Festive decorations line the aisles and holiday classics start playing in every store you enter. The holiday shopping season appears to start earlier each year, with Black Friday and Cyber Monday deals extending for weeks and retailers constantly competing for consumers’ attention. While this longer shopping season may benefit the consumer, it also poses sales tax complications for retailers that can last well into the new year when return season strikes.
Retailers are going to need more than a large peppermint mocha latte to survive this holiday season. They’ll need AI-assisted tax and compliance technology to come out on top in response to four popular and emerging complexities.
Loyalty Programs
It’s not uncommon for brands to roll out loyalty programs to frequent customers, offering exclusive early access to sales, rewards for purchases or deals on shipping. The challenge with loyalty programs is not the program itself, but the increased volume of discounts and promotions it generates that leads to far more complicated tax calculations. This is especially common in the case of buy-one-get-one (BOGO) deals or order level discounts.
Additionally, the checkout process must remain consistent whether consumers are shopping in-store, online or using the retailer’s app. Retailers must have a tax engine in place so that all tax calculation is conducted seamlessly on the backend and is not disruptive to the consumer experience.
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Omnichannel Consistency
The holiday rush ushers in a spike in consumer demand, with new products flooding the physical and virtual shelves just to keep up. Many retailers widen their product range at this time of year – special edition holiday candles, a surplus of toy offerings, cozy winter gear in droves – meaning tax calculation across these channels becomes more critical. We also see this with retailers that carry name brands and store brands, bringing a larger variety of similar products into the mix and therefore possibly more taxability categories.
According to a recent Vertex survey, 77% of consumers plan to shop more online or a mix of online and in-store, so this surplus of product is likely to be shipped to multiple addresses, even within one order. With an integrated tax engine at the ready, retailers can feel confident that the sales tax will always be calculated quickly and accurately, regardless of added complexities.
Imagine the complexity of retail operations spanning multiple countries and channels including brick-and-mortar, mobile, marketplace and social media, with a vast and ever-changing product range. This requires a performant, automated solution that calculates tax accurately, using up-to-date tax rates and rules with consistency across those channels and the scalability to handle peak periods. A trusted tax solution not only better ensures compliance; it also contributes to a consistent overall customer experience and allows organizations to focus on more strategic initiatives.
Experience Gifting
The Vertex survey also found that 58% of consumers are opting to purchase gift cards and experiences this holiday season versus physical items. In return, retailers are focusing more on experiences to differentiate their brand by bundling experiences with physical items – a golf outing with a set of golf clubs, an outdoor excursion with hiking equipment or a maintenance contract with an appliance.
While these bundles are great for the recipient and ultimately for the retailer’s bottom line, combining a gift card or experience with one or multiple physical items in the same transaction makes it challenging to calculate the sales tax. Accuracy is key here, and with more than 20,000 tax rules and rates across the globe, no singular tax department can manage every update without the help of an automated tax engine to get through the holidays with ease.
Complex Returns
The holiday shopping season starts earlier than ever – but it also ends later than ever for retailers that must handle a high volume of returns. Sales tax rates update often, and there are increased chances for the sales tax rate of the purchase date to change by the time an item is returned a month or more later. Just as retailers want to reduce tax complexities to prioritize a seamless consumer experience at checkout, it is imperative to mimic the same consumer experience when processing a return.
Tax and compliance solutions are retail’s secret weapon to navigating a successful holiday shopping season. From early Black Friday deals to the dreaded “Returnuary,” retailers that invest in an AI-driven tax technology engine will find themselves on the nice list.
Pete Olanday is Director, Retail Consulting, responsible for the integration of Vertex‘s Indirect Tax solutions in the retail space, specifically with Point-of-Sale systems and ecommerce platforms. Prior to joining Vertex, Olanday worked for Ikea and EY. He has a B.S. in information and decision sciences from Carnegie Mellon University.
