Holiday shopping trends and the tax compliance challenges they pose

Bad news: U.S. consumer sentiment remains south of where it was prior to the pandemic. Good news: Many middle- and higher-income shoppers have more to spend and are more willing to splurge this holiday season. Takeaway: The 2024 holiday season – which started in September, by the way – presents valuable opportunities for retailers that can navigate a complex mix of consumer trends, behaviors and preferences as seamlessly as possible. That navigational effort includes sales tax compliance.

“Despite the inherent sales momentum that the holiday shopping season brings, retailers will need to step up their game, since consumers are more willing than ever to switch retailers to get what they want,” notes McKinsey Partner Tamara Charm. “As such, retailers should keep value top of mind and use smart sales strategies.”

In addition to mentioning the elongated holiday shopping season, Charm’s article highlights other holiday shopping trends, including:  

• A preference for omnichannel shopping experiences – with a focus on value-seeking across channels
• A greater willingness among shoppers to switch brands, and retailers, to find desired products
• More interest in loyalty programmes (those that are supported by a well-defined strategy)
• Using social media as “window shopping”
• Rising interest in experiential purchases, especially among Gen Z and Millennial consumers
• The growing popularity of click-and-collect services (e.g., BOPIS) across more product categories

Most, if not all of those consumer behaviours and preferences have implications on sales tax compliance activities:

• An elongated holiday shopping season can complicate merchandise returns (which is why more retailers are considering an/or deploying extended return policies).
• Loyalty programmes feature additional discounts and promotions, including many that affect sales tax calculations.
• Omnichannel shopping requires consistent tax calculations across all sales channels.  
• When brand loyalty decreases, retailers often respond by adding more brands to their stores and online catalogues; this makes taxability category mapping more demanding.
• Delivering unique experiences frequently involves bundling services with products, which can also give rise to new tax determination and calculation challenges.  

More good news: These retail sales tax compliance challenges are highly addressable with an automation solution that offers a simplified way of managing tax on every transaction to improve accuracy and help enhance the customer experience  

As Charm concludes, “the retailers that can coordinate across multiple channels … will be those best positioned to top the ‘nice list’ by year.” The same holds for retail tax groups that can keep pace with business changes and adjustments while coordinating seamless sales tax compliance.