According to some experts, the pandemic has accelerated ecommerce shopping by nearly five years. For many businesses, this acceleration has meant new opportunities to reach customers, expand sales channels, and in some cases, keep the lights on amid in-person restrictions.

The pandemic has also created numerous positive changes for consumers. For example, more consumers are comfortable using technology to order groceries and have meals delivered — saving them time spent on those activities. Consumers have also benefited by having more products and services available to them digitally. From telehealth visits to same-day delivery of nearly anything you can think of, convenience has taken center stage over the past year.

However, the rapid acceleration of ecommerce hasn’t been all positive. There have been a number of hurdles for businesses and consumers alike over the past year — especially when it comes to shipping and logistics. Many retail businesses had to transform their retail storefronts into fulfillment hubs, requiring them to partner with new third-party logistic companies. Ahead of the holiday season, many manufacturers and retailers braced for what was called “shipageddon” — concerns over packages not being delivered before the holidays arrived.

While shipping disruptions have improved significantly since the beginning of the pandemic, another ecommerce-accelerated hurdle is beginning to place a burden on retailers — remote sales tax.

Ecommerce growth = Expanded sales tax liability

A 2018 Supreme Court decision granted states the ability to impose sales tax on transactions made into their jurisdiction. This ruling overturned decades of tax law that required a business to have a physical presence in a state to collect sales tax. Today, 43 states, the District of Columbia, and local municipalities in Alaska require businesses to collect sales tax based on remote sales made into their jurisdiction — including sales made online.

The rapid nature of ecommerce expansion in the last year is the type of shift in consumer behavior and business operation that typically takes years to achieve. As a result, many businesses had to prioritize getting online or expanding their ecommerce presence quickly — leaving little time to go through the usual steps of business expansion. As ecommerce sales began increasing, many retailers triggered new sales tax obligations however, a lack of awareness left them exposed to state and local requirements creating risk in their business.

Remote sales tax obligations are on the rise

A December 2020 report from Avalara found that retailers of all sizes are feeling the burden of remote sales tax laws. More specifically, since the beginning of the pandemic as more business has taken place online, the impact of these laws has increased sharply.

61% of businesses cited being impacted by remote sales tax laws in December 2020. Likewise, 50% of respondents noted that these laws have increased the complexity of sales tax calculations and filing for their businesses.

Similarly, marketplace facilitator laws — sales tax laws that require marketplaces to collect and file sales tax on behalf of third-party sellers — have also increased in impact for businesses. In December 2019, 45% of companies surveyed said marketplace laws were impacting their business; in December 2020, 57% said they felt their impact. While the burden of tax compliance partially shifts to the marketplace, the business is still responsible for threshold management, aggregation of their data and reporting if they had sales outside of a marketplace channel in a specific jurisdiction. The businesses being affected by marketplace facilitator laws cited an increase in the number of states they have to register in to collect and file taxes in, making tax compliance even more difficult to manage.

Sales tax risk is accumulating

The expedient nature of ecommerce adoption since last March combined with the range of challenges retailers have faced due to the pandemic has pushed tax compliance to the back burner for many businesses. Unfortunately, retailers that have expanded online face a growing amount of risk associated with the new sales tax obligations they have triggered.

In the short-term, ecommerce retailers face the greatest amount of risk when it comes to their customer experience. Charging an inaccurate tax rate, especially one that is too high, will be noticed by customers. As such, getting remote sales tax rates correct for online purchases is critically important for retailers who want to keep customers happy and avoid cart abandonment.

In the long-term, retailers will need to be prepared for compliance risk. Many tax authorities have observed an unspoken grace period of enforcement when it comes to remote seller laws, but that time will inevitably come to an end — likely soon after the pandemic comes to an end. Ecommerce retailers will need to ensure that they have accounted for all of the remote sales tax they’ve been required to collect over the past year to prevent audit penalties.

Ecommerce expansion has opened numerous doors for retailers and consumers alike. At the same time, because our society shifted to ecommerce so quickly, we’ve felt a number of growing pains. As we move forward, remote sales tax will likely prove to be a significant hurdle for many online retailers. They must navigate the growing number of states they owe sales tax to and work to ensure the right tax rates are being charged for each individual transaction. For those retailers who want to excel in the world of ecommerce, leveraging technology to automate every facet of the tax compliance process will be essential in reducing risk, improving accuracy, and saving time and money.