No child ever told their parents that they wanted to spend their life filling in tax forms. Yet, the complexity of sales taxes mean that any small and medium sized business that has sales in more than a couple of states must devote a lot of time every month to this mundane chore.
Sales tax rules are complex, numerous and ever changing. This makes compliance very expensive. The risks of fines and penalties if you get it wrong can increase the costs dramatically.
Automating sales tax calculation and compliance
AvaTax automates the whole process of dealing with sales taxes, from calculating the right amount for online sales and invoices through to electronic filing and payment.
Avalara AvaTax reduces the cost, effort and risk involved in complying with sales tax requirements. It comprises three parts, usually combined in a single bundled product:
- AvaTax Calc – calculates the tax
- AvaTax Cert – stores the certificates
- AvaTax Returns – completes the forms and returns them
The system integrates with more than 100 ERP, financial applications, point-of-sale and ecommerce packages to deliver accurate sales tax calculations on demand and to ensure accurate, efficient compliances, payments, exemption certificates and reporting. It also offers an API to make it easy to integrate with bespoke systems.
Making tax less taxing
AvaTax helps companies:
- Save time. No more researching rates or building and maintaining tax tables
- Increase accuracy. Address validation and automatic selection of the tax jurisdiction
- Mitigate risk. Reports that will make auditing more efficient and reduce risk
- Gain efficiency. File taxes and remit payment in minutes.
- File online. At the end of the month, instead of filling out multiple tax forms for multiple jurisdictions, AvaTax users can make a single payment via Avalara and the company does all the filing and payments on their behalf.
Companies pay for AvaTax on a usage basis and the average annual spend is around $10,000. Compared with the typical cost of compliance using less efficient approaches, they get a fast return on their investment.
Avalara helps business address several pressing problems facing online retailers.
Increasing enforcement efforts
Sales taxes provide states with valuable sources of revenue, especially when the political climate makes it almost impossible to pass new taxes and 31 states have projected budget shortfalls.
In this context, states are increasing enforcement efforts to maximise the tax yield. For example, California is hiring 100 auditors over the next three years. This puts pressure on businesses to ensure that they are fully and consistent compliant.
Rising compliance costs
Ensuring compliance with each state’s tax codes is very complex and time-consuming: there are 11,000 taxing jurisdictions and 5,500 changes to rules, rates and boundaries in 2010 in the U.S.
The annual cost of compliance ranges from $21,896 in small companies (with revenues of less than $50 million) and rises to $42,106 or more for large enterprises. This reflects the time required to:
- File and remit sales taxes
- Manage exemption certificates
- Calculate sales taxes
The cost of non-compliance
Because of its complexity and the increasing risk of an audit, sales tax is a business risk. Without automated compliance and record keeping, an audit is a laborious and expensive process and there is a significant risk of fines, penalties and interest.
The looming Marketplace Fairness Act
For companies that sell online, the possible passage of the Marketplace Fairness Act could increase the cost of sales tax compliance massively. The proposed legislation would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state. Since 45 states have sales or use taxes, this could make online retailing, potentially including affiliate sales, much more complex.
More than 10,000 companies use Avalara every day, processing millions of transactions a year. Typical customers include:
- Small and medium-sized companies that do business in multiple states in the US and Canada or in one of the 72 countries worldwide that levy a sales tax or value added tax.
- Larger enterprises with complex products with complex taxability. To take a trivial example, in New York, a whole bagel is not taxed but a sliced bagel is. Digital goods are particularly complicated and Avalara makes it easier to apply the correct tax rates.
- Avalara supports online and direct sales. Calculating tax in real time for an online quote is an important requirement but other customers use it to generate quotes and invoices for offline sales.
Often customers come to Avalara after they have been audited or if they find that their existing systems are becoming inefficient. In some cases, customers find Avalara because they have implemented a compatible ERM, POS or financial program and they’re looking for add-on products that complement it.
Case studies: http://www.avalara.com/about/kudos/testimonials
Avalara AvaTax competes against other cloud-hosted providers and other alternative ways to calculate sales tax, including:
Do it yourself
Growing businesses often create ad-hoc systems using spreadsheets or other manual processes to create invoices. This inefficient process doesn’t scale well and runs a high risk of falling out of compliance.
Often used as part of a DIY approach, rate tables list tax rates per state and zip code. Compared to automated systems like AvaTax, rate tables don’t ensure compliance and still require a significant amount of manual processing.
Other cloud companies
There are a number of online tax rate services. They have varying degrees of coverage, provenance and integration. Generally, Avalara is better integrated with more applications, has more accurate and broader coverage and more experience in the field.
Large enterprises often choose an on-premise application that is integrated with customised e-commerce, ERP or accounting software. The downsides to this approach are that it is very expensive and time-consuming to set up and inflexible once it is up and running.
Avalara has a compelling story to tell about its strengths and how they help customers:
- Expertise. The company processes more than 1.7 million tax calculations every day and files more than 500,000 tax returns every year for more than 25,000 licensed users. This experience ensures that the company deeply understands the rules and regulations, helping customers to ensure compliance.
- Infrastructure. Avalara runs a resilient, secure infrastructure that ensures a consistently high level of performance. For example, the average response time for a request is one twentieth of a second.
- Efficiency. AvaTax lets customers get tax calculations in real time, streamline the exemption process with online certificates and file returns promptly with minimal paperwork.
