.com or to firstname.lastname@example.org. Thanks for listening!
Welcome everyone! My name is Ronald Dod, Chief Marketing Officer and Partner at Visiture, here at The eCommerce Growth Series, where we profile high-growth eCommerce merchants and industry leaders. I’m here today with Nate Stohrer at Vertex. We had a lot of great discussions, really good in-depth podcast around tax. I think we ended up around 47 minutes and covered a lot of different topics, especially around enterprise tax, tax compliance, auditing – what you need to know and look for when you’re an eCommerce merchant. We also discuss how COVID is really affecting taxes on the state level and how it’s really affecting eCommerce in general. And we even talk a little bit about food and beverage and how eCommerce is really affecting those industries and how this might be a new normal for them in eCommerce. We also talked about how tax can be affected and managed when using marketplaces and finally, wrapped up with a little bit of futuristic predictions and how cloud was helping security and scalability and how platforms really make it easy for eCommerce merchants to go online and sell online. Here we go!
Ronald: All right! Welcome Nate – thank you for joining The eCommerce Growth Series. Can you tell us a little bit about yourself?
Nate: Yeah, thanks for having me. So my name is Nate Stohrer. I’m a Solutions Manager with Vertex Consulting’s retail practice. I’ve been working with various forms of the O-Series applications over the course of the last 6 and a half years or so; everything from 6.0 through 9.0. And I’ve done both our on-demand delivery as well as on-premise installations. We also have a cloud application that I’ve worked with as well.
Prior to joining Vertex, I actually was the application owner of pricing payment and promotions applications for an international retailer based in Columbus, Ohio.
Ronald: Great! Can you tell us a little bit about Vertex?
Nate: Sure, so Vertex is a tax technology company. We’ve been around for about 40 years. We’re really kind of a pioneer in the transactional tax space. We work on all different kinds of industries all around the world. We’ve got offices on multiple continents and one of the big things about Vertex is, we are really an enterprise-level solution. So we work with any retailers really, you know – small to large. But just to give you an idea, we actually service about 60% of the Fortune 500.
Ronald: So, I’ve heard a lot around compliance in tax and I feel like that’s the majority way to hear your balance. Could you explain a little bit more about compliance and what does that mean and what merchants need to know about it?
Nate: Sure, so compliance is really kind of, you know, a two-piece mechanism. So, you’ve got compliance from what we would consider like your front end or your customer-facing side – where that’s more of your what kind of tax is being calculated – is the appropriate rates, you know, based on what it is you’re selling, where you’re doing business and a whole bunch of other factors. That kind of means what the customer is going to experience whenever they do business with you, so that’s kind of the first piece of compliance.
The second piece of compliance comes around the back-end functionality is, where now you’ve gone out, you’ve charged tax, you’ve collected tax from your customers – now you are responsible as an organization for going back and remitting the appropriate tax amounts then to the various jurisdictions; be that the state, be that the county, a city, special-purpose districts, all of those kinds of things.
So, whenever someone says compliance, those are kind of the two things that they’re talking about. It’s your front end calculation and your customer experience and then it’s how you deal with remitting those taxes back to their appropriate sources.
Ronald: Great. I’m assuming because of Wayfair that this has become a lot more complicated on how you remit back to each individual state level. Is that correct?
Nate: Yeah, so for those who don’t know, South Dakota vs. Wayfair was a Supreme Court case that actually a ruling came in back in 2018. So what that did was it actually overturned a previous ruling known as “quill”. And that was really done back in more the era of catalog and mail-order businesses. So what it actually does is, the quill regulations kind of established that for all these businesses that are doing, you know, sales via catalog or phone orders or whatever it might be, that they didn’t have to go back and collect and remit taxes in these remote locations where they’ve just got, you know, a handful of sales here or there. It was really based on where the retailer was physically doing business. So, now in the era of, you know, your eCommerce, your internal sales global, you know, footprints from a digital standpoint that became a bigger part of quite a few businesses. So what happened was the state of South Dakota took Wayfair to court, as well as a couple of other retailers and basically said that, you know – these laws are antiquated, they’re outdated and you do enough business within our state that we feel that you should be required to collect and remit sales taxes.
So the Supreme Court sided on the side of South Dakota and so now what’s happened is the fallout from Wayfair is that now all of the states are basically going back and saying – what does it mean to do a significant level of business within our state or within our counties or cities, or our districts? And they’re all coming up with kind of their own thresholds for when you do have to start collecting and remitting taxes for us. And so it’s added a great deal of complexity because again, now you’re not talking about, know you, one ruling that is basically established that you don’t have to collect these sales taxes, but now you’ve got different levels on every single one of the states within the country that you’re going to have to maintain. And we’ve seen it where it’s been done at a transaction level, where if you’ve got over X number of transactions, then you’re required to start collecting and remitting sales tax. Or it’s also done at a dollar threshold, so maybe some retailers that do fewer transactions at higher price points, if you met a certain sales dollar threshold, then you would also be required to then begin collecting and remitting sales tax.
