Within the 5 years because the momentous Wayfair resolution by the U.S. Supreme Courtroom, the gross sales tax panorama has shifted dramatically. Till that time, nexus — the connection between a vendor and state that requires the vendor to gather and remit gross sales tax there — was based mostly on having a bodily presence in a given state. Ecommerce taxes weren’t a factor: Many on-line purchases weren’t taxed, and life was so much simpler for web sellers (and cheaper for his or her clients).
However within the wake of South Dakota v. Wayfair, Inc. in 2018, all the pieces modified. This Supreme Courtroom resolution allowed states to create nexus necessities based mostly on the quantity of gross sales or the variety of transactions a vendor has in a state, no matter whether or not the vendor or its merchandise are literally situated in that state.
Most states have taken benefit: On the time of writing, 46 states now have financial nexus legal guidelines. (Must know if these legal guidelines apply to you? Check out Avalara’s free guide, which explains the financial nexus thresholds in every state.)
Totally different legal guidelines in several states add compliance challenges
This created important compliance challenges, and as extra states continued to introduce legal guidelines round ecommerce taxes, the complexity solely grew. Much more difficult is the truth that not solely is gross sales tax completely different from state to state, it may be completely different inside a state, too: Cities and counties usually have their very own taxes on prime of the state’s base gross sales tax, which may make figuring all of it out a nightmare.
And, retailers don’t simply must cost the correct quantity — they’re chargeable for submitting returns and remitting the funds to every particular person state. (Fortunately, retailers don’t should file separate returns and ship separate funds for the cities and counties inside these states.)
So as to add yet one more hurdle, guidelines and rules change steadily, so firms that thought they had been assembly their obligations will be in for an disagreeable shock.
Ecommerce continues to develop
Nonetheless, customers didn’t flip away from on-line buying, regardless that they needed to modify to the thought of paying gross sales tax on their purchases. Actually, they shopped extra: In line with the International Trade Administration, world retail B2C ecommerce gross sales have gone from roughly $3.3 trillion (USD) in 2019 to a projected $5.9 trillion in 2023.
Whereas a few of that improve could possibly be attributed to the pandemic, it’s clear that the Wayfair resolution hasn’t pushed retailers — or customers — away from ecommerce. At present, WooCommerce has almost 4 million reside installations serving to companies of all sizes promote their services on-line.
Tax income is booming, too
As on-line gross sales have grown, so has tax income — and the financial nexus legal guidelines enacted after Wayfair have confirmed to be a boon for states. The U.S. Authorities Accountability workplace studies that states collected not less than $23 billion from on-line sellers in 2022. That’s triple the quantity collected in 2019, and almost eight occasions what they introduced in from distant gross sales earlier than Wayfair.
There’s some huge cash at stake on the subject of gross sales tax, and this progress comes throughout a interval when general tax income in lots of states has lagged. Which means states are more likely to aggressively defend this new income supply by means of elevated enforcement and audits.

The price of audits, monetary and in any other case
Whereas elevated gross sales are excellent news, elevated audits aren’t: the common gross sales tax audit prices greater than $300,000 USD. (Avalara) However even for firms that don’t have that form of income, an audit can nonetheless be pricey, as a result of it’s not all concerning the cash. It’s additionally about time. In line with Avalara, whose tax options combine seamlessly with WooCommerce, the method of a typical gross sales and use tax audit can take 30 to 45 days or longer.
Coping with an audit virtually at all times means companies should take time and sources away from different issues to be able to reply — which may put a pressure on the enterprise, particularly for smaller firms. Mix that with potential monetary penalties, and it’s simple to see why it’s so essential to remain on prime of gross sales tax.
International gross sales add the accountability of world compliance
Financial nexus isn’t a priority restricted to U.S. firms, both: Retailers situated outdoors the U.S. are topic to state gross sales tax legal guidelines, even when they aren’t required to pay federal revenue tax. Firms that promote within the U.S. should adjust to the legal guidelines of the states the place they promote. And retailers with stock in a warehouse within the U.S. might need to think about bodily nexus, too.
Equally, U.S. firms that promote overseas want to consider their world tax obligations. Many nations require taxes to be collected as soon as a sure threshold is reached — however just a few don’t have any threshold in any respect, that means taxes on each sale must be collected and remitted.
