EVOLVING TAX REFORMS AND ITS IMPACT ON U.S. RETAILERS

December, 2017 –The retail industry in the U.S. is undergoing disruption which is bringing about a change in how retailers operate. Things are transforming faster than ever when it comes to shopping on-line, the use of mobile purchasing, new forms of payments, and the degree to which consumers are expecting convenience while shopping. According to a survey by PwC, over 32% of consumers buy products at least monthly via their smartphones. Consequently, without an iota of doubt, the retail industry ecosystem is being forced to evolve with the dynamic needs of the customers.

AND, THE SPOTLIGHT IS NOW ON TAX

The most recent disruption in the retail industry is the proposed tax-reform plan by President Donald Trump that offers sweeping cuts in individual and corporate tax rates. The retail industry is expected to be majorly disrupted by this reform.
Presently, the United States has the highest corporate taxes among the OECD countries. According to a 2016 report by Goldman Sachs, major retailers are among the top tax paying companies in the US. The table below depicts some of the top tax-paying retailers include apparel companies Gap (GPS), Under Armour (UAA) and department store Nordstrom (JWN).

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SO, WHAT IS CHANGING IN THE NEW TAX REFORM?

One of the centerpieces of the proposal is the reduction in the corporate tax rate from the current 35% to around 20%. Other aspects of the tax reform bill, including doubling the standard deduction for consumers, could result in higher discretionary income for individuals, which, in turn, could spur consumer demand.

IMPACT OF TAX REFORMS ON RETAILERS

THE POSITIVE SIDE OF THE COIN

Most retail giants and even small and medium retailers feel that the reduction in the corporate taxes will help their business. Lowering the corporate tax rate would allow these companies to make the best decisions based on the investment opportunity from the surplus income that they otherwise had to return as a part of corporate tax. The reduction in corporate tax will also be a boon for small and medium retailers who usually operate with extremely thin margins.

Though the tax reform seems profitable for retailers, there may be some underlying down sides to its implementation

HOW CAN THE TAX REFORM ADVERSELY AFFECT RETAILERS?

  • 1. Adverse Effect on Financial Reporting

    As Congress and the Trump administration push for major changes to the existing U.S. tax code, many retailers are encouraging the Financial Accounting Standards Board to analyze how the changes may affect U.S. Generally Accepted Accounting Principles. The effect on financial reporting could be significant, and companies may not have enough time to prepare for all the changes. As a result, retailers who can quickly adapt to these changes will be the ones thriving in this volatile market landscape.

    One way for retailers to stay proactive when facing such a challenge is to seek professional help. Outsourcing partners are a go-to option when it comes to hiring highly-qualified professionals at affordable rates. Financial reporting is a task that requires precision and extensive knowledge of the norms and latest marketplace condition. While hiring highly-paid individuals in-house for streamlining financial reporting and other tasks that fall into the financial umbrella can cut into the businesses’ profits, seeking professional help from an outsourcing partner can help save considerable operating costs as well as valuable time.

  • 2. Tax Rate Ramifications

    While the move to disrupt the tax system under the Trump administration’s tax reform proposal may aim to greatly simplify taxes, it won’t mean there will be any less work for tax preparers. Any tax reform will result in an increased necessity for tax planning and more work for tax preparers, which will indirectly result in retailers hiring more staff for coping with the increased amount of work. Moreover, the staff will need to be highly qualified and proactive to understand the changing dynamics with the reform and act accordingly.

    One feasible way to overcome the challenge of tax rate ramification is to leverage the services of a finance and accounting outsourcing provider, who can meet all your tax needs from business tax returns to individual tax returns, and tax planning. An efficient outsourcing partner will provide you with skilled accountants who undergo regular trainings to staying up to date with tax codes. This way, the retailer does not have to bear additional training and hiring costs, which helps them reduce overall costs.

A one-stop shop to all the challenges retailers face with this tax reform is Quatrro. Whether the retailers face unmanageable financial reporting situations or need guidance on rate and tax ramifications, Quatrro offers cost-effective financial and accounting outsourcing solutions, technical support services and a range of affordable business support services for small and mid-sized retailers across the retail industry. Quatrro provides a choice of outsourcing model that works within the retailer’s budget and corporate culture. The finance and accounting services include generating profit and loss statements, balance sheet, cash flow statement, inter-company accounting, fixed asset accounting, corporate consolidation reporting, budget comparison reports, and trend analysis reports.

Quatrro’s services enables its retail clients to experience the following benefits:

  • Timely, high-quality management information which helps retailers make proactive, strategic decisions
  • Compliance with ever-changing accounting regulations in the industry
  • Analytics and benchmarking which allow the retailer to predict disruption ahead of time
  • Providing a competitive edge to the retailers in the marketplace to support their improved performance on almost every metric that matters

If the recent happenings regarding the tax reform has worried you about the finance and accounting processes of your retail business, let Quatrro help share the burden of your finance and accounting department to empower you to scale your business. If you would like to find exactly how Quatrro can help your business, visit www.quatrrobss.com

( 1 OECD: The Organization for Economic Co-operation and Development is an intergovernmental economic organization with 35 member countries, founded in 1960 to stimulate economic progress and world trade. The official founding members are Austria, Belgium, Canada, Denmark, France, West Germany, Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK, US.)

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