Black Friday sales may topple tax thresholds in the EU and US

BRIGHTON, U.K. — November 3, 2020 — After a turbulent 2020, this year’s annual Black Friday/Cyber Monday could well be the most competitive and potentially lucrative one yet.

With the decline of the high street, European online retailers have seen increased growth due to the rise in mobile shopping, convenient delivery options, and payment innovations.

For European ecommerce merchants selling to customers in the United States for example, this jump in orders could trigger new sales tax obligations or “nexus.” Given the number and complexity of sales tax jurisdictions in the U.S., it can be challenging for businesses to assess whether they are liable for sales tax and what the U.S. remote seller thresholds are. With fourth quarter sales volumes expected to be the largest of the year, EU sellers shipping cross-border may also be pushed over both the EU VAT Distance Selling thresholds.

Sacha Wilson, director of Tax Technology Solutions at Avalara, said: “Faced with the highest budget deficits in a generation, governments will be relying on taxes more than ever, most likely in the form of tax increases and new forms of tax legislation over the coming months.

“For example, a number of EU countries — including Germany, France, Italy, and Austria — are requiring marketplaces to report sellers’ transactions in detail. In the U.S., similar marketplace responsibilities have been rolled out in many states.”

Wilson also predicts tax authorities will continue investing heavily in staff and analytics software to spot sellers who have passed sales thresholds.

With Black Friday and Cyber Monday fast approaching, retailers will be pushing out discounts and price breaks to capitalise on peak trading. While the U.S. is a large market, it is important for retailers to know where the financial limits are and where to draw the line.

Following the 2018 Wayfair ruling of the U.S. Supreme Court, nearly all U.S. states can now tax foreign sellers. Some U.S. states operate on a $100,000 sales threshold or a company providing over 200 products into the state, whichever comes first. “It is important to remember that every state has its own rules around product taxability and sales thresholds, with sales tax ranging from 0% to 11.5% and the penalties can be costly for getting it wrong,” Wilson said.

For companies exporting goods into the EU, HMRC says UK VAT should be charged until the value of a seller’s supplies in a calendar year exceeds the distance selling threshold in that country.

“Many new marketplace obligations include the power for tax authorities to force platforms to block offending sellers,” Wilson said. “This means it is more important than ever that sellers identify if they are over any tax threshold. In the EU, the tax threshold can be as low as EUR35,000.”

Additionally, if a company trades above the UK Intrastat threshold, all distance sales that were made to a non-taxable person should be reported on an Intrastat Supplementary Declaration form — even if the distance sales from the U.K. are “below the distance selling threshold in the EU member state of arrival,” according to HMRC’s online guidance.