What does all of it imply for you?
Ecommerce tax compliance is usually a lot to course of. Even if you happen to’re already conversant in the ideas of financial nexus and ecommerce taxes (like many Woo retailers), you’ve in all probability received questions. That’s comprehensible — in any case, you’ve higher issues to do than monitor present gross sales tax developments.
However let’s check out three key takeaways for what you are promoting as you progress forward on this quickly altering panorama.
1. Ecommerce taxes are possible going to stay as advanced and complicated as ever
The world of ecommerce taxes will be extremely fluid — which suggests even if you happen to’re protecting your head above water now, there could be an enormous wave simply over the horizon. A state might decrease its threshold to the purpose the place you’ve financial nexus when the regulation modifications. One other state might begin taxing the objects you promote in another way than earlier than. Charges might change in any variety of jurisdictions. And worldwide rules ramp up the complexity even additional.
Gross sales tax instances proceed to come up within the courts, too: Earlier this 12 months, the U.S. Supreme Courtroom declined to listen to a case arguing that an organization situated in North Carolina shouldn’t should pay the state $3.24 million in gross sales taxes and penalties for objects that it bought outdoors of the state. (We are able to’t get into all the small print right here, however the brief story is that the corporate initially obtained supplies outdoors of the state, transferred them to a service — additionally outdoors the state — after which the supplies had been finally delivered to clients in the state. The state determined to tax these gross sales, and gained when the corporate sued.)
What’s the following large wave going to be? No person is aware of. The one factor that’s sure with gross sales tax is that the waves are going to maintain coming — and large or small, any of them can affect what you are promoting.
2. Many companies will proceed to battle with compliance
Making an attempt to manually sustain with rules in several states and markets — after which work out the correct quantity of tax to cost on each transaction, and then file and remit taxes in every jurisdiction — will be virtually inconceivable for companies of any dimension. Small companies usually don’t have the sources to do it, whereas many medium and enormous firms promote in too many markets to handle all of it on their very own.
An Avalara survey of 1,000 businesses within the U.S. and U.Ok. illustrated the challenges: Virtually 40% of respondents don’t imagine they’re absolutely compliant with financial nexus legal guidelines, with small companies probably the most unsure. And solely a bit of greater than half stated they may even clarify all of their on-line gross sales tax obligations (which could imply they aren’t assembly them). In case you discover tax legal guidelines advanced and complicated, you’re not alone: 72% of respondents agreed.
3. Expertise goes to be much more essential
WooCommerce doesn’t accumulate gross sales tax for you, however the energy of our platform contains integrations that may aid you keep on prime of your tax compliance — proper within the system you already use.
As an example, Avalara AvaTax can handle all the pieces from calculating gross sales tax in several jurisdictions to managing exemption certificates (for purchasers who don’t must pay gross sales or use taxes). You’ll be able to even automate submitting returns and remitting funds. And if you happen to promote globally, Avalara streamlines calculation of customs duties, VAT, and extra.

With the proper instruments, you gained’t want to remain on prime of fixing guidelines and rules, as a result of the system will replace robotically. You gained’t must surprise if you happen to’re charging the correct quantity of tax. And also you gained’t want to fret if you happen to occur to be audited, as a result of automation additionally considerably reduces the danger of tax errors in your transactions.
Another excuse to lean on know-how is the affect it will possibly have on the remainder of what you are promoting. Within the Avalara survey, 33% of respondents stated they used handbook instruments — akin to spreadsheets and charge tables — to assist handle their tax compliance. Handbook instruments like this may increasingly really feel acquainted, however they pose the danger of handbook errors and take numerous time to make use of and keep. With automation, you don’t simply cut back the danger of errors; you may improve the time you or your employees put towards extra worthwhile initiatives.
Compliance doesn’t should be an impediment
Whereas the instruments in WooCommerce can assist you make gross sales tax much less nerve-racking, it’s by no means going to be simple — particularly if what you are promoting is seeking to develop, enter new markets, or introduce new merchandise. However with the proper strategy, the proper options, and the proper companions, you may be sure that your compliance obligations don’t get in the best way of alternative.
This publish was written in partnership with Avalara. Oliver St. George is a Senior Associate Advertising Supervisor at Avalara within the fintech and commerce area.