Manufacturers Embrace E-Commerce Amidst Pandemic Surge
E-commerce has been one of the most significant areas of growth since the beginning of the pandemic, reaching over 20% of all transactions this year and an expected 24% by 2026. Consumers have grown to expect that they can get anything they want wherever they are.
Manufacturers are increasingly ready to get a piece of that pie. Sapio Research found that more than half of manufacturers are now using e-commerce to some extent. Price Waterhouse Cooper reports that two-thirds of American manufacturers expect to have direct online sales within the next two years. The U.S. Census Bureau found that manufacturing e-commerce shipments totaled nearly $4.0 trillion.
Once manufacturers have embraced e-commerce for their wholesale accounts, it’s an easy step to offering products directly to consumers. Direct-to-consumer sales are included in the figures mentioned above, and they are becoming more commonplace. This significant change will create new challenges with sales tax for manufacturers nationwide.
Sales Tax Obligations
While most of us expect to pay sales tax when we’re out shopping on Main Street, manufacturers may not realize that they must charge sales tax for online purchases made directly to consumers. Here are some of the misconceptions that can slow that awareness:
- “We’re not retailers.” Brands that sell most of their goods wholesale or through distributors may not think of their low-volume online D2C sales as real retail and they may not think of themselves as retailers. Still, if you sell direct to consumers, you may need to collect sales tax.
- “It’s just a convenience.” Some brands will sell directly to consumers if there are no retailers in that consumer’s neighborhood, or they may sell discontinued products or irregular items. Sometimes manufacturers sell parts for repairs or extra items. If you make boats that are sold in showrooms but sell replacement seat cushions, you may still be responsible for sales tax.
- “We just charge sales tax to local customers.” If you think of sales tax as something you’d have to think about at the cash register, not when you offer replacement parts on your website, you’re behind the times. A 2018 Supreme Court decision allowed every state to require sales tax compliance from sellers in other states. While it’s possible to sell small quantities of goods in another state without incurring sales tax obligations, the threshold for sales tax compliance is often just $100,000 in sales per year. In some states, the number of transactions is also a factor.
- “We don’t sell that much.” Some states set their thresholds by totaling both taxable and wholesale transactions. If your total revenue in these states is over the threshold and only a small fraction of it was sold directly to a consumer, you are still responsible for collecting, filing, and remitting sales tax on those taxable sales.
Gartner points out that setting up an e-commerce section on the company website has become easier than ever before. With the great surge in e-commerce shopping, any manufacturer can feel that they’d be leaving money on the table if they don’t add e-commerce to their offerings.
But since they’re not opening a physical store, they may not consider sales tax obligations.
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