Ronald: Yes, it’s not only just a state level – it’s also a city, county – is that correct?
Nate: So, it can be, yeah. So all of the states kind of do tax a little bit differently. So there’s a couple of states out there that we call kind of self-administered or home rule states. So those states tend to be some of the more complex when it comes to sales tax, because in a lot of places you just have to file and remit at the state level and the state handles doling out all of those sales dollars in the stack collected back to the appropriate jurisdictions via a county, city or district. But you know, there are still a handful of states that actually do that self-administration, where each individual county or city in which you do business requires you to go back then and file a tax return with them. So, it could be actually to the point where if you’re in 46 states, you may only file in 46 returns, but if you move into one of the four self-administered states, you know, even just one of those states, it may be that you double or triple the amount of returns that you have to file in a month because you have to file in every single city or county in which you’re doing business.
Ronald: And with all those different returns you have to do, does that open eCommerce businesses up for exposure to possibly being audited at this state level or federal level?
Nate: Yeah, so whenever you’re talking about increasing your footprint from, you know, your eCommerce sales and moving out and doing more business and, you know, new jurisdictions – that’s definitely going to open you up for additional compliance regulations and things that you’re going to need to abide by. And that’s kind of what we’re seeing just as the businesses are trying to move quicker and get into the eCommerce business. If they’re maybe a smaller company, or even more established companies, that are trying to deal with some of the fallout of Wayfair and trying to manage, you know, where it is that they’re going business – keeping track of transactions and understanding what that means across different legal entities even. So, whether you’ve got a brick-and-mortar business and eCommerce, how do you define whether those two are separate or if they’re being required or being determined by an auditor to essentially whether they’re supposed to be the same from a compliance standpoint or not. Sometimes we see where businesses take the stance that those are two separate legal entities and therefore they’re supposed to be separately filed and separately managed. And we’ve had times where they’re come back to use and there been auditors that have come in and said – no you’re essentially doing the same business, you’re selling the same products, it’s under the same banner. What one legal entity has as far as regulation and compliance requirements, the other legal entity has to abide by as well.
Ronald: So, I’ve never thought of it that way, you know, brick-and-mortar businesses or the online business could be separate entities so that’s really interesting.
Nate: Yeah, and I mean, it’s really up to, you know, the claim the companies here that, you know, what works right for your business. That’s something that usually Vertex is kind of hands-off. So again, being more in the tax technology and providing the solution, you know, our applications are able to be configured in the way appropriate for your business, but it’s up the companies individually or maybe with the help of a financial firm to determine, you know, what that setup is supposed to look like. So whether you deem that your businesses are separate legal entities or whether they are the same, you know, Vertex can kind of support you and manage your compliance in either standpoint.
Ronald: Yeah, that’s great Nate. Well with that, what should your business do if they’re actually eventually audited.
Nate: Yeah, I mean this is something that every, you know, business is going to have to deal with, so whenever the state comes around – it happens periodically – there are certain, you know time periods that they’re going to want to look at, certain types of transactions. So really the whole idea around being audited is really just around being prepared, so you know, is your transaction data available, is it clean and you know, Vertex is able to assist with that as well. So you know, not only are we doing really that front-end calculation for you, but we’re also doing, you know, the from a compliance standpoint on the back end, we’re also able to keep track of the transactions that are occurring. So you know, you write that information out to Vertex, Vertex can kind of be your one-stop-shop for your store for everything that is tax-related.
Ronald: I’ve heard putting auditors in cold rooms with the AC at 50 degrees also works really well [laughter].
Nate: We don’t want them hanging around any longer than they have to.
Ronald: Yeah, with that, if you’re a, you know, enterprise eCommerce merchant or something of that effect and you’re kind of wondering about what my kind of tax is, if you will. What’s a good kind of next step for a business out there that wants to see, are they set correctly, you know, almost kind of get an audit of their current processes?
