Posts Tagged ‘Avalara’

When it comes to collecting sales taxes, nexus (or location) is everything, as we are reminded by our friends at Avalara, a provider of cloud based tax automation for businesses of all sizes (Disclosure: we have clients using their software today).

Selling products to customers in multiple states can be taxing in more ways than one.  It’s complex, confusing, ever-changing, and the penalties for failure to comply can be daunting and significant.  Avalara’s software automates the tedium of knowing what tax to charge which customer, in any state.  It also manages all the necessary certificates.  It works in real-time by parsing invoice information to a cloud-based tax calculator which instantly and automatically inserts the proper sales taxes.

The fundamental question in nexus then is: “Where must we collect, remit and report?”  A recent white paper from Avalara (available free by asking in our Comments section) helps answer the question.  Of course, Avalara will tell you that you’ll need their software to fully automation the problem’s solutions, but you already knew that.  Still, they helpfully provide the basics you need to know regarding nexus.  If you have nexus (or presence) in a certain state, you generally must collect sales taxes in that jurisdiction.  But the “where” can be tricky, as rules vary from state to state.  Some examples:

  • A physical presence in a state, i.e., an office or a representative or a warehouse. If you have nexus in multiple states, you’ll be liable to collect and remit sales taxes likely in all of them.
  • Delivery and distribution: States Avalara, “As long as you ship goods to customers by a common carrier such as USPS, UPS, or FedEx, you are unlikely to trigger a sales tax obligation through delivery. In some cases, however, the use of a drop shipper or a contract with a distributor that functions as a drop shipper is considered a taxable nexus-creating activity.”
  • Employee location: “Nexus can also be created if you employ sales people in different states. If your employees or contractors conduct any work at a customer’s out-of-state location or deliver products in another state, nexus can also apply.”
  • Event attendance: “Regularly attending tradeshows in other jurisdictions beyond the physical location of a business can also be considered nexus in certain states.”
  • Advertising and affiliates: “If you advertise online or use affiliates to get business, you may trigger nexus. When a business in another state sends customers to your business through links on a website, this can create nexus in the originating state, according to affiliate or click-through nexus laws.”

While the case law is clear, the Internet is once again changing the nature of nexus, and who must pay.  As Avalara notes in a concluding comment:

In 1992, the Supreme Court decision in Quill Corp. v. North Dakota (1992) confirmed that, under the Commerce Clause of the U.S. Constitution, vendors with no physical presence in a state did not have nexus requiring them to collect sales tax, even if they makes sales to customers in that state.  However, as states attempt to collect as much sales tax as they can, nexus-triggering possibilities keep growing. Amazon.com, for example, collects sales tax in half the states in which it does business due to expanding definitions of nexus.

A copy of the white paper is available free from us, or from Avalara.com


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avalara_picAs manufacturing continues to mature through lean initiatives, ERP and other strategies aimed at improving their focus and delivery, new channels and strategies for finding and delivering value are arising.  Three such areas have their own taxing implications, worth noting by manufacturers intent on growing the business profitably.

The first of these of course is ecommerce.  Today, the share of U.S. consumers purchasing product direct from the manufacturer has risen to 70%.  Customers are enamored of the ease in ordering parts, goods and services online.  Manufacturers like the improved margins of forgoing middlemen.  But while manufacturing has typically been a tax-exempt endeavor, selling to end-user customers changes that.

There are 45 state and 12,000 taxing jurisdictions in the U.S.  Depending on their location and your business nexus, you may have a taxable sale situation when you sell to end customers.  In fact, over two dozen states now have “click-through nexus” aimed at capturing sales tax from internet sales and online marketing activities.  It’s a bureaucratic thicket requiring careful management.

Going global creates the second taxation challenge.  It’s easier than ever to deliver parts and materials to distant, overseas locations.  As sales tax experts Avalara note in a recent white paper: “In the US, sales tax is charged at the final point of sale on the full retail value of the product. Under the value-added-tax (VAT) system (used across Europe and other overseas territories), tax is charged at each stage of distribution on the value added between each transaction. So while the end user pays US sales tax, multiple parties involved in the supply, manufacturing, distribution, resales and retail sale of goods are responsible for paying a portion of VAT along the supply chain.”

Add together the VAT, the GST (Goods & Services Tax) and any special tariffs, the total cost is called “landed cost” and the taxing requirements can once again be daunting.  Errors can lead to costly shipping delays, not to mention penalties and added scrutiny.  Here again, diligent management is crucial.

