Tax automation software provider Avalara has released its
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The Sales Tax Risk Assessment tool is interactive, and allows users to either answer three questions, or upload up to one year’s worth of financial transactions. The tool then displays a map of the United States that shows the states in which the company has achieved economic nexus — either by number of transactions or value of sales — and which states they should monitor because they are getting close to it. This information is then put into a PDF report that businesses can share with relevant parties.
Avalara then provides access to free expert advice to discuss the report.
In addition to the increased online sales driven by the pandemic, businesses, primarily online sellers, are facing added sales tax complexity. The Supreme Court's South Dakota v. Wayfair Inc. ruling in June 2018 said that states could now collect sales tax from remote sellers. To date, 44 states and the District of Columbia have adopted sales tax laws requiring businesses to use where their customers are located as part of determining compliance requirements. This ruling has also driven up the business of tax automation providers like Avalara.
Beginning in 2017, states began enforcing marketplace facilitator laws to begin collecting sales tax on third-party online marketplace sales. States can now collect sales tax attributable to third-party sales from marketplaces, rather than the individual sellers. However, in many cases, the revenue generated from marketplace sales also contributes to a remote seller crossing economic nexus thresholds. Forty-one states and the District of Columbia have adopted sales tax laws requiring the marketplace facilitator to collect and remit sales tax on behalf of marketplace sellers. The first step for merchants to stay tax-compliant is to determine where they have economic nexus established by a certain level of economic activity in a given period, which can include analyzing sales revenue, transaction volume, or a combination of both.
“When the Wayfair decision came down, we saw businesses saying they need to be compliant in so many different places they weren’t before,” said Liz Armbruester, senior vice president global compliance at Avalaraa. “It takes a while for businesses to get that information into the system and then take action. Then that taking action piece is whole separate activity. The 'long tail' of Wayfair means an additional compliance burden in calculating and remitting tax, and then that second step of actually being compliant. We believe that this activity around being compliant will continue to extend over a long period, because businesses who are operating in a physical state are probably going to have to look at different viable options.”
“Tax rates and rules vary widely from state to state and are continuously changing, making it extremely difficult for a business to understand and keep up with where they owe sales tax,” said Paul Sanford, vice president, product management at Avalara, in a statement. “The Sales Tax Risk Assessment provides an easy first step for businesses looking to get a handle on their sales tax obligations by providing them with sales tax information necessary to make more informed, proactive decisions about their business.”
For additional information and to sign up for the Sales Tax Risk Assessment tool, click
