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What’s Next in the World of Sales Tax

May 10th 2019
Avalara

It’s been said that nothing motivates accountants more than legislation and, more specifically, the need to comply. Nothing is more clear about this statement than what we’ve seen, and will see, in sales tax.

Attending a conference like Avalara Crush, you get a distinct feeling they have been ahead of the curve when it comes to helping businesses comply with the ever-changing world of sales tax. Moreover, it is not going to get easier to do so here, or around the world.

“If you all think that in the digital world sales tax will be manual it is absurd, every business will comply with an automated fashion. We are just out in front of that,” said Avalara co-founder and CEO Scott McFarlane, addressing attendees at this year’s user and partner conference.

The event, now in its fourth year, brings together businesses and tax professionals who want to know more about Avalara the company, their product offerings and of course the world of sales and related tax compliance issues. Among those issues, is the recent Supreme Court decision on South Dakota v. Wayfair Inc., which effectively gave the OK to all states that collect sales tax, do be able to do so if transactions occur in their state, regardless of a business having a physical presence there.

“The Wayfair decision made 2018 the year of the tax professional,” said McFarlane. “It’s not going to get any easier (for businesses), you talk about the certainty of death and taxes, we’re much closer to solving death than we are taxes.”

McFarlane went on to warn that, worldwide, governments will increasingly get involved in ensuring they are paid for business transactions. Even in the U.S., the move to collect more sales tax has state governments’ attention.

“With more sellers not domiciled in their region(due to ecommerce), tax collectors are honing in. There's an estimated $10B in uncollected sales tax that states are missing out on and they will look to collect,” said McFarlane.

Around the world, issues like taxes related to cross-border delivery will come to the forefront and, as such, companies like Avalara will look to automate the process of compliance with these taxes.

Governments have noticed the changes in how products are shipped and are changing the rules. For example, if there is a shipment greater than $800 there will be tax to collect. In China they are creating an entire tax framework just for ecommerce. While countries change the rules, there are moves to standardize ecommerce frameworks, according to Amy Morgan, VP cross-border global trade at Avalara.

“If you think sales tax compliance is hard, customs compliance is far harder. Cross-border compliance is an invisible series of events between the time a product is bought until it arrives at the buyer’s door,” said Morgan. “Compliance then becomes a contact sport, who knows who is supposed to pay the duty and tax, what the tariff codes are, where should they have registered and who communicates the compliance data? If anything goes wrong in any of these areas, it becomes a customer experience problem.”

Avalara is looking to address the complexities of complying with all of these cross-border related taxes through its Item Classification feature and AvaTax product, which will calculate customs duties and import taxes. They will also roll out products to deal with excise taxes as well, over the next year.

Another area of focus for Avalara, and tax professionals that work with them, is consumer use tax.

“There is a lot of uncertainty around consumer use tax and Avalara is looking to address that through Avalara Consumer Use, a web-based tool coming later this year to help get arms around the obligations associated with this tax,” said Sanjay Parthasarathy, chief product officer at Avalara.

For anyone following the company and its offerings more closely, here is their product roadmap over the next six to 18 months.

Available now

  • Economic nexus threshold alerts in AvaTax
  • Customizable tax rules for marketplace transactions – the first rule of Avalara’s Advanced Rules feature
  • W8 and W9 tax document management (CertCapture)
  • Cross-border: Item Classification service

Coming Soon

  • Consumer Use Tax (beta will be available in next few months)
  • Cross-border: Item Classification and Customs Duty Calculation integration into AvaTax
  • Additional Advanced Rules

Further Out

Application of artificial intelligence for:

  1. Cross-border item classification
  2. Onboarding ease of use (product mapping)

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How to Determine Your Client's Sales Tax Obligations

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