Big Retail Innovations, Major Tax Compliance Implications

Now that a busy (and successful) holiday shopping season and Returnuary are in rearview mirror, it’s time for retailers to focus on the opportunities and challenges that will unfold this year.  

As I mentioned, Vertex once again participated in the National Retail Federation’s (NRF’s) annual Big Show event in January. As usual, the event feature compelling presentations, new perspectives and interesting insights on retail trends, technologies and practices. Three trends that were discussed at the event have major implications on tax compliance:

• The adoption and advancement of AI: AI-powered solutions and applications were the hottest topic discussed at the Big Show. It seems like every type of retail solution – from POS systems to inventory management applications to loss prevention tools – are, or will soon be, leveraging AI technologies.
• A sustained focus on omnichannel: It’s clear that the many retailers are having challenges sustaining consistent branding and customer experiences across multiple sales channels. It’s also clear that retailers are committed to resolving these issues and to advancing their omnichannel capabilities. A recent Vertex survey found that 77% of consumers plan to increase their frequency of online purchasing as well as their use of combined online/in-store shopping. These purchasing preferences make it critical for retailers to calculate sales taxes quickly, accurately and consistently regardless of which channel – or channels – their customer use.
• Seamless commerce is also a priority: Seamless and/or frictionless commerce is an extension of omnichannel that focuses on holistic shopping experience from the consumer’s perspective: How convenient is it to shop and purchase? How long does the checkout process take? How easy is it to return items? Retailers are responding to these types of questions with new innovations, including "Scan and Go" applications that enable customers to complete a purchase and leave a physical store while bypassing the traditional checkout process (via sensors and automatic account charges).

Seamless commerce developments have major tax compliance implications. Many other developments discussed at NRF’s Big Show likely will have lighter, though still significant, impacts on tax groups, including: 

• A renewed focus on customer experience and personalization
• The maturation and evolution of loyalty programs (think omnichannel loyalty)
• The automation of, well, nearly everything (cashier-less solutions, robotic order picking in warehouses, virtual mirrors and more)
• Social media’s influences and disruptions (TikTok’s temporary shutdown in the U.S.)

While we’re at it, a few more retail and retail-adjacent trends will pose challenges to tax groups this year. First, Vertex expects more state and local jurisdictions to enact new retail delivery fees (a trend creating a pressing need for standardization regarding how fees are structured, published and collected). Second, we expect last year’s sales tax holiday volatility to continue. Canada’s sudden passage of a sales tax holiday rule in mid-December sent retail tax groups scrambling, and U.S. state legislatures could unveil similar surprises. Finally, economic nexus threshold changes will continue to challenge retailers in 2025.