In "The Taxman Cometh Part 1" we talked about the background on the Main Street Fairness Act and how it affects online retailers. In this post we explain what other costs a retailer may incur include:
All of the requirements from the Main Street Fairness Act will mean time and costs to online retailers. Let’s face it, online retailers will NOT try to directly interface with the 46 different “free” software applications offered by the states. It is just too complex. Retailers will instead use one of the tax rate aggregators that provide this service. Aggregators require that the retailer pass information about all of the products and services that are on an order. This information includes whether or not a particular item is taxable in a particular jurisdiction. Of course, some items are taxable in one jurisdiction, but not in another. The work to figure out whether an item is taxable falls on the retailer, not the aggregator.
Further, retailers will need to integrate with the web site, the Order Management System, and possibly a separate accounting system with the aggregator. Other costs a retailer may incur include:
- Architectural costs to allow for the input and maintenance of the product level tax codes required by a 3rd party system. A retailer with a home built system will have to make these modifications themselves. And this doesn’t include the OMS which will likely need even more modification.
- Implementation costs – there are several points in checkout where tax will need to be calculated or recalculated
- Integration costs – need to pass data and get data from a 3rd party service. The site also needs to be programmed for what to do when a call fails.
- Data set-up costs (to code products with the correct codes used
- Aggregator maintenance, set up
In addition, every web service call made in checkout runs the risk of slowing down the transaction and causing some error message/failure. This creates friction in checkout that will likely reduce checkout completion.
Below are ‘estimated’ costs that we calculated:
Kalio is prepared to simplify
There is some light at the end of the tunnel. Kalio recently spent thousands of dollars to modify its underlying architecture and build an adapter to third party aggregator software, which as you can see above, would be a huge cost and burden for online retailers. Kalio did NOT pass this cost along to the retailers using their system. Many websites in the $2-50MM range have built their own eCommerce system…these companies will need to make these modifications at their own expense.