Business, VAT, and Sales Tax changes to eCommerce by 2022.

With eCommerce booming, borderless shopping increasing, and so various ways to purchase and the types of goods to offer, government officials are beginning to feel in the dark in the collection of taxes on transactions. In the last few years, authorities around the world have updated legislation to accommodate the changing market.

This means that managing taxes has become increasingly challenging for merchants. In 2022, more big adjustments are coming into effect 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 than crossing country borders. In fact the way it is done is more complex in comparison to, say the business operating located in an EU nation selling to consumers in other EU nations.

As our friends at Avalara demonstrate in their guide to tax changes in 2022 There's plenty to cover around this topic.

In order to make things easier in the meantime We'll give you a broad outline of the tax-related changes that will be coming for businesses within the U.S., the U.K., the EU as well as a variety of others countries and regions. The first few concern mostly countries like the U.S., and the others affect other countries.

1. Nexus law -- Where your business is located

For U.S. businesses, you must pay sales tax for sales to customers in states where you have what's called the"nexus. Again, this was once a simple. It was possible to be considered a nexus within the state in which your warehouse, office, or any other physical presence was located. Now, with many remote employees, many states claim you have relationship with them if they have employees within their boundaries.

That means you can potentially be present in several states even if all your operations are in only one. In addition, if you have an actual presence, some states be able to consider you to have connection to their territory in the event that you sell more than a certain dollar amount or perform more than a particular number of transactions with customers within their respective state.

This is complicated by the fact that some products can be tax-free and that the rules may be different in each state.

In addition, following the South Dakota vs Wayfair 2018 ruling, states are able to currently collect sales taxes outside of state on products bought within their respective states. This was done to allow brick and mortar businesses to be on a equal playing field than internet-based businesses. However, the process could be a nightmare.

This is made even more complicated in some states in which different counties have various 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 there and then calculate the sales tax due.

Learn more about sales tax changes.

2. Variations in sales tax rates as well as boundaries and rules

Knowing what you owe in each state could be difficult enough. What happens if the situation changes?

Governments are routinely updating their sales tax rates. Certain items which used to be taxed have now become exempt from taxation in certain areas like diapers as well as feminine hygiene products. Some other items that were not tax-exempt before now are items that are single-use, like plastic bags.

There are also temporary rate changes like sales tax holidays, or tax exemptions which may be in place during the COVID-19 pandemic. The public loves them, however they can make tax accounting a challenge for business.

Alongside taxes You must also know the boundaries of taxing jurisdictions. There are cities that cross two states. Some cities span two counties. In some cases, the home across the street has different rates for sales tax. These boundaries may alter.

The  Get more information on this and the other tax changes in 2022.

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

What happens when a buyer purchase online and has an item shipped to the shop for pick-up or delivery, but their home is located in another tax district that is not the company? This is called Buy Online, Pick up in Store (BOPIS). Taxes on sales online could differ from the store where the purchase is delivered.

It is essential to track this for every purchase made by a customer so that you can be sure to pay the tax in the proper country, city, county or even the state.

For example, should you collect the sales tax on the purchase price at once, or spread it out over the installments? Doing it upfront means the customer doesn't actually make equal payments. If you spread it out how will it be affected if rate of sales tax changes before all the payments have been made? Are you required to pay the updated amount to any remaining installments? Do you have to pay any BNPL charges from the service provider? Also, what is the procedure if they have to returned the item prior to any payments have been made even though you've already paid taxes to the federal government?

Every country, state, and county may handle these situations differently.

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. Origin sourcing: based on where the seller is located
3. Mixed sourcing: a blend of both

Prior to the Internet and eCommerce, most places used origin sourcing, since it was the most simple and most sensible. Now, however, due to an increasing amount of interstate and international commerce, the distinctions are blurring and there's lots of tax money going uncollected from online purchases.

In this regard, some states are shifting to destination sourcing. That means that you are taxed based on the location of the purchaser. For small-sized businesses selling goods across the US it is possible that you will need to keep track of transactions made by clients in the 50 states.

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

Across much of Europe across Europe Latin America, and the other regions of the globe, nations are developing methods for monitoring all transactions in order to collect the proper quantity of sales tax and VAT.

There is a lot of commerce international inside the EU as well as among the EU and Britain as well as among Europe with South Korea and other Asian nations, in addition to Canada and Latin America, various forms of electronic invoice are fast becoming standard.

