When the pandemic forced brick-and-mortar businesses to close or limit in-person sales, those without an e-commerce platform struggled to stay solvent. Almost overnight, selling online has become essential for all kinds of brick-and-mortar businesses, from grocery stores and restaurants to book and bicycle retailers. But in-store shopping is making a comeback.
More than half of consumers surveyed now prefer finding new products in-store rather than online, according to a new report from 5WPR. They enjoy talking with salespeople, getting their hands on products, and just basking in the ambiance of the store that has been closed to them for a while due to COVID-19. Similarly, more than 75% of American adults are comfortable dining out.
This rekindled love affair with brick and mortar may be why e-commerce’s share of retail has slipped over the past year and why store openings are on the rise. This could explain why physical sales exceeded online sales in March 2022, for the first time since spring 2020. Suddenly, it’s not hard to believe that 72% of retail sales in the United States will take place in physical stores in 2024, as predicted by Forrester.
Even digital natives fall for brick and mortar. Eyewear revolutionary Warby Parker already has around 160 stores and plans to open 40 more. Wayfair is opening three stores this year so it can meet customers “wherever they are in their shopping journey.” Bob Sherwin, Wayfair’s Chief Marketing Officer, said their new brick-and-mortar stores “will bring our brands to life in a new way.”
You can definitely do a lot in physical stores that you just can’t do online. If you sell sofas, customers can sit on them. If you sell shoes, they can meet the feet. But this is only the beginning. Dick’s House of Sport, a subsidiary of Dick’s Sporting Goods, has a batting cage, climbing wall, putting green, running track and grass court where patrons can try out new equipment.
Retailers who treat their physical store as an extension of the online store – and vice versa – are better able to meet customers where they are. Online shopping, in-store pickup and online shopping and in-store return services put the needs of customers first. The same goes for retailers that facilitate online sales for in-store customers when desired items are not available locally; instead of advising customers to “find it online,” omnichannel retailers can order merchandise for customers on the spot.
However, the mix of online and in-store sales can complicate tax compliance for retailers in several ways. Here are four of the most common.
4 Ways Selling Online Can Make Compliance Complicated for Physical Retailers
1. Buy online, pick up in store. E-commerce sellers who usually ship directly to consumers usually program point-of-sale (POS) systems to calculate sales tax based on the shipping address. An e-commerce seller with a physical presence must ensure that the tax is correctly allocated if the consumer buys online and collects in a store. In most states, sales tax rates are based on where the consumer takes possession of the goods. If it is a physical store location, the point of sale should take this into account.
2. Buy online, return in store. Similar complexities arise when a consumer purchases something online but then returns it to the store, either for a refund or an exchange. Retailers should make sure they refund the sales tax that was collected (provided they can; some states don’t offer sales tax refunds if too much time has passed). If a customer makes an exchange and picks up the new purchase at the store instead of having it shipped to their address, the retailer must ensure that the appropriate amount of tax is collected.
3. Economic link. Thanks to the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., it is now possible for a retailer to establish a sales tax obligation in states where it does not have a physical presence. Economic nexus laws base a requirement to collect sales tax on a remote retailer’s sales in a state, so some brick-and-mortar retailers who started selling online to survive COVID-19 restrictions may now have customers – and an economic connection – in one or more different states. That said, all states also provide an exception for companies whose sales in the state remain below a certain threshold; to learn more, see our state-by-state guide to economic ties laws.
4. Market sales. Market Facilitator Laws make Market Facilitators liable for tax due on sales to third parties. However, they do not necessarily eliminate all sales tax obligations for third-party sellers (i.e., the marketplace). Some states require marketplace vendors to register and file returns, although the marketplace facilitator is responsible for collecting and remitting the tax. Additionally, having inventory in a market warehouse or distribution center can give individual sellers a physical presence — and therefore a connection — in another state. Physical retailers selling on marketplaces should therefore be aware of the intricacies of Market Facilitator laws.
Automating compliance tasks can help physical retailers thrive in new situations
Given the convenience and rapid adoption of online shopping, many of us may have once thought brick-and-mortar retail would go the way of the rotary phone. It doesn’t, but that doesn’t mean it shouldn’t evolve.
Gail Cole is a senior writer at Avalara. Her mission is to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals.