Business, VAT, and Sales Taxes Changes to eCommerce by 2022.

With the growth of eCommerce, bordersless shopping increasing, and so many different ways to buy and the types of goods to sell, governments are starting to feel left from the equation with regards to the collection of taxes from transactions. Over the past few years, authorities all over the world have revised laws to reflect the digital market.

This means that the process of negotiating taxes has become increasingly difficult for business owners. In 2022, more big modifications are in place and depending on the country or regions you work in and live in, it could affect how you conduct business.

And for U.S. businesses, crossing states isn't that different as crossing borders between countries. However there are many aspects that could be more difficult as, for instance, a business located in an EU country that sells to consumers from the other EU countries.

As our friends at Avalara demonstrate in their tutorial on tax changes in 2022 There's plenty to discuss about this subject.

To make it easier for now, we're going to provide a comprehensive outline of the tax-related changes that will be coming for businesses within the U.S., the U.K. and the EU, and many others countries and regions. These are the most important ones that affect countries like the U.S., and the others affect other countries.

1. Nexus law: where your company is situated

For U.S. businesses, you must pay taxes on sales to clients in states where you are considered to have a nexus. This used to be simple. You had a nexus in the state in which your warehouse, office, or any other physical presence was situated. Now, with many workers working remotely and many states claiming that you have relationship with them if they have employees who reside within their boundaries.

That means you can potentially operate in several states, even though all of your business operations are located in only one. Beyond an actual presence, states may think you have a relationship with them if you sell over the amount of a specific amount, or make more than the specified amount of transactions for customers who reside in their state.

Complicating this is the fact that certain items are exempt from sales taxes and those rules can be different in each state.

Additionally, as a result of the South Dakota vs Wayfair 2018 court decision, states can currently collect sales taxes outside of state on products bought in their state. This was done to allow brick and mortar companies to compete on a even playing field with internet-based businesses. The logistics could be a nightmare.

The situation is even more difficult in certain states, in which different counties have different sales tax rates.

If you are a business that is online, you should research each state -- and possibly county -- which considers that you be physically or have an economic presence in that area and calculate the sales tax you owe.

Learn more about sales tax changes.

2. Tax rates that vary limits, rules, and boundaries

Finding out how much you owe to each state is challenging enough. What happens if the situation changes?

Governments are routinely updating their tax rates for sales. Certain items which used to be taxed are now exempt in some areas, such as diapers and feminine hygiene products. Others items that weren't taxed in the past are now like single-use plastic bags.

And then there are temporary rate changes for sales tax holidays, or tax reprieves that may have been enacted as part of the COVID-19 outbreak. Customers love them, but they can make tax accounting very hard for business.

In addition to the tax rates changing You must also be aware of boundaries between taxing jurisdictions. Some cities straddle two states. Many cities straddle two counties. In some cases, the home next door has an additional sales tax. The boundaries can alter.

CSS Find out more about this, and more industry tax reforms in 2022.

3. Which stores customers shop at and the method they use to pay

What happens when a buyer purchase online and has items delivered to the location for pick up when their address is in an entirely different tax district than the store? This is called Buy Online, Pick up at Store (BOPIS). Taxes on sales online could differ from the store where the purchase is delivered.

It is essential to keep track of every purchase made by a customer so that you can be sure to make sure you are transferring the tax correctly to the proper nation, city, or state.

In other words, would you prefer to take the tax on sales to cover the entire purchase in advance or distribute it over the installments? Making it all upfront implies that the customer doesn't actually have to pay in equal installments. If you split it up, what happens if the rate of sales tax changes before all the payments have been paid? Do you need to collect the new amount for the remaining payments? And what about any BNPL fees from the service provider? And, what is the procedure if they have to return the item before any payments have been made even though you've already paid taxes to the federal government?

Each state, country and county will respond to these issues in a different way.

4. Sales tax sourcing

There are three types of sourcing techniques used by U.S. states to determine who pays the sales tax:

1. Source of destination: determined by location of the buyer
2. Source of origin: Based on geographical location of the seller
3. Mixed sourcing: A blend of both

Prior to the Internet and eCommerce the majority of businesses used origin sourcing, as it was simple and most sensible. Now, however, due to so much interstate and international commerce, the lines have become blurred, and there's now lots of tax money that is not collected on online purchases.

In this regard, several states are moving to destination sourcing, meaning you pay taxes based on the location of the buyer. Even for small businesses If you offer goods across the US, you may have keep track of the purchases made by customers across all 50 states.

5. Digital monitoring of business sales transactions

In the majority of Europe and Latin America, and the other regions of the globe, nations are developing methods for monitoring all transactions in order to collect the proper amount of sales tax and VAT.