There are 83 countries that have at least one type of electronic invoice or reporting law that are in force, and many more are working on the issue. Types of digital transaction monitoring are:

• Real-time reporting: transactions reporting as it happens
• Standard Audit File for Tax (SAF-T): makes it easy for authorities to obtain tax-related information
• E-invoicing: governments approve each invoice before the customer can see it
• Invoicing for four days: Not quite as stringent as real time, but the same idea

All of these systems are intended to make compliance easier, as well as reduce errors and minimize tax avoidance. They also make auditing easier and speedier.

L earn more information about the ways that countries use electronic invoices for sales tax monitoring .

So if your business conducts international commerce, you'll have to adhere to the laws of each country's tax reporting and invoicing method.

Brexit serves as a good model of how this can work.

Britain is now implementing an initiative called Making Tax Digital, which is applicable to all businesses in the U.K. as well as companies selling products to it like any other within the EU. This new tax system will also apply to entrepreneurs who work for themselves U.K. businesses and landlords.

Additionally, EU firms that sell to customers who reside in Britain are required to tax them with VAT. Smaller purchases that are less than 150 euros, the business will utilize the Import One-Stop Store (IOSS) the electronic registration portal which makes it simpler to adhere to VAT laws.

If those EU businesses selling to other nations within the EU They would utilize this One-Stop Shop (OSS) system which is similar to IOSS However, it is only used to conduct business inside the EU.

Working with and accessing each of these platforms will require businesses to spend some cash upfront. However, it will allow them to more easily conduct business with consumers in the EU's many nations.

The U.S. has yet to establish a system of electronic invoices or reports.

6. The Harmonized System

The Harmonized System began in 1988 and, in the age of digital commerce today the Harmonized System has grown to become an essential part of global business activity.

The Harmonized System is a method to code and track products in every industry every time they cross 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 get updated every five years, and in 2022 the seventh edition will be released.

Using the HS codes can be complicated very quickly due to the fact that not every nation updates their codes instantly. Certain need years to update their codes. It means you can sell the same item in two countries and you'll need two different codes.

What happens when a product is misclassified with the wrong code? Taxes could be assessed at the wrong amount and result in penalties and delays, problems at the border, and angry customers. Read more regarding the Harmonized System and related global tax problems.

7. Eliminating the minimum tax requirements

Particularly specifically in the U.K. and EU nations the previous minimum standards for when VAT applies are starting to disappear.

For imports coming into the U.K., there used to be an PS135 minimum order amount before VAT is applied. This is now being phased out, as is the relief for low-value stock that used to be available for products that were not PS15. VAT for both is now due on the spot, with the customer, during checkout.

There are currently no changes to policies for amounts above that threshold.

In the case of imports entering the EU A similar threshold of 150 euros used to be the norm but that will be gone. IOSS customers will be obliged to collect VAT at point of sale for all purchases under that threshold.

In addition, many countries- including Canada, India, Malaysia and China and Malaysia are currently looking at similar tax reforms.

8. Additional tax-related issues in 2022 and beyond

Problems with the supply of food

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

As an example, with the numerous items being bought and then returned, how do manage the tax collected? Should you alter the tax return for taxes that have already been due?

Marketplaces online

If you offer your products via one of the hundreds of online marketplaces like Amazon or Wayfair certain states and countries are taxing the cost, which may or may not be passed on to your customers. Certain states allow the sellers on these platforms remain free of tax.

Non-typical product types

A number of countries which have historically taxed car rental services and taxis are now trying to tax car-sharing services as well.

If you offer online-based courses, you could be taxed. But there are several methods that courses be different from each other. Certain courses are live and others have been pre-recorded. Pre-recorded courses are more like an item. Other courses require downloading materials. Many courses offer materials by post.

Different countries and localities can approach each of these types of education and training situations differently.

How about software?

There are now at least ten different types of software product categories, such as packaged and delivered as a genuine product digitally downloaded but packaged customizing, as well as many others. Again, each type may be taxed in a different way based upon the location and the country where your business is determined to have a presence -- that nexus issue which opened this issue in the start of.

Are you in need of tax assistance?

Does not provide tax assistance This article is meant to be informative and useful to businesses seeking to learn more about how they can comply with tax laws.

However, Avalara can help you through tax automatization software which can make compliance easier. Smaller companies, in particular who do business in the U.S. or across international border, there's lots to track. The tax compliance software is something worth looking into.