Nate: Yeah, I mean definitely talk to the financial firms. So there’s definitely services out there available to you in order to come and do almost what would be like an internal audit. So, go back and see kind of the way your transactions are occurring, come and see how the data is being stored today. A lot of those firms offer, you know, ways to go back and then identify what your exposure might be. And you know, as part of that, it’s really about asking the right questions. So, every business is different. There’s not going to be a one-size-fits-all solution for anybody. It’s really understanding your unique business cases and your unique landscape, especially because tax is so dependent upon what it is you’re selling, where you’re doing business, that you know, these firms can come in and kind of tailor the solution, tailor the assessment really to what it is you’re doing and where you’re doing business. That way you fully understand where you exposure is today, how quickly it can be mitigated and then, you know, using a software solution like Vertex, or maybe a business process change or something like that, you’d be able to then come in and mitigate as much of that risk as possible. One of the big things that we see with companies though, is that you know, for every level of compliance that you try to meet, there is obviously an associated cost. So if you’ve only got maybe a handful of transactions in an entire year, where you know, you realize you’re out of compliance or you know, there’s maybe a shortcoming and some of the information available at the time those transactions occur to really mitigate that. You know, it may be a significant amount of spend for such a small exposure that your tax department may just decide that it’s something that hey want to go ahead and set aside some dollars for and just you know, that you say – hey, we’re going to get ahead of this; we’re going to go ahead and make sure that we file appropriately even though we know we can’t necessarily met the compliance standpoint either from the front end or from the back end to begin with; just due to gain the limitations based on various systems.
So, you know, trying to be 100% compliant is almost kind of like the pie in the sky. I mean, you may be able to get there but oftentimes what we see is that it’s a calculated risk and its where you’re comfortable taking those risks to meet your budgeting and to meet, you know, the regulations that are due to your business. So, you just want to make sure that you kind of balance those two things out, you know, try to air as much as you can on the side of protecting yourself and understand that there may be places where you won’t be able to. But knowing where those risks are before, it goes a long way in order to help mitigate any fallout that may come from that.
Ronald: And you with you know, risk and exposure, I think a lot of that has to do with probably how much tax rules are changing, you know, maybe at the state level. Do merchants need to be aware of all these changes and does that affect their risk exposure?
Nate: Yeah, it definitely does. You know, when there’s new legislation out there that goes into effect, you want to make sure that you’re ready for it. One of the great things though, about using a solution like Vertex is, that we have a team of over 200 researchers that kind of keep on top to these changes. So, on a regular cadence, at least one a month, if not more often, Vertex puts out these content updates to make sure that, you know, whenever you’re making calls to Vertex to do these tax calculations that everything is kept up to date. So Vertex does that on your behalf, obviously from an integration standpoint and makes sure that the rates are in there. But it’s important to note that whenever some of these large or maybe broader sets of legislations go into effect, it may impact the way that your filings occur. So, you know where you may have yesterday not had to file a return because you weren’t collecting tax, you know this new legislation goes in and now all of a sudden you’ve got a new return to file because there’s taxes being calculated and being returned as part of these transactions. So, it’s always good for you know the tax department the accounting, the finance folks to stay ahead of these types of things, just so that they understand what that impact may be to your customers that are buying on your website. You know you don’t want to have a customer service issue because all of a sudden somebody that’s been ordering on your website for you know a couple years now is upset because they’re being charged sales tax- well that’s the law says you’re being compliant, but now you’ve got a customer that doesn’t know why that may be occurred because they’re not keeping up with some of that tax legislation.
So, it’s just important to kind of stay on top of and understand what changes are happening within the system, even if you don’t have to make them yourself. Vertex provides a full set of reports with every one of our content updates that goes out- summary of changes if you will that kind of lets you know, “Hey, here’s where things are changing this is what you need to be aware of.” And, you know that’s something that the tax department can use to say, “Hey, we realized that this was going to be occurring. This is great we’re glad. It’s out there. We know that we’re going to be compliant come the 1st of the month when these changes take effect.” Or it’s going to be, “Hey, we didn’t realize that that change was happening it’s something that Vertex caught. Let’s go back and do a review of our processes around this area to make sure that we know what this impact is going to mean to us.”
Ronald: Thank you. And with that, has kind of COVID really made a lot of changes when it comes to tax?
Nate: Yeah, it has. So, actually Vertex – on our website, if you go to the homepage, there is actually a global resource link that will take you and track a lot of the changes that are going on related to the COVID-19 virus and just king of things in the tax world that are impacted. But some of the biggest things that we’ve seen here are really you know as legislators are trying to come out and jumpstart the economy and get things going again, get people out buying spending their money you know getting that input through really the taxation back into the budget. What’s happening is to kind of start it off you’re seeing these sales tax holidays. Now, this isn’t a new concept, but a sales tax holiday is typically something that’s seen around you know back-to-school time period for a lot of retailers. So, allowing folks to go out and purchase school supplies and children’s clothing and things of that nature without having to pay the sales tax so that it makes things more affordable and the kids can get the resources they need for going back to school. But we’ve seen States and actives in other ways as well. So, being prepared for severe weather you know maybe there’s a hurricane coming and you’re somewhere on the coast. You know going out and buying things like plywood and batteries and lights. Even all the way down to Energy Star appliances. You know California is notorious for wanting to you know have that green footprint and make folks give them the benefit really of you know providing that that less use of the energy grid just because there’s so much that goes on out there. So, you know having these appliance purchases where if you’re purchasing something that is Energy Star certified, then you get a reduction in tax. So, what we’re seeing though is as a result of COVID, these sales tax holidays are being used to get people out and purchasing again and saying, “Hey, go back to the stores or go out online. Buy the things you were buying before. We’re going to give you a little bit of a reprieve. You’re going to realize things we’re okay and then things are going to go back to normal.”
