Addressing the Challenges of Accounting for E-Commerce Clients
E-commerce has eliminated so many barriers and connected consumers and companies worldwide. But as traditional boundaries between towns, states and countries have disappeared- and as e-businesses have created new revenue models that involve service-by-subscription-new challenges have arisen for accountants and bookkeepers.
Here's a look at the two of the most prominent such challenges accountants face when dealing with e-commerce clients finances:
Collecting Sales Tax
This is by far the biggest issue facing e-commerce merchants and their accountants and bookkeepers. For a traditional brick-and-mortar business, there are clear jurisdictions for sales-tax liability that are defined by its physical location: city, county, state, federal. As e-commerce expands a business' reach, though, it also expands potential sales-tax exposure to an almost overwhelming degree.
As they confront the issue of e-commerce and sales-tax liability, state and federal courts have struggled to define what it means for a company to have a nexus, or a "sufficient physical presence," in a given state for sales tax to apply. Some states have redrawn the parameters to describe an "economic nexus," which basically argues that any company achieving a certain level of online sales in a given state should have to pay sales taxes, even if the company has no physical presence in that state.
The situation is very fluid. For example, Amazon recently announced "it will start collecting sales taxes on purchases in the last four states where it wasn't doing so," according to CNN. Meanwhile, a new state law in South Dakota aims to try to get the U.S. Supreme Court to settle the issue at a federal level, declaring that "it is necessary for [South Dakota] to pass this law clarifying its immediate intent to require collection of sales taxes by remote sellers, and permitting the most expeditious possible review of the constitutionality of this law."
Accounting for Subscription Services
E-commerce has also sparked a rise in the number of businesses that offer services by subscription. But there are potential pitfalls for companies that don't understand the regulations regarding subscription revenue.
For example, suppose you start a business assisting those who wanted to increase their presence on social media and gain more followers. If you collect the subscription fee at the beginning of the month, that money doesn't legally belong to you until the service has been rendered — in other words, at the end of the month. Your accounting needs to reflect this. And if you sell one-year subscriptions, you have to wait 12 months to apply that revenue.
Stay in Compliance
Given the complexities of the regulations governing e-commerce, and the potential penalties for noncompliance, it is imperative for any company that does business over the Internet to have capable bookkeeping and back-office support. Make sure you're covered.
To help you as an accountant, bookkeeper, or small business owner handling e-commerce accounting, MoneyThumb invites you to download this FREE special report from Thomas Reuters, The Tricky Intersection of E-Commerce and State Corporate Income Taxes. This special report addresses some of the many corporate income tax issues that “pure e-commerce transactions” raise.