Business, VAT, and Sales Taxes Changes for the eCommerce industry in 2022.

The growth of eCommerce, the ease of purchasing increasing, as well as many different ways to buy and types of products to offer, government officials are becoming more and more in the dark when it comes to collecting taxes on transactions. In the last few years, officials across the globe have modernized laws to reflect the digital economy.

As a result, managing tax obligations has become more challenging for merchants. By 2022, even more significant adjustments are coming into effect this, in relation to the nation or nations you are operating and live in, it could impact how you operate.

In the case of U.S. businesses, crossing states isn't that different as crossing borders between countries. Actually the way it is done is more complex in comparison to, say an enterprise within one EU nation selling to consumers from different EU countries.

Our friends from Avalara demonstrate in their guide to tax changes in 2022, there's a lot to discuss about this subject.

In order to make things easier to begin We'll provide a comprehensive review of the tax reforms that are coming for companies in the U.S., the U.K. as well as the EU, and many different countries and regions. The first few concern mostly those in the U.S., and the remainder are for other nations.

1. Nexus law: where your company is situated

For U.S. businesses, you must pay sales tax on sales made to customers in states where there is a"nexus. Again, this was not a problem. It was possible to be considered a nexus within the state in which your warehouse, office, or other tangible presence was. Now, with many employees working remotely, many states claim you have nexus if you have employees who reside within their borders.

It is possible to be present in several states even if all your operations are in one. Plus, beyond an actual presence, some states consider you to have a connection to their territory in the event that you sell more than a certain dollar amount or conduct more than a certain amount of transactions with customers within their state.

Complicating this is the fact that certain items are exempt from sales taxes and the rules for exemption are differing in different states.

Furthermore, after the South Dakota vs Wayfair 2018 ruling, states are able to currently collect sales taxes outside of state for products purchased within their states. The decision was made to permit brick and mortar businesses in the market to play on a even playing field with internet-based businesses. The logistics could be a nightmare.

The situation is even more complex in states that have counties with various sales tax rates.

If you are a business that is online, you should research each state -- as well as possibly a county that deems you to be physically or have an economic presence and figure out the sales tax that due.

Find out more information about changes in sales tax.

2. Different sales tax rates, boundaries, and rules

Knowing what you are liable for in each state could be difficult enough. But what if things change?

The government is regularly updating its tax rates for sales. Some products that were previously required to be taxed are becoming exempt in some places including diapers, and feminine hygiene items. Other items that weren't taxed in the past are now, such as single-use plastic bags.

Then there are the temporary rate changes for sales tax holidays, or tax reliefs that could be in place in the course of the COVID-19 epidemic. They are adored by customers, but they can make tax accounting a challenge for companies.

As well as taxes In addition, it is important to know the boundaries of the taxing authorities. Some cities straddle two states. Many cities straddle two counties. The house that is next door has an additional sales tax. These boundaries may change.

S ee more on these and other industry tax-related changes for 2022.

3. Which stores customers shop at and pay for it.

What happens if a customer purchases online, but wants an item shipped to the store for pickup or delivery, but their home is located in another tax district that is not the business? This is called Buy Online, Pick up in Store (BOPIS). The sales tax online may differ from that of the place that the purchase will be delivered.

It is essential to keep track of every customer's purchase, so you're sure that you pay the tax in the right country, city, or state.

For example, should you collect the sales tax to cover the entire purchase in advance or distribute it among each of the payments? Making it all upfront implies that the buyer doesn't pay equal installments. If you spread it out how will it be affected if rate of sales tax changes before all payments are paid? Do you need to pay the updated amount to any remaining installments? And what about any BNPL costs from your service provider? 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?

Every state, nation and county can manage these scenarios differently.

4. Sales tax sourcing

Three types of sourcing techniques used by U.S. states to determine who is responsible for sales tax:

1. Destination sourcing: based on where the buyer is located
2. Origin of sourcing: determined by the location of the seller
3. Mixed sourcing: a blend of both

Prior to the Internet and eCommerce the majority of businesses used the origin source method since it was the most simple and most sensible. Now, however, due to so much interstate and international commerce, the distinctions are blurring and there's an abundance of tax revenues not being collected from online transactions.

In this regard, several states are moving to destination sourcing. That means that you are taxed depending on the place of the customer. Even for small businesses selling products nationwide in the US it is possible that you will need to track orders made by buyers in every state.

5. Digital monitoring of business sales transactions

Across much of Europe and Latin America, and the remainder of the world countries are working on methods for monitoring all transactions in order to be able to collect the correct amount of sales tax as well as VAT.