The other place that we’re seeing COVID really have an impact is around you know those revenue dollars coming in. So, again while it’s nice to kind of jumpstart, get people out you know buying again, we just said that you’re not really collecting any sales tax during these sales tax holidays, so that doesn’t input anything back into you know your revenue as a state or as a city or a county. So, what we’re seeing is that they’re trying to find new ways. They’re coming up with new taxes in order to collect and kind of make up for some of that difference. So, the hot topic right now really within the tax road of these marketplace facilitator laws.
A marketplace facilitator is essentially, a third-party website in which businesses are going to in order to continue their sales and kind of act as an expansion on their own their own e-commerce business. There’s you know popular ones out there across all different industries- whether you’re talking about you know big-box sales something like an Amazon or a Walmart that allows you to go out and as an individual seller you know place things up for sale and have others go in and purchase them. Or we’re seeing it also in the food industry. So, right now with restaurants being closed in various states, people are ordering takeout there, they’re getting things delivered. So, you know you’ve got your food delivery services that are out there you know your Uber Eats store, GrubHub, PostMates. They’re all out there and the various food service restaurants are going onto that platform and saying, “Hey, we were going to offer you delivery using one of these third-party services.”
So, there’s become a unique set of tax laws around the way that individuals and that companies are able to operate on these marketplaces. In the past, it’s been something where we talked previously about you know establishing that level of business or something like that. So, if you’re someone else selling on one of these marketplaces you know the marketplace itself is not the one that’s doing the business they’re doing it on your behalf, and then you know there’s sales dollars that change behind the scenes and tax amounts that get traded behind the scenes, so that the appropriate actions can be taken by the responsible parties. But these marketplace facilitator laws are putting more of an onus on the companies facilitating those marketplaces. So, it’s saying that now while you know John Smith is you know selling something on your platform and he maybe doesn’t have enough business in order to you know meet our transaction or our dollar level thresholds. Because he’s using your marketplace you as the facilitator of this marketplace do enough business, so it’s your responsibility on their behalf to go ahead and do these calculations and make sure then the appropriate taxes get remitted as part of those transactions. So, states are now able to kind of go back to some of these larger companies and have them enforce some of their tax legislation- whereas previously even with the change in the Wayfair decisions, there was kind of this loophole or this way around a lot of those legislations. So, they’re trying to close that gap and collect sales dollars using these marketplace facilitator laws.
Ronald: You know, with so many restaurants and food in general, and more takeout and people ordering takeout, do you think food in eCommerce is going to continue to rapidly grow like it is now?
Nate: Yeah, I think, you know, the move into the digital world, you know – everybody’s got a computer in their pocket, you know, you want to have the access to whatever it is you’re trying to purchase online. So, we’re seeing you know eCommerce businesses come out and we’re, you know, traditionally you’ve had, you know, your desktop, your website. You know you’ve now also got to be in the mobile space. You’ve got to be in the device state whether that’s you know ordering through some sort of smart home device or a watch or really kind of anything nowadays that has an internet connection. How can you capture the revenue that can come through those different channels? So, you know the food industry is definitely a big one, it’s such a commodity. I mean everybody needs food, it doesn’t matter where you are, it doesn’t matter you know what really your socioeconomic status is. It’s really one of the base needs that everybody has to have.
So, making that accessible and trying to be the one that captures those sales dollars that you know are going out into the industry, we’re definitely seeing a shift where you’re going to want to be able to do things where it’s not only foodservice and you know Quick Serve restaurants and delivery of those types of things, but it’s also moving into the grocery market. So, you know you’ve got people like your Instacart for example is a widely known company out there. So, there’s different text legislations and things like that when it comes to ready-to-eat food as opposed to grocery content but that’s just an additional complexity. So, what happens whenever you’re selling things that are ready to eat in addition to your groceries? What is the different regulations around maybe some of these grocery sales where you may have a store that’s close to the state border and you know your delivery zone may go into another state or you know what happens when you go to the county over you know who’s responsible for the tax on those transactions? And that’s one of the places where Vertex can really come in and through our integrations as long as you provide us the details around, “Hey, this is where the order is purchased. This is where the inventory is coming from. And this is where it’s going to you know we’re really able to take a lot of that complexity that gets added to these types of situations and make it completely transparent to both the customer as well as to you know the company that’s doing the business. So, all of your reporting and things like that come out appropriately Vertex is managing the way that that legislation is changing and how rapidly that’s going on and it really makes it kind of a hands-off process for a lot of tax departments.
