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The Wall Street Journal recently reported that most opposition has been dropped by state governors for taxing online purchases due to the major budget deficit many states are facing. For online business that sell products over the internet, this will be a major change in how online companies do business. Is your company ready for the change?
If your business will be impacted by the imposition of sales tax on online purchases regardless of location, it is necessary to make changes to your business model to ensure profitability and longevity. In essence, sales taxes increase the purchase cost of goods and one of the competitive advantages of shopping online versus shopping at local retailers will be eliminated. It is critical that your business is ready for the change prior to the online sales tax implementation. Here are some things you should be thinking about in regards to your business model:
- Review current pricing - Are your prices still competitive when sales taxes are included? Don't forget to factor in the cost of shipping when determining how your price compares to local retailers. Is there any pricing power within your customer base to improve profits in a sales tax environment?
- Review business cost structure - Are there ways to bring your product costs down such as buying in bulk, taking advantage of wholesaler sales and so on? Does buying in bulk make sense in light of product storage and distribution costs?
- Review business cash flow levels - Does the business have the access to capital to advantageously purchase in bulk?
- Review business competitive position - Are there other factors beyond price that would make customers purchase your product? If no, then get to work. Your business is at great risk when the change comes. If yes, then continue the good work but always remember competitors will try to copy or improve on your offers.
- Review current accounting and IT systems for capability - Are your accounting staff and IT systems capable of handling all of the different tax jurisdictions for charging sales tax and for submitting tax receipts to the proper tax jurisdiction? Any new costs associated with the back office of sales tax will impact the profitability of your business and thus should be included in any reviews of your business model.
These are just a few thoughts on what to focus on in reviewing your business model in light of the likely changes in online sales tax changes. To read the Wall Street article please visit the link below.