Again, with so much commerce international in the EU as well as among Europe and Britain, between EU and Britain, among Europe as well as South Korea and other Asian countries, and also Canada as well as Latin America, various forms of electronic invoicing are quickly becoming commonplace.

In 83 countries, there is already some type of electronic invoicing or reporting laws that are in force, and many more are working to implement it. Different types of electronic transaction monitoring include:

• Real-time reporting: transactions report as it occurs
• Standard Audit File for Tax (SAF-T): makes it easy for tax authorities to collect tax information
• Electronic invoicing: the government approves each invoice before the customer can see it
• The requirement for invoicing on a four-day basis is not as strict as real time, but the same idea

All of these systems are designed to facilitate compliance, as well as reduce errors and minimize tax avoidance. These systems also help audits become easier and faster.

L Learn more information about the ways that countries are using electronic invoicing for the monitoring of sales tax .

Therefore, if your business is engaged in international trade, you'll need be in compliance with every country's accounting and tax reporting system.

Brexit serves as a good example of how this might be achieved.

Britain has begun to implement an initiative called Making Tax Digital, which will apply to businesses within the U.K. as well as companies selling products to it for example, any company located in the EU. This new tax system will also apply to self-employed U.K. businesses and landlords.

And EU businesses that sell to people living in Britain must charge them VAT. For smaller purchases under 150 euros, the business would make use of the Import One-Stop Store (IOSS), an electronic registration platform that helps comply with VAT requirements.

If those EU businesses selling to other nations within the EU, they would use to use the One-Stop Shop (OSS) system like the IOSS however, only for trade inside the EU.

Utilizing each of these platforms will necessitate businesses spending money upfront, but allows them to quickly conduct business with customers across the many EU countries.

The U.S. has yet to establish a system of electronic invoicing or reporting.

6. The Harmonized System

The Harmonized System began in 1988 and, in the age of electronic commerce in the present the Harmonized System has grown to become an integral component of global commercial activity.

The Harmonized System is a method that allows for the coding and tracking of the products of every sector every when they travel across an international border. It will be easier to monitor sales volumes across borders . This will ensure that precise tax and VAT can be collected for products as well as services.

The codes are updated each five years. Then, in 2022, the seventh edition is scheduled to be released.

The use of HS codes could get complicated quickly since there aren't all countries that update their codes right away. Some require years. That means, you might sell the same item in two different countries, and will have to use two codes.

What happens when a product is not classified correctly with the correct code? Taxes could be assessed at the wrong amount which could result in fines and delays, problems at the border, and angry customers. Find out more information regarding the Harmonized System and related global tax concerns.

7. Eliminating taxation minimum conditions

Particularly particularly in particularly in U.K. and EU nations, previous minimum requirements for tax-related VAT are now beginning to fade away.

In the case of imports entering the U.K., there used to have been a PS135 minimum order amount before VAT applied. That's on its way out, as is the relief for low-value stock that used to be applicable for items that fell under PS15. VAT for both of these is now due in the store with the buyer at check-out.

The current policy is not subject to any changes in the policies that apply to amounts over the threshold.

For imports coming into the EU the EU, a minimum of EUR150 was used to apply however that requirement has been removed. IOSS users will now be required to collect VAT at the point of sale on all purchases under that threshold.

And many other nations -- including Canada, India, Malaysia and China -- are working on similar types of tax changes.

8. Other taxing issues for 2022 and beyond

Supply problems

The issue of shortages in labor and supply can affect tax planning.

For example, with so numerous items being bought and then returned, how will manage the tax collected? Should you alter the tax return for taxes that have already been remitted?

Marketplaces on the internet

If you offer your products via any of the many online marketplaces like Amazon or Wayfair Some states and even countries tax these marketplaces, and the tax may or may not transfer to the seller. Some states let such sellers remain free of tax.

Non-typical product types

Numerous countries which have traditionally taxed car rental services and taxis are currently trying to tax car-sharing services as well.

If you offer online-based courses, you could be taxed. There are a variety of different ways that courses may differ from each other. Some courses are live, and others have been pre-recorded. Pre-recorded classes are closer to the product. Other courses require downloading material. Some send materials through the postal mail.

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

What about software?

There are now at least ten different types of software product categories, including packaged and shipped as a genuine product delivered but not downloaded, customized, and several others. Again, each type may be taxed differently based on the nation and locality where your business is determined to establish a presence- that nexus issue that opened the box of worms at the beginning.

Do you need help with taxes?

does not offer tax services This post is designed to be informative and useful for companies trying to understand how they can comply with tax laws.

But, Avalara can help you through tax automatization software which makes tax compliance simpler. Smaller companies, in particular that do business across all of the U.S. or across international boundaries, there's plenty to keep track of. Software for tax compliance might be an option worth considering.