Finally, selling more services – an increasing slice of the American economy to be sure – are becoming more essential as customers view the sale of a product often as just the beginning of a relationship.  Eighteen states now tax services.  The sourcing rules can be tricky and each taxes services differently.  Nexus becomes an issue in crossing state lines, and sometimes third-party service people can create nexus.  Again, it’s a lot to keep track of.

That’s why Avalara offers its cloud based tax and compliance software to companies across the U.S.  If you find the rules affecting you, and daunting as most do, they’re worth talking to.  (Full disclosure: we are an Avalara referring partner and would be happy to put you in touch with them.


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Dollars750x300We’ve recommended online, automated sales tax compliance solutions – like those from Avalara – before.  As states become more desperate for revenue, the broadening of sales tax collections is increasingly in their sights.  A timely update from our friends at Avalara, taken from a recent white paper entitled “The State of State Sales Tax in 2016” brings this into focus.

States are indeed broadening their tax collection efforts, Avalara notes, and rates in some states are increasing while exemptions are being temporarily suspended.  The challenge of compliance has never been greater, especially among companies operating in multiple states.

State legislatures are debating the issue across the country.  Options under review include taxing remote sales… increasing state rates… expanding taxes to services… eliminating exemptions to increase revenues — or expanding them to stimulate growth.  Each state is unique, but if you sell in their states, it’s still your problem.

Meanwhile, federal lawmakers, Avalara notes, seem at an impasse.  So states are launching frontal assaults on ‘Quill,’ the 1992 Supreme Court Decision that “affirmed that out-of-state sellers must have a physical presence in a state to be required to collect sales tax.  Their goal: Create an opportunity for the Supreme Court to reverse Quill.”

About a dozen states are working on changes, while trade associations work to combat them, with major retailers sometimes refusing to comply.  The bottom line is that across the country, sales tax laws and policies are in flux.  The tax lawyers, of course, are having salad days.

Of course, Avalara sells a product called AvaTax to help.  It’s a cloud-based, real-time sales tax calculation, compliance and filing system that guarantees its users that they will be in compliance at all times.  Our experience with it has been that, while not exactly cheap, it is indeed safe and cost-effective, given the large fines and fees associated with even accidental non-compliance violations.

Let’s face it: sales tax compliance is a time-consuming burden for everyone.  But it’s not going away.  Avalara’s solution provides a way to manage the process and vastly reduce the stress, while eliminating potentially costly penalties.  We recommend to all our multi-state sales clients that they investigate their options.  We’re not being shills here, we just know the consequences, and as our 6th grade teacher used to say: A word to the wise is sufficient.

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avalara_slsTaxChgs16From time to time we like to share relevant insights from our partners at Avalara, providers of sales tax solutions to business.  They do a great job of understanding the taxation landscape across every state and jurisdiction in the country.  We have clients who use their services, and we like to let our readers know about the latest news and trends that may affect your business.

Following are a few highlights excerpted from a recent report from Avalara, which you’ll find here.  Efforts proceed to ‘level the playing field’ between on-line and brick and mortar stores, by imposing sales taxes on Internet purchases.  Among the proposals being considered or debated today in Congress:

  • Marketplace Fairness Act of 2015 (MFA) – Just like the old one, only different

Similar to the MFA 2013 proposal, this legislation would grants states authority (should they meet certain criteria) to require non-exempt remote sellers to collect sales tax. If passed, the MFA would broaden state authority to require remote sellers to collect sales tax regardless of whether that business has a physical presence within those states.  The bill faces potential legal hurdles, among other changes, so it’s a long way yet from a done deal.

  • Remote Transactions Parity Act of 2015 (RTPA) – harder to pronounce than MFA but friendlier to small business

The Remote Transactions Parity Act (RTPA) of 2015 is similar to the MFA in that it would allow states to apply sales tax to remote sales. As with MFA, the 23 member states of the Streamlined Sales Tax (SST) initiative would be authorized to require remote sellers to collect and remit sales tax soon after legislation is passed. Non SST member states would have to adopt and implement certain minimum simplification requirements. 

  • Online Sales Simplification Act (OSSA) – everybody pays

OSSA is quite different from the MFA 2015 and the RTPA. Most notable, perhaps, is that it does not provide for a small seller exception and it would allow states to require in-state sellers to collect sales tax on all interstate sales.

