April 14, 2024

Online shopping / ecommerce and delivery service concept : Paper cartons with a shopping cart or trolley logo on a laptop keyboard, depicts customers order things from retailer sites via the internet.

Ecommerce refers to the online sale of products and services through various mediums, from large e-retailers like Amazon or eBay, to digital marketplaces where buyers meet sellers directly.

E-commerce also involves selling directly to consumers – known as consumer-to-consumer (C2C) ecommerce – while it also encompasses businesses selling to other businesses or government bodies.

Classification

Ecommerce refers to the electronic exchange of goods and services between businesses, with exchanged information including exchange of data as well as procurement management functions being included within this category.

Business-to-business (B2B) ecommerce involves exchanging products and services between businesses, such as between wholesalers and retailers. Examples of B2B ecommerce include online directories and product/supply exchange websites as well as procurement interfaces.

Consumer-to-business (C2B) ecommerce allows for individuals to sell goods and services directly to businesses, whether that’s through freelance SEO experts offering their services directly or an influencer promoting products for a larger firm on their website.

Consumer-to-Consumer (C2C) ecommerce refers to retail aspects of ecommerce where businesses sell products or services directly to consumers online platforms, like Amazon or Fruit of the Month Club subscription services. Small and midsized retailers that transitioned from offline retailing models use C2C models like this as well.

Taxes on Profits

Since the pandemic, businesses have seen e-commerce as an avenue to expand their market reach and increase sales, but with expansion comes tax considerations.

Prior to 2018, businesses only needed to consider state sales taxes if they had physical presence nexus in a particular state (i.e. a warehouse, offices, inventory or salespeople/representatives). Now however, due to South Dakota v. Wayfair’s 2018 Supreme Court decision, states can compel online sellers with economic nexus in those states to collect and remit sales taxes when doing business there.

The new Nexus Law will have a profound impact on your business and may necessitate investing in online sales tax software solutions like Avalara (a Shopify Plus partner). While investing can be expensive and time consuming, compliance is of critical importance if you want to remain compliant with ever-evolving rules and avoid audits or fines imposed by governments. With Avalara being available as a solution provider you can manage these requirements easily!

Taxes on Distributions

E-commerce encompasses any transaction conducted electronically, such as sales of products or services and payments using electronic methods like credit cards and cryptocurrencies.

It is impossible to pinpoint when and where the first online shopping transaction took place, though most agree it likely involved either pizza or a Sting CD. Over time, however, the selection of goods and services provided through e-commerce has expanded greatly; consumers now have access to an impressive array of goods and services through these sites seven days a week and around the clock.

Under previous sales tax rules, an online business was required to collect and remit sales tax on its sales if they had physical presence in a state (i.e. a store, warehouse, inventory or salespersons/representatives). Following South Dakota v. Wayfair Supreme Court’s 2018 ruling, however, any business with significant sales to consumers in one particular state must now also pay sales taxes due to “economic nexus”, even if there is no physical presence there.

Taxes on Shipping

Though this issue has existed for decades, its significance increased with the rise of ecommerce. States saw decreases in sales tax revenue generated from ecommerce sales that traditionally go toward funding local budget items like education, roads and public safety.

Consumers are very price sensitive, and are more likely to shop online when there is greater savings versus in-store costs. A study conducted by economists Austin Goolsbee and Jonathan Zittrain estimates this loss as 1/10th of 1 percent of state and local government budgets.

Prior to 2018, most states used destination-based sales tax collection methods – whereby rates vary based on where your buyer lives when placing orders – when collecting sales taxes from businesses without physical presence in a state based on an economic nexus principle. With this change came several new opportunities.

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