Accelerated by the COVID-19 pandemic, e-commerce activity around the globe has skyrocketed over the past year. The rise in online selling brings with it added processing of sales tax. As a result, tax and IT teams and their enterprise resource planning (ERP) and transactional systems have been put to the test. Tasked with fast delivery of accurate, repeatable, and consistent sales tax determinations, businesses have responded by turning to technology to ensure they keep up with the heightened need for performance.
As brick-and-mortar storefronts shut down and consumers practiced social distancing, businesses large and small adapted to the “new normal” by way of e-commerce and buy-online, pick-up-in-store (BOPIS). Consumers, those already shopping in this way and those quick to adapt out of necessity, spent $861 billion online with US retailers in 2020, up forty-four percent from $598 billion in 2019, according to a Digital Commerce 360 analysis, and online spending represented twenty-one percent of total retail sales last year, compared with fifteen percent the prior year.1 With the increase in e-commerce, organizations have been hard pressed to ensure the frictionless shopping experiences consumers have come to expect. Behind the scenes, many turned to advancing technology as the way to support this growing purchasing behavior.
The pressure to ensure businesses meet changing consumer behaviors brings with it the need for an always-accurate and always-on tax engine to determine sales tax on purchases. Moving indirect tax into the cloud can therefore support the indirect tax department’s growing jurisdictional needs by alleviating pressure on IT, reducing enterprise technology costs, and scaling and encouraging a positive customer experience. However, the issue of latency can often make moving to the cloud more complicated. The need for always-on sales tax determination raises scrutiny by tax and IT professionals over network latency, the potential delay in communication over a network. Different factors affect network latency: the delay due to a network’s physical distance, the amount of time it takes to route data through network equipment, and the time to process the data and send it back.
Using cloud computing to process tax data requires a company’s ERP or transactional system to call outside the network in order to receive the necessary tax calculation on a sale. Depending on the location, that call may need to travel over a distance that an otherwise on-premises solution would not. Increased volumes in e-commerce transactions require expanding network bandwidth to accommodate the increased volume of calls. Cloud computing can’t always meet the critical response time needed for large numbers of transactions. Additionally, some organizations have concerns about the risk of internet outages. In situations where the internet goes down, the e-commerce system is not able to calculate tax on a purchase at the time of a sale. This can create a negative shopping experience for customers by delaying their receipt of sales tax calculations on a purchase.
What if an option existed that captured the best of both worlds? Is it possible to move tax calculations nearer to the transactional system but still get the full power of a native cloud tax engine? Enter “edge computing.” This technology allows customers to speed up the performance of tax calculations yet still reap the benefits of an enterprise cloud-based system that is always up to date, ensuring tax accuracy every time and minimizing user administration. Edge computing allows data to be processed closer to where it originates and sends only the relevant information back through the network, reducing latency delays. In addition, edge computing complements cloud computing by lowering the overall system maintenance for tax and IT through auto-synchronization to retrieve necessary system updates, without manual intervention or downtime. Many businesses that want to improve the speed of tax calculations can benefit from edge computing; it is especially powerful for companies still converting their technology stack from on-premises to cloud solutions. E-commerce is one of the most easily understood applications for edge computing, due in part to the acceleration of e-commerce as a result of the COVID-19 pandemic and the need for high-performing tax services.
Edge computing, as defined by Gartner, is “part of a distributed computing topology in which information processing is located close to the edge—where things and people produce or consume that information.”2 In the case of indirect tax determination, at its basic level edge computing is placing tax workloads (the tax calculation) as close as possible to where the data is being created or processed (the ERP or transactional system). This is done so that data, especially real-time data, does not suffer latency issues that can affect an application’s performance. By placing the tax calculation inside a business’ infrastructure, no call (request) is made outside the company’s network, making it and the tax engine more resilient in the face of internet outages.
Edge computing not only offers the speed (reduced latency) and control (reliability) of an on-premises solution but also maintains the benefits of a cloud-native solution. According to a Datometry survey of 166 IT leaders, sixty-one percent of respondents identified cost cutting as the number one reason for moving to the cloud.3 In an edge computing model, necessary content, systems, and configurations are automatically updated, as with a classic cloud-based system, relieving tax and IT of related administration and much unneeded downtime.
The scale at which e-commerce and BOPIS have accelerated over the past year has given rise to a new standard for consumer purchasing. Opinions differ about whether consumers will continue to commit to the growth of digital shopping and whether businesses should expand their focus on the digital shopping experience. In my opinion, while we may see some foot traffic restored to brick-and-mortar stores, the convenience of doing business online is here to stay. This means tax and IT teams should prepare by evaluating their systems that support e-commerce to ensure they are operating at peak performance.
Jesse Shannon is product marketing manager for ONESOURCE Indirect Tax at Thomson Reuters.
Endnotes
- “A Decade in Review: Ecommerce Sales vs. Retail Sales 2007–2020,” Digital Commerce 360, January 29, 2021, www.digitalcommerce360.com/article/e-commerce-sales-retail-sales-ten-year-review/.
- “Edge Computing,” Gartner Glossary, Gartner, accessed July 13, 2021, www.gartner.com/en/informationtechnology/glossary/edge-computing.
- Nick Galov, “Cloud Adoption Statistics for 2021,” Hosting Tribunal, January 19, 2021, https://hostingtribunal.com/blog/cloud-adoption-statistics/.
