• E-commerce is booming, but with growth comes complexity—especially regarding sales tax compliance. Many online businesses, particularly small and medium-sized businesses (SMBs), struggle to keep up with changing regulations, leading to potential risks, penalties, and even audits.

How Big is the Problem? The Statistics Speak for Themselves

E-commerce is booming, but with growth comes complexity—especially regarding sales tax compliance. Many online businesses, particularly small and medium-sized businesses (SMBs), struggle to keep up with changing regulations, leading to potential risks, penalties, and even audits.

How Big is the Problem? The Statistics Speak for Themselves

Recent reports indicate that e-commerce businesses are more likely to be non-compliant than traditional retailers. Here’s why:

• • Time-Consuming & Expensive: Typically, the larger the company, the more heads, time, and money it spends on sales tax.
    
    • • In the “vast majority” of emerging small businesses (ESB) surveyed, three or fewer employees with a mean hourly wage of $83 typically work on sales tax. Each month they devote a combined 131 hours to compliance activities, so ESBs generally spend $11,968 per month on sales and use tax compliance.
    • • Small and midsize businesses (SMB) generally have two to five employees working on sales tax, with a mean hourly wage of $98. Since they spend a combined 163 hours on sales tax compliance, SMBs typically spend $17,672 monthly on sales tax management. (Avalara) (Tax Foundation)

• • Each aspect of sales tax compliance requires more time of SMBs than it does for ESBs. Every month, SMBs devote 3 additional hours to identifying sales tax obligations and filing requirements, 5.7 more hours to tax rates and calculations, 6.6 more hours to exemption certificate management, 7.8 more hours to consumer use tax, and a whopping 8.7 additional hours on tax returns.

• • More Staff and External Help Needed: SMBs tend to hire more staff and external service providers for tax compliance. On average, SMBs allocate 40% more to service providers than ESBs: $2,455 versus $1,748, in addition to internal staff costs.

Industry Matters

As with size, a company’s industry greatly influences the amount of time and money needed for sales tax compliance. Data from Potentiate shows significant differences across industries:

• • Retailers: Spend an average of 209 hours and $24,032 per month on sales tax compliance.

• • Manufacturers: Spend an average of 149 hours and $14,256 per month.

• • Software Companies: Spend an average of 121 hours and $11,113 per month.

Additionally, software companies spend the least on external service providers ($1,492), while manufacturers spend the most ($3,638), followed by retailers ($2,093).

Higher Audit Risk: The number of e-commerce businesses undergoing sales tax audits has increased significantly in recent years, jumping from less than 1% in late 2021 to nearly 4% as of early 2024. (Tax Valet)

With state governments cracking down on unregistered or misfiled sales tax, non-compliance isn’t just a mistake—it’s a liability.

Who is at Risk? SMBs and the Growing Compliance Gap

A Small and Medium-Sized Business (SMB) is generally defined as:

• • Small Business: Fewer than 100 employees and under $10 million in revenue

• • Medium Business: 100-999 employees and revenue up to $50 million

Many SMB e-commerce companies struggle to meet their sales tax obligations because they:

• • Sell in multiple states and aren’t sure where they owe tax

• • Don’t have an automated system in place for tracking sales tax

• • Assume marketplaces like Amazon or Shopify handle all sales tax compliance for them (spoiler: they don’t!)

How to Stay Sales Tax Compliant (Without Losing Your Mind)
At Yellow Brick Financials, we specialize in helping e-commerce businesses stay compliant while focusing on what they do best—growing their business. Here’s how we help:

• Sales Tax Nexus Analysis – We determine where your business is required to collect and remit sales tax.
• Automated Sales Tax Tracking – We set up accurate, real-time tracking so you’re always ahead.
• State Registrations & Filings – We handle multi-state tax filings so you never miss a deadline.
• Audit Protection & Support – If you get audited, we’re here to guide you through it.

Bottom Line: You don’t have to do it alone. With sales tax enforcement on the rise, now is the time to ensure compliance and protect your business from costly penalties.

References:

• Avalara: Where is compliance costing your business?
• Tax Foundation: US Business Tax Compliance Costs Survey
• Tax Valet: E-commerce
• Sales Tax Changes

Interested in a no-obligation free consultation? Schedule a time with us here : 
https://yellowbrickfinancials.hbportal.co/schedule/663165633aaf34001f4c93c2

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