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

The growth of eCommerce, the ease of shopping increasing, and so numerous ways of buying and the types of goods to offer, government officials are starting to feel left out of the loop with regards to the collection of tax on transactions. In the last few years, authorities across the globe have modernized laws to reflect the digital economics.

This means that the process of negotiating taxes has become increasingly challenging for merchants. By 2022, even more significant modifications are in place and depending on the country or countries you operate or reside in, may impact how you operate.

For U.S. businesses, crossing state lines doesn't differ much than crossing country borders. Actually the way it is done could be more difficult than, for example an enterprise located in an EU country selling its products to customers in different EU nations.

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

To make it easier to begin this article will present a general review of eight upcoming tax changes for companies in the U.S., the U.K. and the EU and a host of others countries and regions. The first few concern mostly the U.S., and the others affect other countries.

1. Nexus law -- Where your business is located

In the case of U.S. businesses, you must pay sales tax on sales made to clients in states where you have what's called the nexus. This was once a simple. There was a connection with one state when it was where your warehouse, office, or any other physical presence was located. However, now that there are so many remote employees and many states claiming that your business has a nexus if you have employees who reside within their boundaries.

This means that you could be present in several states, even though all of your operations are in one. Beyond a physical presence, states may think you have a connection to their territory in the event that you sell more than an amount of money or perform more than the specified amount of transactions to customers in the state in which you operate.

Complicating this is the fact that certain products are tax-free and those rules can be different in each state.

Furthermore, after the South Dakota vs Wayfair 2018 ruling, states are able to be able to collect sales tax from outside of their state in order to purchase products within their respective states. This is to enable brick and mortar companies to compete on a more level playing field with online businesses. The logistics may be difficult.

It is further complex in states where different counties charge different sales tax rates.

If you are a business that is online, you have to determine each state -- or county which considers that you be physically or have an economic presence and figure out the sales tax that you owe.

Read more about sales tax changes.

2. Different sales tax rates, boundaries, and rules

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

The government is regularly updating its sales tax rates. Certain items which used to be taxed are becoming exempt in some areas like diapers as well as feminine hygiene products. Others items that weren't taxed before now are like single-use plastic bags.

Then there are the periodic rate adjustments like sales tax holidays or tax reliefs that could be in place during the COVID-19 pandemic. The public loves them, however they can make tax accounting very hard for business.

As well as the tax rates changing You must also be aware of the boundaries between the taxing authorities. Some cities straddle two states. Some cities span two counties. Sometimes, the house next door has different rates for sales tax. These boundaries may alter.

The  Get more information on this, and more industry tax reforms in 2022.

3. Where customers buy and the method they use to pay

What happens when a buyer purchases online, but wants items delivered to the shop for pick-up, and their residence is in another tax district that is not the store? It's called Buy Online, Pick up in Store (BOPIS). The online sales tax may be different from the location where the purchase is delivered.

It is essential to keep track of every purchase made by a customer so that you're sure that you pay the tax in the proper nation, city, or state.

For example, should you charge sales tax on the purchase price in advance, or spread it out between each installment? Making it all upfront implies that the customer doesn't actually have to pay in equal installments. If you spread it out, what happens if the taxes on sales change prior to the entire payment has been made? Should you pay the updated amount to the remainder of your payments? And what about any BNPL costs from your service provider? What is the procedure if they have to take back the item after any payments have been made even though you have already paid your tax to the government?

Every state, nation and county will respond to these issues in a different way.

4. Sales tax sourcing

There are three types of methods for sourcing used in U.S. states to determine the tax payer:

1. Destination sourcing: based on 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 advent of internet-based eCommerce many businesses relied on origin-based sourcing since it was the most simple to use and was the most sensible. Now, however, due to the proliferation of international and interstate commerce, the lines have become blurred, and there's now a lot of tax revenue that is not collected on online purchases.

This is why several states are moving to destination sourcing, meaning you pay taxes according to the country of the buyer. Even for small businesses, if you sell products nationwide in the US, you may have keep track of the purchases made by customers from all 50 states.

5. Monitoring of sales and business transactions via digital technology transactions

All across Europe and Latin America, and the remainder of the world nations are developing ways for monitoring all transactions so they can be able to collect the correct amount of sales tax and VAT.

