This article was written by Shelby Simon, Enterprise Client Services Manager at NetElixir.
Due to the recent Supreme Court of the United States ruling, online advertisers targeting US users must comply with new online sales taxation rules. As this is a recent change, there has been some confusion as to what exactly this ruling states and how it impacts digital retailers.
At its core, the ruling shifted the onus of taxation from only retailers with a physical presence in states to all retailers with a ‘nexus’ (a significant presence) in an applicable state.
Google helpfully reminds readers to always consult a tax professional, but nicely summarized nexus:
“In the US, tax rates vary based on the buyer’s or seller’s location, such as state, county, and city. Each state or local tax authority will have its own rules, which will affect how much tax you should collect depending on where your business has nexus.
Having nexus within a state generally means that you have a sufficient physical presence. For example, you might have nexus within a state if you have offices, employees, property, or independent contractors in the state. Each state has its own rules on what activities trigger nexus….”
Previously, online retailers such as Amazon did not have to charge sales tax in some states where local brick and mortar retailers did.
For online retailers using Google Ads, it is thankfully fairly easy to configure seven different tax settings by using the Merchant Center to set up tax rates by state or to specify taxes by product through product data. However, understanding which tax setting is most applicable may require consultation with a tax professional and some time.
Disapprovals in Google Ads could happen if you submit a tax rate that is lower than what you charge users, use a different tax rate in your product data than on your checkout page or do not comply with general landing page requirements for Google Ads.
What is the impact then for online retailers advertising with Google? Other than a professional tax consultation and some time, the SCOTUS ruling, in theory, has limited impact of Google Ad campaigns. However, users who are used to seeing lower prices, who are able to shop in multiple states, or who see an ad by a non-compliant competitor could all lead to potential pitfalls.
In particular luxury and high ticket items may be impacted as shoppers may be surprised at price increases. With these online retailers no longer winning on ‘price,’ they should work to create a strong case. Digital showrooms, instant chat to highlight product features & questions and rewards programs can all be used to help create an online experience to rival one in shoppers may have in person.
On the flip side, digital retailers with local stores may now have a small leg up. They can highlight ‘come see in person’ options, and may even have local users who were used to paying tax.
Retailers should keep a sharp eye on click-through-rate & conversions, average order value and competition as the implication of this tax ruling continues to be understood. Solutions may include ad copy that highlights prior pricing, ad copy that includes discounts to make up the difference.
Further Reading:
- New York Times: Supreme Court Widens Reach of Sales Tax for Online Retailers
- Google Support: About Tax Settings
- Google Support: Setting Up Tax Settings (US Only)
This article was written by Shelby Simon, Enterprise Client Services Manager at NetElixir.
