How to navigate the sales tax labyrinth in omnichannel retail

In retail today, an omnichannel approach is essential, but it can create significant challenges for tax departments. Customers expect retailers to provide a consistent shopping experience across shops, mobile and online, but that means navigating a complex web of tax calculations across a range of products and jurisdictions, all while keeping pace with quickly changing regulations and a high volume of transactions. This blog looks at how retailers can address these challenges head-on. We explore common pitfalls, introduce innovative strategies, discuss the integration of automation and highlight the advantages of implementing centralised tax management systems.

The costly consequences of tax errors

In the tax world, missteps can have severe consequences. Having inaccurate product classification, incorrect tax rates or outdated rules can be costly and can create friction during customer checkout and return events. If shoppers are frustrated, they may take their business elsewhere, damaging the brand’s reputation and causing a loss of sales.

Tax departments are even more susceptible to these pitfalls if they’re under-resourced, struggling with outdated technology or encumbered with manual processes and spreadsheets. Temporary IT fixes, patchwork solutions and manual workarounds can’t keep up with transaction volume, don’t facilitate data sharing between channels and can have adverse impacts on downstream reporting and compliance.

Rethinking brand channels and systems

Legacy approaches are relics of the pre-omnichannel era when brick-and-mortar shops and mail-order catalogues were the primary points of sale. Continuing to rely on outdated systems and processes increases the risk of calculation errors, missed tax updates and potential compliance issues. As a result, retailers are having to rethink how their brand channels interact with one another and improve their business systems to operate more effectively and efficiently.

If companies promise customers that they can purchase and return merchandise anywhere through whichever channel they prefer, a company’s tax systems must be up to the task. Supporting that kind of flexibility is no easy feat, as it requires more powerful systems with a broader range of capabilities and leaders who understand why these systems are necessary.

The power of tax automation

An effective omnichannel tax-management system requires several components, but it all starts with automation. Tax automation streamlines compliance and ensures accurate tax determination at the point of sale, resulting in a more efficient checkout process for customers, regardless of the channel they use or their location. A well-supported, centralised tax engine should also be able to scale up during high seasons, so customers get a smooth checkout experience, even during periods of high demand.

Tax automation is effective in an omnichannel sales environment because it uses comprehensive tax rates and rules to navigate the complexities of product classification and coding. It also considers the unique tax scenarios that retailers face. Sales taxes alone are complicated enough, but retailers also have to contend with everything from sales tax holidays and social-programme interactions (like SNAP benefits) to delivery fees, specific product taxes and environmental levies.

Automation also helps keep up with the speed and volume of omnichannel transactions, when millions of checkout and compliance transactions per month — or even hundreds of transactions per second — are not uncommon.

Centralised tax management systems — the key to success

The more demands put on a company’s tax system, the more sophisticated the underlying system architecture must be. That’s why many large retailers are transitioning to centralised, cloud-based tax-management systems.

A centralised, cloud-based tax-management system creates a single platform for managing and maintaining tax policy and sales data to support reporting, compliance and audit needs. This eliminates the technical and geographical limitations that plague outdated systems. Centralised systems are also flexible. If they include automated content support and API integrations, they can instantly adapt to new regulations and industry changes. Scalability is an equally important feature of a centralised tax platform, because any modern tax system needs to grow with the business.

Benefits far beyond tax

The benefits of a centralised tax-management system extend far beyond accurate tax calculations. High-quality tax data allows tax departments to move beyond compliance and take on a more strategic role within the organisation. With the right analytics, tax data can even improve supply-chain monitoring, support strategic planning and ultimately lead to better decision-making.

Incorporating new tax technologies into a company’s software ecosystem is also an intelligent strategic decision. Centralised, cloud-based tax technologies help companies adapt to the demands of digital invoicing, real-time reporting and future innovations. Investing in tax infrastructure is not just about meeting current needs, it’s about future-proofing the business and ensuring that the enterprise is prepared to navigate every turn in the complicated world of taxes.

Learn how Adobe Commerce gives you everything you need to provide omnichannel retail experiences at any scale.

ONESOURCE Determination seamlessly connects with Adobe Commerce to automate tax calculations anywhere in the world. Together, ONESOURCE Determination and Adobe Commerce power your digital business and accelerate growth with personalised, compliant commerce.

Ray Grove is the Head of Product, Tax and Trade at Thomson Reuters.

https://business.adobe.com/fragments/resources/cards/thank-you-collections/commerce