December 15, 2017
Have you ever seen a product in a store and thought “I bet I can get it cheaper online?” With the growing number of mobile internet connections, the ability to seek a better price from an online merchant is literally at shoppers’ fingertips. We are typically never more than 10 feet away from a device that can connect to our favorite online store and provide access to any product we may want.
Although the online marketplace is growing, it’s not always a “fit” for every business. Businesses need to consider if it makes sense for them, and look at all factors, including inventory, advertising, payment, delivery, returns, and taxes.
Many Prefer Online Shopping
Numbers don’t lie: According to BigCommerce.com, 51 percent of Americans prefer to shop online. While millennials are the highest percentage of online shoppers at 67 percent, more than half of GenXers prefer online shopping as well, and even 41percent of baby boomers would rather click a digital shopping cart than push one down the aisles. In fact, 96 percent of Americans surveyed have made a purchase online, with 80 percent of those purchases being within the past month alone. Unfortunately, many smaller merchants are missing out on this market; 46 percent of American small businesses do not have a website.
In the next five years, the e-commerce market is forecast for steady growth. In our fast-paced society, people are often strapped for time and would rather shop online versus visit a brick and mortar store. Businesses are realizing this, and many are entering the online market. This uptick in online retailers increases the competition and causes companies to distinguish themselves through marketing, offering free or discounted shipping or selling unique and hard to find products.
Challenges for Businesses
The cyber highway is not, however, without roadblocks. Online merchants have to rely on shipping companies and keep a close eye on inventory. Technology is also ever-changing, and online merchants must be sure to keep up with the latest software systems, internet speeds, and personal information security.
Using a Fulfillment Service
Amazon is nearly synonymous with online retail, and for good reason: Amazon.com, Inc. has nearly 20 percent of the entire e-commerce market share, with the other 80 percent being made up by everything else. In 2013, Amazon’s sales reached $77.5 Billion, however, this may be due in part to Amazon’s sales platform; over 40 percent of these sales were attributed to third party sellers.
When it comes to selling online, companies can choose to use fulfillment services, like Amazon, or can set up their own online stores. However, there are some areas of concern to pay attention to when setting up a sales platform on your website. It can be difficult to track payments, proper tax collection, distribution, shipments, and product returns, making it important to have knowledgeable staff and resources.
Selling on Your Own
When selling from your own platform, it is also your responsibility to determine nexus, obtain a sales tax license, and determine rates and taxability. The latter can be especially challenging; although many online shopping carts are programmed to calculate sales tax based on the customer’s location, businesses still need to keep track of filing and remitting the tax from online sales.
Tools for Tax Compliance
If your businesses is considering entering the online market, there are a variety of tools available to answer your questions and assure you remain in compliance with all state and local tax rules:
Contact your local Eide Bailly professional or a member of our state and local tax team today to get started.