  • State by State Changes (Midwest edition):
    • Sales tax in Chicago over 10%. Cook County commissioners have approved a 1% sales tax rate increase, raising the sales tax rate in Chicago to 10.25%. The additional sales tax began 1/1/16 and is expected to bring in approximately $474 million annually,
    • Illinois: One county says to the other: raise your sales tax, we’ll raise ours. In an unusual case of quid pro quo, councils in both Normal and Bloomington, Illinois, decided to increase home rule sales taxes from 1.5% to 2.5%, which will bring the combined local rates to 8.75%. During a summer retreat, the Normal Town Council proposed a 1% sales tax rate increase that “would be contingent on Bloomington also raising its sales tax.”
    • Iowa: Computers may get exemption status like machinery.  Expanding the items eligible for Iowa’s machinery and equipment sales tax exemption to include computers would have a positive impact on jobs, according to the Iowa DOR. Manufacturers would reduce their sales tax burden by an estimated $5-$6 million annually between 2017 and 2020, which could create revenue for job expansion
    • Michigan: Save money being safe. State proposes gun safety tax exemptions.
    • Minnesota: High cost of smoking gets higher. Tobacco products sold in Minnesota are going to get more expensive with excise and sales taxes on cigarettes increasing.
    • Wisconsin: Wisconsin is hiring more auditors according to the department’s Auditor Recruiting Video. The Department of Revenue is looking for 102 additional auditors and 11 agents to help uncover more than $80 million in annual revenue for Wisconsin.

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CME_pic_AvalaraA white paper from Avalara, Inc., a firm specializing in sales and use tax compliance for business, reminds us of the importance of properly collecting sales tax and managing tax exemption certificates.

Anyone who has survived a state sales tax audit knows that the price for non-conformance and even innocent errors can be very high, easily running into the tens of thousands of dollars.  And these days, states are more eager than ever to find new revenue sources.  Ensuring that you are consistently charging and reporting the right sales tax to each customer in each taxing entity has become more critical – and more complex – than ever.

Fortunately, for those doing business in many states and owing taxes to many taxing authorities, there are automated solutions to manage the process of exemption certificates and to ensure compliance.

Most ERP systems can be matched up with today’s better tax management systems.  They require the addition of two pieces: Exemption Certificate Management (ECM) software, and tax decision software.  Together, these two pieces can interact with ERP systems like Microsoft Dynamics NAV and others, to ensure compliance.  While it’s beyond the scope of a blog post to give a detailed analysis, following is the simple version of how these things work.

(For a white paper on the topic, contact us or you can go directly to a provider such as Avalara.  They provide a more detailed overview here.)

Standard Exemption Certificate Management software is installed in-house on your own computers and allows you to image, index and store all appropriate sales tax certificates.  It will also help you manage the process of securing these certificates from customers, telling what certificates have been requested, received and so on.

Intelligent ECM software provides a similar service, but does it via the cloud so that all you need is a web connection.  This version often integrates with your ERP software.  Software updates are automatic every time you log in and usually included in your license agreement.

Next, your tax decision software helps you determine and manage the taxability and rates based on factors like the purchase order, the product being sold, the location of buyer and seller, and so on.

Once the rates and taxability have been determined this information can be fed into your ERP system so an invoice will reflect the correct sales tax amount.  It’s all automatic and seamless.  The biggest issue your company has to deal with then becomes requesting appropriate sales tax exemption certificates.  The integration of both ECM software and tax decision software helps ensure that mistakes do not occur by ensuring that certificates on file are not expired, current and up to date, so the tax decision software is making its decisions based on accurate, up to date information.  In essence, you can’t have one without the other.

Together then, the ECM and tax decision software programs ensure that the right taxing information is being fed into your billing system.

In the end, it’s all about ensuring that you charge and remit the right sales tax, each and every time.  Since state tax audits are becoming increasingly more common, the pieces together ultimately provide the peace of mind a small business owner needs to ensure their own audit will not be a cause for undue concern nor unexpected expense.