Ronald: Yea, that’s great and it’s funny too, you hit the nail running ahead and when talking about consumer behavior and how people are changing, you know, really the way businesses do business with their phones. I mean, I remember talking to a B2B merchant that sold heat exchangers back in 2012. And they scoffed at the idea that their new, you know, buyer audience or younger people that buy stuff on their phones. And when they need a certain specific part to their plant – whether that’s a heat exchanger or koi or something – they’re going to go on their phones and Google it. And it’s funny because I’ve seen B2B merchants adopt those practices where we’re going to, you know, optimize for mobile, optimize for this younger consumer audience that is looking for products online, and it’s been really successful for them. So, I don’t think just even grocery and food and quick service – I think it’s going to be across everyone that sells products are going to eventually have to adopt digital. Because naturally, the consumers are just going to use, you know, mobile devices to find products and services.
Nate: Right, and as you’re kind of seeing that shift also into the digital space, we’ve got, you know, the whole concept of this omnichannel. So, you’re blurring the lines even more between your traditional brick-and-mortar business and your e-commerce business. It’s things like endless aisle you know you walk into the store and something’s not available, well you don’t want to lose that sale and so you place an eCommerce order because you’ve got it in your warehouse even if it’s not available right there in the store. You know you’ve got your ship from store style transactions where maybe something is out of stock in your warehouse. But you’ve got a store on the other side of the company that’s got six of them sitting there so why not ship it and capture the sale out of that store. You know there’s all different flavors of omnichannel and as you’re seeing companies get more and more creative with trying to capture the sales from the standpoint of we’ve got people coming in, there’s a demand for this you know we want to be the one that they buy from.
So, the more of these omnichannel type offerings that you’re able to you know provide to your customer base, the more likely it is they are going to spend their sales dollars with you because it becomes as seamless as possible from their standpoint. And what we’re seeing really is, as businesses are trying to do that whether you’re new to the eCommerce space because you’re more of a small business or a mom-and-pop- or whether you’re maybe a mid-market company that’s trying to expand your footprint. Right now, with so many stores being closed due to the virus and the eCommerce presence being even more important than it was you know before all this started, folks are tending to kind of rush into things.
So, we just want to make sure that you know while you’re out there while you’re trying to capture your sales dollars and make sure that you’re able to continue to do business- not only from the standpoint of providing your customer that level of experience, but also to continue to pay your employees, continuing to operate and make sure that your company stays afloat through all this. But what we don’t have happened in six months or a year from now when an auditor comes in and says, “Hey, it looks like you started doing business on your eCommerce site in this new jurisdiction why are you collecting any tax?” Now all of a sudden, you’ve got fines you’ve got fees, you’ve got interest, you’ve got to pay because you weren’t prepared you kind of rushed into it ahead of time.
So, one of the things that we like to say out here is that you need to respond, but don’t take it as a knee-jerk reaction. You definitely want to get out there and capture this but don’t open yourself up to undue risk just because you need to get out there and capture these sales dollars you know as the e-commerce platforms are changing and evolving you know you’ve got smaller market players out there you’ve got folks that are able to offer you a cloud-based solution as opposed to something you have to install in your own footprint. Your speed to market is so much quicker than it was you know eight-ten years ago when you talk about having the full level of you know security pass throughs and everything else that comes with hosting your own solution. You’ve now got companies out there that are providing you these platforms almost like your software as a service, you go in, you configure a couple things, maybe there’s a little bit of custom development and you’re ready to go.
So, as you’re seeing that speed to market increase, you know customers are wanting to move and get into that space more rapidly but we just want to caution again against moving too quickly and not being able to you know really respond appropriately from a compliance and an audit standpoint. Because six months from now when that auditor comes in and realizes, “Hey, this wasn’t done appropriately”, it could mean you know major issues for you at that time.
Ronald: Yeah, thank you. So, I have a few questions coming from that, but I’m going to start with this top. And I was just thinking, you know, with states changing different laws and the tax holiday, are there any, maybe strategies you’re seeing merchants do to take advantage of this? Maybe targeting states that you know are giving out more reimbursements if any at all?