Again, with so much commerce international within the EU and between Europe and Britain, between EU and Britain and in between Europe as well as South Korea and other Asian nations, in addition to Canada and Latin America, various forms of electronic invoicing are rapidly becoming commonplace.

83 countries already have an electronic invoice or reporting law that are in force, and many more are working on this. The types of monitoring for digital transactions comprise:

• Real-time reporting: transactions reporting as it happens
• Standard Audit File for Tax (SAF-T) is a tool that makes it simple for tax authorities to gather tax data
• Invoicing electronically: Governments approve every invoice before a customer sees it
• Four-day invoicing requirements: not so strict as the real-time requirements, but the same idea

All of these systems are meant to help make compliance simpler in addition to reducing the chance of errors and even tax avoidance. Additionally, they make auditing simpler and quicker.

L Learn more details about how nations are using electronic invoicing for sales tax monitoring .

Therefore, if your business is engaged in internationally, it will need be in compliance with every country's taxes and invoice process.

Brexit is a great model of how this can work.

Britain is currently implementing a program called Making Tax Digital, which will apply to businesses within the U.K. as well as the ones selling to it like any other located in the EU. The new system is also applicable to self-employed U.K. businesses and landlords.

And EU firms that sell to customers living in Britain will have to charge them VAT. If the purchase is less than 150 euros, businesses will utilize an Import One-Stop-Shop (IOSS) the electronic registration platform that makes it easier to meet VAT regulations.

In the case of those EU firms that are selling to nations in the EU They would utilize this One-Stop Shop (OSS) system which is similar to IOSS however, only for trade within the EU.

Accessing and working with the various systems is going to require businesses to spend some cash upfront. However, it will allow them to more efficiently conduct business with consumers from the various EU nations.

The U.S. has yet to establish a system of electronic billing or reportage.

6. The Harmonized System

The Harmonized System began in 1988 however, with the advent of online commerce, it has become an essential part of global commerce.

The Harmonized System is a method that allows for the coding and tracking of products in every industry every time they cross the international boundary. It will be easier to track sales across international borders, so that accurate tax and VAT can be collected for products and services.

The codes are revised every five years, and in 2022, the seventh edition will be published.

Utilizing the HS codes may get complicated quickly since the different nations do not update their codes instantly. Certain take years. This means that you could be selling the same item across two different countries which means you will need to apply two different codes.

What happens if a particular product is misclassified with the wrong code? Taxes could be assessed at the wrong amount and result in penalties and delays, issues at the border, as well as angry customers. Read more on the Harmonized System and related global tax issues.

7. Eliminating the minimum tax obligations

In particular, particularly in particularly in U.K. and EU nations, previous minimum requirements for tax-related VAT are now beginning to disappear.

For imports coming into the U.K. In the past, there was to have been the PS135 minimum order amount before VAT applied. That's on its way out and so is the relief for low-value stock that was previously available for products that were not PS15. VAT on both is now due in the store with the customer, during the checkout.

The current policy is not subject to any changes regarding the policy for sums above the threshold.

For imports coming into the EU, a similar minimum of EUR150 was used to apply however that requirement will be gone. IOSS customers are now required to collect VAT at the time of sale for any purchase under that threshold.

Many other countries -which include Canada, India, Malaysia as well as China have been looking at similar tax reforms.

8. Additional tax-related issues in 2022 and beyond

Problems with supply

The issue of shortages in labor and supply could affect your tax position.

As an example, with the many items purchased, to be returned, how do you handle the taxes collected? Do you need to amend the tax return for taxes that have already been remitted?

Marketplaces online

If you offer your products via one of the dozens of online marketplaces, such as Amazon or Wayfair Some states and even countries tax the cost, which might or not be passed on to your customers. Certain states allow these types of sellers stay free of tax.

Different types of product that are not typical

Numerous countries which have traditionally taxed taxi services as well as car rental taxis are now trying to tax car-sharing services also.

If you sell online-based courses, you may become subject to taxation. However, there are many ways courses can differ from one another. Certain courses are live and others have been pre-recorded. Pre-recorded classes are closer to the product. Others require downloads of the material. Some send materials through the post.

Different localities and nations may treat each of these types of educational and training scenarios in a different way.

How about software?

There are currently at most 10 different kinds of software product categories, such as packaged and delivered in the same way as real products, delivered but not downloaded, customized, and several others. Each type of software may be taxed in a different way based on the nation and locality in which your company is determined to have a presence -the nexus problem that opened up this issue in the start of.

Do you need help with taxes?

Tax services are not offered by the company The information in this post is designed to be informative and useful for companies seeking to learn more about their tax compliance duties.

But, Avalara can help you by providing tax automation software that makes compliance much simpler. For small companies in particular who do business in all of the U.S. or across international borders, there's a lot to track. The tax compliance software is an option worth considering.