An explosion in the digitization of commerce, and the growth in cross-channel selling has drastically increased the number of friction points in the buying process. As a result of the COVID-19 pandemic, having an online presence for retailers is less of a differentiator and more of a must-have for survival. 

One critical source of friction in commerce, often overlooked, is tax calculation. Manually managing indirect taxes across channels and platforms is complicated work, with change running rampant in both business and regulatory environments. Automated tax compliance solutions help mitigate some of these challenges, and alleviate pressure on the supply chain.  

The Key Role That Tax Plays within Frictionless Commerce  

Tax calculation is something that could break your sales if done incorrectly. While most organizations have some sort of compliance tools to help with their sales journey, most fail to realize how big of a role tax plays in frictionless commerce. There are three common hurdles that affect indirect tax for e-commerce with changes in regulations, business activity or performance and  technology or channel access.  

To the first point, regulatory changes are constantly being updated and it’s unrealistic to expect to monitor these changes without automation. In 2022 alone, there were 542 rate changes at the state, county, city and district levels in the U.S. — a hefty number to monitor throughout the year without the help of automation. 

In addition, expansion with new online operations can result in unexpected tax responsibilities. Expanding the reach of your e-commerce activities may result in new considerations depending on the markets you enter.  

Retail technologies are constantly changing, so business leaders must make sure that tax compliance keeps pace. Further, there are examples in retail where online platforms and physical locations interact, such as when a customer buys a product in-store and returns it by mail. Manually calculating the tax liability across these channels can be very complicated and time-consuming.

The Importance of an Automated Compliance Solution  

With the rise in tax compliance legislation, increase in new tax jurisdictions and growth of product-specific taxes, sellers can no longer rely on manual processes to ensure accurate tax calculations.  The ideal way to address this friction point is to automate. Implementing an automated tax compliance solution ensures accuracy while providing sellers the opportunity to expand into new channels, product offerings and geographies.   

Retailers face numerous tax compliance challenges from accurately determining the tax on every line item of every transaction to managing exemptions; issuing accurate invoices; and accurately satisfying the reporting, filing and remittance requirements in every relevant jurisdiction. To address these challenges and ward off the consequential risks, more and more retail leaders are turning to end-to-end tax solutions. 

As retailers continue to grow and expand their sales channels, they are also upgrading and transforming their platforms and infrastructure to add capabilities that support growth. Therefore, business leaders need to ensure the consistency of tax calculations across all channels, supporting systems and ERP ecosystems. 

Manual processes leave room for error, especially with the complicated and detailed work that tax professionals perform. Automation mitigates these inefficiencies by showing patterns and anomalies that are almost impossible to catch without the help of technology. 

Looking at the Bigger Picture 

Despite all this complexity and all the different channels that retailers are selling from — consider the point of sale, e-commerce and order management, mobile apps and even marketplace platforms — the customer still expects a consistent buying experience. One aspect of the buying experience is sales tax which can be thought of as a single source of the truth for rates and rules or transactions. A good solution will allow for scalability across multiple channels for growth, especially at the rate retailers are increasing their online presence today.  

Considering all the changes in the retail landscape since the COVID-19 pandemic, and the fast-moving pace of business expansion, business leaders have a responsibility to be prepared for both growth and disruptions. Creating healthy supply chains is a work in progress. Individual organizations can do their part by implementing the best processes and technologies to help support their needs.  

Automating sales tax and other business processes as necessary is the key to staying agile and competitive in today’s online retail marketplaces. When going through an I.T. or finance modernization process, consider putting tax transformation at the forefront of your solutions.  

Peter Olanday is director of consulting for vertical solutions with Vertex, Inc.