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avalara_picIf you sell or have nexus in multiple states, then you know how complex filing taxes and maintaining exemption certificates has become, and this post if for you.  Our friends at Avalara, the online sales tax experts, have produced a white paper in which they outline five key things a business should do to ensure they are in compliance with all the various state requirements for exemption certificates.  Here are a few of the things that most commonly go awry:

» Missing a signature or does not include a signature of an accepted signer

» Missing an issue date

» Incorrect claim type or any certificate not accepted

» Document not recognized by the state authority

» Includes name or address other than the direct buyer and seller

» Showing State ID applicable to the wrong state

Avalara lists five “survival tactics” for increasing efficiency, avoiding waste and lowering the risk of the all too common audit fines and penalties (and if you’ve been through an audit, you know what they’re talking about):

Survival Tactic #1 —Understand the nature of the exemption – Sales can be exempt for many reasons based on the nature of the use, the goods or services, or the buyer.  The more products sold, the more risk and difficulty.  To dos include:

» Create systems to track changing rules regarding the tax-exempt nature of each transaction.

» Track sales tax holidays, product and service related exemptions, and exemptions based on use.

Survival tactic #2 —Determine validity of exemption certificates.  Which form?  What jurisdiction?  What needs to be on the form?  To dos:

» Review exemption certificates submitted and ensure they contain key elements including type of exemption, names & addresses, descriptions of goods, tax number, signature.

» If the state you’re dealing with is one of the 23 SST (Streamlined Sales Tax initiative) states, use the recommended forms.

Survival tactic #3—Know the rules.  Tracking tax-exempt transactions based on use, tax holidays, and source of the transaction requires super human strength and agility.  To dos:

» The Sales Tax Institute publishes a list of sales tax holidays by state.

» Know whether to collect a resale or exemption certificate and whether one form can be used for both.

Survival tactic #4—Determine product and service-related exemptions.  Tax rules change constantly as states seek more sources of revenue.  Over and under charging sales tax can result in a higher audit risk.

» Review taxability matrices available on many departments of revenue websites here.

Survival tactic #5—Automate.  Manual tracking of exemptions and sales taxes is not only time-consuming and cumbersome, it also raises the risk of audit.  Something as simple as automatically tying each exemption certificate to each transaction can save hours of time and reduce risk of fines and penalties. Other advantages of automation include:

» Automates collection

» Tracks the progress of collecting certificates

» Helps to ensure the completeness of certificates

» Eliminates lost certificates

» Tracks certificate expirations

» Improves the exempt customer experience

This, of course, is Avalara’s specialty (why else write a whiter paper?).  You can find them at www.avalara.com.  We work with them, so we’ll be happy to introduce you, or forward you a copy of their white paper.  Just ask.




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avalara_twoWe posted once previously here about a solution to the cumbersome and time-consuming problem of managing sales tax billing and collection (not to mention exemption certificates) for those companies required to collect taxes in multiple states.  That solution was from a west coast company called Avalara.  Today we’ll take a quick look at how they actually help solve this problem.

Face it: As Avalara puts in on their website: “Sales tax is compulsory, complex and costly for any business.  Automating the process saves time, money and effort.”

The fact is, there are over 11,000 different taxing jurisdictions in the U.S. alone.  And getting it wrong, if or when you’re audited, can be a costly mistake.  If you’re looking for a solution to consolidate and simplify your reporting, your remittance, and your sales tax exemption certification management, take a look at Avalara.

In brief, here’s how it works:

With Avalara (actually, that’s the company, the product is called AvaTax) integrated into your ERP system (and they have connectors for nearly 300, and an API for any others), you simply code your customers in the sales tax areas as AvaTax (as opposed to their actual state or taxing district).  AvaTax takes it from there.  It intercepts the transaction, bumps the sales tax calculation and storage into their cloud based application, checks your recorded customer address against an up-to-date USPS address listing, and applies the relevant tax.

It does all this as the transaction takes place, in less than a second, via a secure, encrypted Internet connection without disrupting your workflow.  Rates are calculated “behind the scenes” and are automatically applied to each transaction.  Reports are generated on demand.  And of course, the system keeps track of all rule changes and tax updates.

Best of all, you minimize your sales tax audit risk, as you have a clear trail and reporting on all transactions, balanced against current rates that someone other than you keeps current.  In some cases, the elimination of audit costs and penalties alone can be worth the investment.

The system basically takes care of four key areas:

  • Calculating the correct tax
  • Managing and automating all your exemption certificates
  • Filing and remitting taxes
  • Preparing and managing audit exposure via reporting

You can learn more at their website: www.avalara.com.  With eager state legislatures and taxing authorities searching for increased revenues, and increasingly aggressive state tax collectors, not to mention proposed changes to tax collections over the Internet, we think this is a company, and a product, with a healthy future – one that has identified a need and provided an efficient solution.


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