Avalara plans new cross-border tax initiatives
Tax software developer Avalara is planning to take on some new initiatives in the U.S. and abroad.
“Cross-border, we believe, is a very exciting marketing opportunity for us,” said Ross Tennenbaum, general manager at Avalara, who recently joined the Seattle-based company from Goldman Sachs. “The way I think about it is you’re dissolving boundaries globally. You say to the customer, ‘Do you also ship internationally?’ Well, if you do, what if you could just upload your catalog? We’ll not only map it to sales and use tax codes where you have nexus, but you can click on what countries you ship to, and we can map all the SKUs in your catalog to HS [Harmonized Commodity Description and Coding System] harmonized tax system and tariff system codes.”
Avalara is looking at its large customer base and seeing which customers fit certain profiles, such as those who already do e-commerce and already use connectors from Avalara’s systems to outside systems such as Shopify, Salesforce and Magento, and ask if they’re already doing business with customers overseas.
“Now, with the shipping options and the ability to take digital payments, fulfillment and tax, your whole world is your audience,” said Tenenbaum. “We’re helping to enable that.”
Avalara is mostly marketing the AvaTax Cross-Border software to its existing customers in North America and India, with plans to start marketing it to the EMEA market, which is already asking for the software.
Steve Lomax, the managing director of EMEA, joined Avalara in February and is working to expand the company’s market there from his base in Brighton, U.K. “You’ve got the governments starting to understand the level of fraud and non-payment of the VAT that exists and putting a big focus on that,” he said. “When they put numbers on that, they can see there’s a huge amount of taxes they’re not collecting. Technology can now help solve this problem. We’ve seen it in lots of different industries. What we see is similar themes where the governments are all moving away from paper to make tax digital. You hear that in the U.K., but that’s a common theme across all those markets. That just introduces the opportunity for software to provide those solutions and for companies to simplify the processes they’ve got.”
Manjula Muthukrishnan, managing director of Avalara Technologies Private, Ltd., Avalara's Indian subsidiary, is also working to expand the company’s presence in that huge market, especially as India undergoes a fundamental change in its tax system, moving over the past two years to a more unified tax system known as the GST, or goods and services tax. “Though it is simplified in one way, it has not been easy for the businesses at this point in time,” she said. “The reason being that the taxes were filed as hard copy. Most, including large enterprises, were not used to electronic filing of returns and taxes. That’s something that has come in the last two years, and the government has been pushing significantly to get that tax, but that’s something which has yet to stabilize. There’s a lot of dependency on the chartered accountants in India to actually verify and reconcile the returns. That’s something that will go away over time with more automation coming in place.”
Cutting down on tax evasion was a major motivating factor behind the move to the GST in India. “If you look at India today, we have about 10.6 million businesses that have registered for the GST,” said Muthukrishnan. “The aim is that every single business that operates in India has to have electronic filing and payments to make sure that tax information is taken care of. Our experience in this will help us go forward with India as a market.”
Alessandra Almeida, managing director of Latin America for Avalara, who is based in Sao Paulo, Brazil, is seeing more of a trend toward split payments for taxes. “Brazil, according to studies published by PwC, is a country that invests around 1,600 hours a year just on tax and accounting compliance,” she said. “This is more or less 200 days. If we compare that to the U.S., it’s more or less 20 days. We are very creative, and with our 27 states and over 5,500 municipalities, we make changes everyday in one place or another. This is the biggest challenge that we have. On top of split payments and invoicing, which are a reality not only for Brazil, but in countries like Mexico and Chile. We also see pilots in Uruguay and Argentina. More and more we understand the importance of having one unique calculation engine for e-commerce and online buying on many channels. It is important to have one unique place for calculation, but also for content.”
In the U.S., Avalara is developing new technology to provide more automation to help businesses and accountants deal with sales tax responsibilities. “Accountants are looking for a way to have one console where they can keep an eye on all of their clients’ sales tax returns,” said Jeff Roth, vice president of channel partners at Avalara. “We have an offering coming out that’s going to help them do that better.”
Avalara has over 700 connectors to various other accounting and e-commerce systems. “Up to now, the way we engage with accounting firms is really with AvaTax,” Roth added. “They have clients that are running a NetSuite product or Sage or Microsoft or SAP or Oracle. With AvaTax, we have connectors to all these different ERP offerings and e-comm platforms.”
Avalara has also been able to leverage the Supreme Court’s decision last year in the case of South Dakota v. Wayfair to sign up more customers to help them deal with sales and use taxes on e-commerce purchases. “We are having customers tell us they need help,” said Patrick Smith, vice president of strategic operations at Avalara. “Wayfair put it on the map and got everybody thinking about it. A lot of people who weren’t concerned about it before suddenly became very interested.”
Recent changes earlier this year in the Streamlined Sales Tax program promise to make it simpler for e-commerce merchants to comply with tax demands. “It was loosened up to allow you to focus on individual states,” said Smith. “That was a big turning point. Now it’s a lot more palatable.”
States are starting to extend the applicability of their tax demands beyond sales and use tax now that the Wayfair decision has taken hold. Pennsylvania, for example, recently ruled that out-of-state businesses may need to pay corporate income taxes if they earn $500,000 or more in direct or indirect gross receipts from the state. Texas is also planning to extend its franchise tax to remote businesses next year. “More will come,” predicted Gail Cole, an Avalara blogger and sales tax expert. “The other state that’s super interesting right now is Kansas. The Department of Revenue says that Wayfair allows us to do this, and we don’t have to have a small seller exception, but the Attorney General seems to disagree.”