Nate: So, I don’t know that we’re seeing, you know, kind of a phased rollout or anything like that in two specific states. Oftentimes it’s really more around you know the evolution of the business processes so it’s making sure that your item data is clean it’s knowing what you’re selling, it’s appropriately passing that through your integration so that you know when somebody puts something into their cart on your website you know you get that estimated tax that pops up and that’s accurate. We know what it is it’s being sold, we know where it’s going just trying to make sure that you know when you are doing business in those places that the integrations are built in a way to allow those business cases to continue or begin to function appropriately. So, whether that’s moving into a new area of business. Maybe you’re going to start providing services in addition to whatever goods you’re selling. Maybe that’s moving into a new region maybe today you’re you know you’re operating in the US; you’re going to start moving into Canada. There are implications that come along with those from tax and a compliance standpoint that you need to just make sure you’re aware of ahead of time. So, again Vertex is great and that we are able to support all of these different business cases and it’s just you know as you’re going through as you’re doing your implementations that’s understanding the way that those integrations need to be built in order to appropriately account for it.
Ronald: And something that I’ve always wondered, you know, let’s say Enterprise merchants out there that are going to start looking at expanding to Canada and maybe even the European Union. How does one start going about that and just managing all the different tax rules and plan ahead for that as well?
Nate: Yeah, I mean the great part about that is that Vertex is able to do a lot of that for you. So, again while we can’t give you any advice on you know what you should do from maybe a legal standpoint in a setup standpoint you know the software is able to be configured in the way that is specific to your business so we’re able to come in were able to help you with that expansion piece. You know we’re able to do all sorts of checks and balances to understand, “Hey, you know this is the way your us integration works today. What type of systems are you working within Europe? Are you using the same item master data? Do you have a separate you know order management system? You know where these integrations is going to be coming from? What data points are available and then you know regionally kind of tailor the solution as necessary?” So, you know you mentioned the European Union there’s a lot of different complexities over there moving from country to country since they’re so much closer together. Who’s the responsible party? What from a compliance standpoint do I need to be aware of? There’s different you know pieces of item data that are required to appropriately calculate the VAT requirements over there.
What you find in the European Union is that the front-end compliance is a lot more simplistic so oftentimes prices are inclusive of their VAT. But the headaches come more around the compliance side so it’s understanding that, “Yes we sold this item for this price. There was a certain portion of that that was the VAT now? How do I go about filing that who gets the split-up of this of the money- the sales dollars? Where do those go back to so that’s kind of more? Where you see the complexities over there? But again just understanding what the business cases are as part of the implementation process- having the appropriate folks in the room- you know understanding your item data understanding- your fulfillment models- it’s going to go a long way to making that really it seems less of a train transition as possible.
Ronald: So, what if businesses are doing, you know, transactions on third-party channels, such as marketplaces like Amazon and Walmart – who really has the burden to manage that tax?
Nate: So, that’s one of the big shifts that we’ve really been seeing right now with a lot of the marketplace facilitator laws. So, the states are really kind of falling into kind of three buckets here. So, they’re there’s a couple of different ways in order for the merchants to kind of manage this based on the legislation that we’re seeing. So, the first one is that the burden falls entirely on the marketplace, so in a lot of the states where taxes have been more simplistic where you’re filing fewer returns. What’s happening is these transactions are occurring on the marketplace and the marketplace is just going to go ahead and do the collection and the filing on behalf of the marketplace seller. So, whether that’s you know John Smith that’s out there making sales out of his garage or whether that may be a smaller mom-and-pop business that doesn’t have their own e-commerce platform. When transactions occur in those states, it’s up to the marketplace to make sure that things are appropriately collected and filed. And that’s just kind of a way that the legislation has been written. They know that from a taxation standpoint their state is not all that complex, so it doesn’t put you know a huge burden under these companies that are probably already doing these filings anyway for their own sales.
Big companies like Walmart and Amazon have been you know collecting and filing taxes all across the country since you know well before Wayfair, at least for their own or their own native sales. The next bucket that we kind of see these falling into is really a split type of remittance policy. So, again because that’s transaction is occurring on the marketplace itself the marketplace is the one that’s doing the tax calculation. So, the front-end piece of compliance is all managed by the marketplace because that’s where your transaction occurs. But from a compliance standpoint then what we’re seeing is that you know in some of these states that maybe require a few more returns to be filed in a monthly period, it may be that the state portion of your taxes is being managed on your behalf by the marketplace but then the marketplace in addition to whatever your cut is from the sales dollars they’re also passing you over the remainder of that tax. And then the burden is on you the marketplace seller to go back and appropriately remit those to the counties the cities the districts or whatever those jurisdictions may be.
