The liability for sales tax is determined by the concept of nexus. One of the more complex aspects of sales tax is the concept of physical nexus, which is a connection between a business and a state established by the business having a physical presence in the state. This physical presence could manifest itself in various forms, from having a brick-and-mortar store, a warehouse, office or an employee or contractors working in the state, or even a tradeshow.
In recent years, the definition of nexus has been expanded to include economic nexus, whereby thresholds for the economic nexus are based on revenue and / or number of transactions made. The thresholds vary depending on the jurisdiction a business is subject to. This means that the definition, thresholds of nexus, exemptions of tax, as well as the rates of tax, types of goods and services that are taxable, vary from one jurisdiction to another. On top of that, tax laws change regularly. Simply put, to be tax compliant is a major undertaking for any business selling across state lines.
Furthermore, the number of tax audits for businesses has increased significantly over the past four years. This is due to several factors, including increased funding for tax authorities, improved technology that allows authorities to identify potential tax evaders, remote tax audits and focusing on businesses.
We met with Steven Cabrera, Avalara’s Tax Director, CPA and former auditor of the state of California in order to understand how Avalara can assist large and small businesses to successfully navigate the complexities of U.S Sales tax, remain tax compliant and avoid unnecessary audits.
Avalara is one of many companies that has been certified as tax compliant by the US tax authorities. For businesses seeking to streamline their sales tax processes, Avalara's tax software is emerging as a game-changer that seamlessly integrates with Sage ERP, thus reducing the risk of tax audits. It makes the synchronization of financial and tax data possible.
Cabrera explained that Avalara’s software is constantly updated with the latest US tax codes and ever-changing laws, resulting in real-time data driven peace of mind that customers are meeting tax obligations at any given time.
As Avalara updates tax codes in its system in real-time, it can accurately predict when a business is approaching triggering economic nexus in any state, its liability and exposure. This foresight empowers businesses to adopt proactive measures such as registering for sales tax in advance and avoiding potential future compliance complications. Cabrera added that Avalara also assists with the process of registration.
At the end of the day, businesses aspire to remain compliant as they grow, said Cabrera. Avalara’s software does this by automatically monitoring economic nexus thresholds, ensuring accuracy.
All these calculations and predictions are carried out in a matter of milliseconds which saves copious amounts of time. Customer satisfaction is also guaranteed as tax is immediately calculated, so there is no doubt as to how much or if any tax should be charged. The accuracy of the Avalara software means that customers can guarantee that they have mitigated the potential risk of an audit as a result miscalculation or lack of information
In a landscape as intricate and constantly evolving as US sales tax, Avalara's tax software offers businesses a lifeline. Avalara does the heavy lifting, which means that customers can free their resources to focus on projects that require their attention, and can direct their company to growth. By simplifying the complexities of physical and economic nexus, Avalara enables companies to focus on what they do best while ensuring that they meet their sales tax obligations accurately and efficiently. According to Cabrera, with Avalara, businesses can confidently expand their operations knowing they have a reliable partner in navigating the labyrinth of US sales tax.
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types.