- Integration. AvaTax integrates with existing business systems, including more than 100 ERP, finance, point-of-sale and e-commerce programs. This makes it quick and easy to deploy with minimal staff training. Typical setup cycles take around 30 days.
- Accuracy. AvaTax is always up to date with sales and use tax rates and rules. The system uses advanced address validation, sourcing rules, product taxability and jurisdiction to reduce the audit risk and ensure accurate tax collection and payments.
- Affordability. Because AvaTax is cloud-hosted, there’s no need for expensive, new on-site hardware. Cost-effective subscription-based pricing is in proportion to the amount that customers use the system.
Pricing for starts at just $1 per day for small companies operating in a single jurisdiction. For multistate companies, prices start at $100 a month and increase in proportion to the number of transactions, certificates and tax filings. There are tiered price points so that the cost per transaction reduces as the volume increases. The average company pays around $10,000 in fees.
Avalara AvaTax offers completely automated, end-to-end compliance with integration into more than 100 ERP, financial applications, point-of-sale and e-commerce systems. In this overview, we look at how AvaTax integrates with Microsoft Dynamics GP but the underlying principles are the same for other compatible applications.
|Feature and benefits||Screenshot|
|A customer tax status is linked to their geographical address. In Dynamics GP, the Tax Schedule ID is stored with the address. In an e-commerce application, it may be calculated from the user’s address details.|
|By selecting ‘AvaTax’ the system automatically picks the right jurisdiction based on the address.|
|The system also validates the address. In some cases, it is possible to have more than one tax code in a single ZIP code area, so the system resolves the address to a latitude and longitude to ensure the most accurate tax rate.|
|When the user creates a sales invoice based for a customer, the system automatically applies the right tax codes for different types of goods. Avalara has 10,000 different product and service codes to ensure that the right tax rate is applied for each product.|
|The Avalara web portal gives managers, bookkeepers and accountants detailed information about the company’s sales tax exposure.|
|Each invoice is checked and logged in real time and users can double check the details via the webportal.|
|The website also lets users see how different items are taxed, as in this example for all the different tax treatments for hearing aids.|
|AvaTax gives finance managers a detailed breakdown of their monthly liabilities, making cash flow forecasts easier.|
|Detailed reporting can reduce the time it takes to complete returns from days to a few hours.|
|AvaTax automates the exemption certificates for exempt buyers. This makes the process easier but also reduces the risk of non-compliance.|
Web browsers requirements
- AvaTax Admin Console: IE 8+, current versions of Firefox, Chrome, Opera
- AvaTax Certs: IE 7+, current versions of Firefox, Chrome, Opera
Operating system requirements
- Any OS for the web-based interfaces
- TrustFile: Windows XP, Vista, Windows 7, Windows Server 2003
- LaserBridge: Windows 2000, XP, Vista, Windows 7
APIs and integration
- AvaTax integrates with over 100 ERP, financial applications, point-of-sale and e-commerce systems including Microsoft Dynamics AX Nav and GP, Sage, Netsuite, Magento, Salesforce and WooCommerce
- A robust API makes it possible to integrate with virtually any application using PHP, .NET, Java or a COM-compliant language.
Security and availability
- Redundancy: Plug-safe environment, Multiple data centers, Monthly failure/recovery exercises
- Security: 2048-bit SSL for data in-flight, 256-SHA encryption for data at rest, Monthly penetration testing by external service, CISSP security expert on staff
- Scalability: Tested to 20x average load, Tested to support up to 170 million transactions per day
- Reliability: 200,000 system tests per day, Systems monitored from 30 cities around the world, SSAE 16 SOC 1-attested policies and procedures
Performance: Average response time is 50 ms, Response times are consistent under load
For any business that needs to deal with sales or use tax in more than a handful of jurisdictions, Avalara AvaTax is a compelling choice.
It reduces the cost of compliance, cuts the risk of mistakes and consequent audit problems and helps companies save money by reducing the paperwork burden.
After careful analysis of the software, several points stand out:
- Rapid return on investment. AvaTax customers typically spend around $10,000 a year on the software, which largely automates the whole sales tax rigmarole. Aberdeen research says that the average cost of compliance runs between $20,000-$40,000 a year so companies that adopt AvaTax can see a return on investment in a matter of months.
- Fitness for purpose. Avalara’s software is compatible with all the leading POS, e-commerce, finance and ERP packages making it easy to install. This level of integration combined with a very detailed and up-to-date database of tax information and a reliable IT infrastructure make it a smart choice.
- A mature solution. AvaTax is a well-rounded, mature software suite. Avalara has been developing it for a long time and the company processes nearly a billion transactions a year. This is why some of the world’s largest companies depend on it.
Sales tax is compulsory. Thanks to Avalara AvaTax, time-consuming paperwork doesn’t have to be. Our recommendation is that any company looking to automate sales tax compliance should include Avalara AvaTax in its short list for consideration.
Headquartered in Bainbridge Island, WA, Avalara is the recognized leader in web-based sales tax solutions, and is transforming the sales and use tax compliance process for businesses of all sizes. Avalara’s AvaTax family of products provides end-to-end compliance solutions and is regarded as the fastest, easiest, most accurate and affordable way for companies to address their statutory tax requirements. Avalara is the industry’s most trusted provider of sales and use tax automation solutions and is one of America’s fastest growing companies earning recognitions such as Microsoft’s SaaS Partner of the Year for 2010. For more information, please visit www.avalara.com.
 Sales & Use Tax: Cost of Compliance at a Glance, Aberdeen Group, June 2011