Then the kind of the third bucket that we’re seeing this fall onto is just 100% on the marketplace seller. So again, they’re getting additional situations where depending upon the type of tax depending upon the state that it’s happening in the marketplace says, “This is entirely up to you to manage.” You know we’ve collected the sales and calculated the tax on your behalf, but we’re not going to do any sort of you know remittance on your behalf.”
So, it kind of is an interesting share of responsibilities with these marketplace facilitator laws that we’ve seen. Because you know you’ve got one party that’s responsible for the calculation which again is half of your whole compliance footprint. So, you know what we’ve seen is that there’s been a little bit of backlash from various companies that do us on these marketplaces. They’re saying, “Hey, we’re doing our business there but if you tell the customer the wrong tax amount you know that’s our brand that is being you know inaccurately or incorrectly identified as being the responsible party. We don’t want you to calculate those taxes incorrectly and then have us take the heat for it.”
It’s been interesting and I think as time continues to go on, and as we see more and more states maybe adopt some of these types of laws they’re going to continue to evolve. So, having you know a company like Vertex stay on top of all those changes, managing the tracking of your thresholds you know understanding where your transactions are occurring where your sales dollars are, it’s just going to become that much more important moving forward. Because I do think we’re going to continue to see these grow the places that they have been enacted have been showing pretty good numbers as far as what they’ve been able to collect you know which they were previously missing. So, I do think we’ll see more and more of these as time goes on.
Ronald: With more eCommerce businesses going cloud now – we talked a little on how this can be advantageous, especially for enterprise brands out there. How does this help with security and scalability in your experience?
Nate: With the shift in current times being a lot more towards that eCommerce business you know you’re seeing companies that are doing their you know Black Friday/Cyber Monday type numbers you know a couple of times a week because there’s just there’s no more brick-and-mortar business. So, in order to continue to make those sales, folks are turning to your website. So, in that, there’s this additional burden on your infrastructure in order to be able to accommodate those types of sales that might be occurring. Scalability you talked about here, so you know what are our response times what are our page load times are we able to accommodate that type of thing because while maybe you know for a couple weeks out of the year we scale everything up to handle our main shopping season, sometimes those are just you know periodic changes. It may be something because you don’t do those types of numbers, you’re around your infrastructures and built in a way that those resources are available all the time. Well by having a cloud-based type solution, whether that’s something you’re managing in your own private cloud or something that’s out there and being hosted your behalf, the scalability the ability to kind of spin up resources as necessary, borrow them for certain periods of time and put them back into a pool move them from one resource to the other; it just makes managing all this that much more seamless. So again, whether you’re talking about a traditional fully hosted you know cloud-based platform or something that you’re hosting in your own infrastructure, you would get the benefits both ways.
So, your own private cloud instance you do your installations there it gives you more control again over. Some of the security around those things the way that the infrastructure gets built out how it exists on the network. Or you go just again completely you know cloud-based hosted type solution where you’re going to say, “We’re not going to have the network engineers or anything like that really you know in-house, we’re just going to allow somebody else to do that for us.”
So, I think the smaller companies are definitely trending more towards the fully hosted solutions because they maybe don’t have the expertise in-house to be able to manage some of those types of things. Whereas maybe more established mid-market or an enterprise-type company they’ve already got those resources and they’re just going to redirect them from physical you know data centers and network management into more of a virtual space; whatever cloud platform you might choose.
The emergence of more and more eCommerce platforms you know in order to accommodate every level of business whether you’re in you know the retail industry, telecom, the financial services whatever it might be you know it seems like there’s always a solution out there you know somebody is trying to tailor to your niche market. Again, it’s doing your research, trying to understand which one of these platforms is right for me. You look at some of the big enterprise eCommerce systems that are out there, and while they may do everything under the Sun, they come at a price tag. So, it may be that you know with your revenue the way that it is or with your footprint and where you’re doing business the types of sales that are occurring. Maybe you’re more of a niche company that’s trying to operate on one of these platforms. Maybe that’s more than you need. It’s really just evaluating asking the questions having the right folks in the room to really understand what is the best fit for our company because while that Enterprise Solution may be a great fit it may do way more than you’re going to ever use. So, you don’t want to pay for things that aren’t going to really add to that sales experience. So, it may be that you find one of the cloud-based solutions are more than adequate for what you need and you just saved a whole ton of money by not having to implement that Enterprise type solution.
Ronald: You’ve been in the industry for a long time. Where do you really see the future of eCommerce going?
