A Rise in E-Commerce Puts Pressure on Tax and IT.

• Author: Shannon, Jesse
• Position: Information technology

Accelerated by the COVID-19 pandemic, e-commerce activity around the globe has skyrocketed over the past year. The rise in online selling brings with it added processing of sales tax. As a result, tax and IT teams and their enterprise resource planning (ERP) and transactional systems have been put to the test. Tasked with fast delivery of accurate, repeatable, and consistent sales tax determinations, businesses have responded by turning to technology to ensure they keep up with the heightened need for performance.

As brick-and-mortar storefronts shut down and consumers practiced social distancing, businesses large and small adapted to the "new normal" by way of e-commerce and buy-online, pick-up-in-store (BOPIS). Consumers, those already shopping in this way and those quick to adapt out of necessity, spent $861 billion online with US retailers in 2020, up forty-four percent from $598 billion in 2019, according to a Digital Commerce 360 analysis, and online spending represented twenty-one percent of total retail sales last year, compared with fifteen percent the prior year. (1) With the increase in e-commerce, organizations have been hard pressed to ensure the frictionless shopping experiences consumers have come to expect. Behind the scenes, many turned to advancing technology as the way to support this growing purchasing behavior.

The pressure to ensure businesses meet changing consumer behaviors brings with it the need for an always-accurate and always-on tax engine to determine sales tax on purchases. Moving indirect tax into the cloud can therefore support the indirect tax department's growing jurisdictional needs by alleviating pressure on IT, reducing enterprise technology costs, and scaling and encouraging a positive customer experience. However, the issue of latency can often make moving to the cloud more complicated. The need for always-on sales tax determination raises scrutiny by tax and IT professionals over network latency, the potential delay in communication over a network. Different factors affect network latency: the delay due to a network's physical distance, the amount of time it takes to route data through network equipment, and the time to process the data and send it back.

Using cloud computing to process tax data requires a company's ERP or transactional system to call outside the network in order to receive the necessary tax calculation on a sale. Depending on the location, that call may need to travel over a...