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

In 83 countries, there is already some type of electronic invoicing or reporting legislation that are in force, and many more are working to implement the issue. The types of monitoring for digital transactions are:

• Real-time reporting: Transaction reporting as it happens
• Standard Audit File for Tax (SAF-T) allows for authorities to gather tax data
• E-invoicing: governments approve each invoice before a customer sees it
• The requirement for invoicing on a four-day basis is not quite as stringent as real time however, the idea is similar

All of these systems are intended to make compliance easier and reduce errors and minimize tax avoidance. These systems also help audits become easier and speedier.

L earn more about how countries are using electronic invoicing for control of sales tax .

If your company is involved in international commerce, you'll have be in compliance with every country's taxes and invoice process.

Brexit serves as a good example of how this might function.

Britain is now implementing an initiative called Making Tax Digital, which is applicable to all businesses in the U.K. as well as the ones selling to it like any other within the EU. The new system even applies to individuals who are self-employed U.K. businesses and landlords.

Furthermore, EU businesses that sell to people who reside in Britain will have to charge them VAT. For smaller purchases under 150 euros, businesses will utilize the Import One-Stop Store (IOSS) the electronic registration site which makes it simpler to comply with VAT requirements.

In the case of those EU firms that are selling to nations within the EU They would utilize to use the One-Stop Shop (OSS) system, similar to the IOSS, but only for commerce within the EU.

Accessing and working with each of these platforms will need businesses to invest some amount of money up front, but it allows them to quickly conduct business with customers in the EU's many nations.

The U.S. has yet to implement a system for electronic billing or reportage.

6. The Harmonized System

The Harmonized System began in 1988, but with so much online commerce it's now an essential part of global commerce.

The Harmonized System is a method that allows for the coding and tracking of all products across every industry each whenever they pass through an international border. This makes it simpler to monitor sales volumes across borders so accurate taxes on sales and VAT will be collected on goods and services.

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

Using the HS codes can be complicated very quickly due to the fact that the different nations do not update their codes immediately. Certain take years. It means you can offer the same product across two different countries which means you will need to apply two different codes.

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

7. Eliminating taxation minimum requirements

In particular, in particular in the U.K. and EU nations The previous minimum requirements when VAT applies are starting to fall away.

For imports coming into the U.K., there used to be the PS135 minimal order size prior to VAT was applied. This is now being phased out and so is the relief for low-value stock that used to be available for products that were not PS15. VAT for both of these will now be collected on the spot by the purchaser at the time of the checkout.

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

For imports coming into the EU A similar minimum of EUR150 was used to be the norm, and that too will be gone. IOSS customers are now legally required to pay VAT at point of sale for any purchase below that amount.

And many other nations -such as Canada, India, Malaysia as well as China and Malaysia are currently working on similar types of tax reforms.

8. Additional tax-related issues in 2022 and beyond

Problems with the supply of food

Problems with labor supply and shortages could affect your tax position.

For example, with so numerous items being bought that are then returned, how will you deal with the tax collection? Must you amend tax returns to reflect taxes already due?

Marketplaces on the internet

If you sell products through one of the hundreds of online marketplaces such as Amazon or Wayfair certain states and countries are taxing these marketplaces, and the tax may or may not be passed on to your customers. Some states let the sellers on these platforms remain free of tax.

Non-typical product types

Many countries that have always taxed taxi services as well as car rental taxis are now trying to tax car sharing too.

If you offer online courses, these also may become subject to taxation. There are a variety of methods that courses differ from each other. There are courses that are live some are recorded. Pre-recorded courses are more like a product. Others require downloads of the materials. Some send materials through the post.

Different localities and nations can approach each of these kinds of training and education service circumstances in different ways.

What about software?

There are now at least ten different types of software product categories, including packaged and shipped as a genuine product packaged but downloaded electronically customizing, as well as many others. Again, each type may be taxed in a different way based upon the location and the country in which your company is determined to be based -this nexus question which opened this can of worms back at the start of.

Do you need help with taxes?

Tax services are not offered by the company The information in this document is intended to provide information and guidance for businesses that are trying to understand how they can comply with tax laws.

But, Avalara can help you with tax automation software that makes compliance much more simple. Particularly for small businesses that do business across the U.S. or across international borders, there's a lot to be aware of. Software for tax compliance might be one thing to consider.