Nate: I think we touched on a little bit here too. So, really that whole concept of you know being able to capture sales at any time anyplace on any device. So, your ability to have not only your brick-and-mortar, your desktop website- there’s a big focus on mobile websites right now as well. That the usability understanding may be using some additional technologies that are available on these mobile devices whether that’s a tablet device, watch, a phone- something like geofencing you know we’ve seen retailers come in and say, “Hey, we know that you’re in a store you know we’re going to custom tailor this based on what items are available to you in the store. We’re going to help you with these specific promotions perhaps that are going to come in and be shown on your device because we know you’re shopping from the store and it seems like you’re not finding what you’re looking for you know otherwise why would you be on your phone while you’re in our store.”
So, those are kind of the things that I see you’re going to have a lot more of that “showrooming” type of functionality going on. When I say showrooming it’s something that we’ve seen where you know you go to your big-box store and you physically handle the product. Maybe you’re going out and you’re shopping a digital camera you know you want to get the feel for it how well is it built is it too heavy. What are some of the peripherals that are available for it? But then you walk out to your car in the parking lot and you’re on your phone and you go and you search for whoever has the best price on it. You maybe don’t buy it in the place that you’re looking at it. So, how are retailers going to be capturing some of those transactions that they would otherwise be losing just by essentially acting as a showroom for whatever the devices or whatever the good is that they’re selling?
So, we’re going to definitely start seeing retailers be more and more conscious of those types of things. They’re going to be you know trying to key into some of those technologies that are only available on those other types of devices where your traditional you know desktop website knows where your IP addresses or they know what type of browser you’re using. There’s only so much information or so much you can do with that information to kind of augment the sales process. So, we’re definitely going to see a shift towards using some new technologies, kind of bringing a couple of different pieces together it’s a really custom tailor that that shopping experience for the customer.
Ronald: Great! Thank you, Nate. So, with that, anything else you’d like to say to the audience before we jump off?
Nate: I think the biggest thing is just, you know, make sure you’re asking questions. You know, there are people out there in all different industries that are the experts in their space. So, whether you’re talking about trying to find a new eCommerce platform whether you’re shopping and you point-of-sale, whether you’re trying to mitigate your tax risk. There are companies out there that specialize in each one of those areas. Have the conversations, do your research, so that way you’re able to get the best solution for your business.
What you don’t want to do is to go out and you’ve got your budget that you only get you know every, so often do one of these major overhauls you know you change eCommerce platforms, you implement a new point of sale. The best solution is going to be the best fit. Just because something out there is the industry leader in a certain segment. Just because something out there comes with the best price tag doesn’t mean it’s the best fit for your business. You want to make sure that what you’re paying for is really the appropriate place to be spending those dollars. The most successful implementations that we have are the ones that are implemented correctly you know regardless of what the platform is or what the solution is that you’re looking at.
Obviously from the tax standpoint, definitely talk to your you know financial folks make sure that you know they’re on board with this as well. One of the unique things about Vertex is that we operate in such that text technology space and you know that’s kind of become you know a buzzword around the industry. Because with the integration of tax to so many different selling platforms whether that’s tax on your point of sale tax on your e-commerce platform- Vertex is a tax technology company. In order for our implementations to be successful, we need input not only from your IT folks that are managing your e-commerce website, but we also need the finance the tax folks in the room to help understand what those requirements are. Some of the biggest issues that we see are when we come in for implementations and only one side of the table isn’t in the room. It’s either all finance and then the integrations aren’t going to get built appropriately or it’s all IT and while you’re getting taxed back, it’s not the appropriate tax that you should be calculating.
It’s important to make sure that all of your expertise- you know all of the people are in the room- ask the questions- do your homework before you go out and you have some sort of knee-jerk reaction that sends you in the wrong direction. Especially what the times are the way they are right now, being able to adequately identify and spend what budget you have in the appropriate place to maximize the return is key. Companies aren’t going to survive this and you don’t want to be because there was a knee-jerk reaction that was made and all of a sudden you know you’re either being fined or you’ve got this solution that you can’t even pay to implement. Just make sure you do your homework. Vertex is here to help. We definitely as far as Vertex consulting goes, we’ve been doing this for a very long time, we’ve been in all different industries all different countries. We understand a lot of the complexities that are out there and we can help bring that expertise to the table you know at least from the tax standpoint as well as the technology and the integrations and understand the way things are being built, that’s something we can definitely help with. So, yeah, I would just recommend, don’t fall victim to a knee-jerk reaction, do your research, make sure that your dollars are being spent appropriately and just know that there are folks that are out there that can help.
Ronald: All right, well thank you for joining us today, Nate. That was great!
Nate: Yeah, thanks for having me. I appreciate it!
Ronald: All right, thank you for joining us today on The eCommerce Growth Series and a big thank you to Nate for joining us today. If you have any questions, please feel free to reach out to us directly through email. You can reach me at email@example.com and you can reach Nate at firstname.lastname@example.org. Thank you again and see you next time.