By Amiee Keenan, Avalara
As your business grows, your sales tax requirements will likely grow with you.
Your choice? Sink time and energy into sales tax management–which doesn’t make you money–or carry the risk that comes with being out of compliance.
Whether you’re using Sage ERP, Acumatica, or NetSuite, sales-tax powerhouse Avalara offers you a better way to do your taxes.
Learn more in the white paper now.
CASE STUDY: Joe’s Bike Shop in San Diego, California
Joe opens a bike shop, and at first it’s just brick and mortar but business is great. Members of the local community are lining up to buy bikes, apparel–whatever Joe is selling.
From a sales tax perspective right now, Joe has to worry about at least three fundamental things:
1. In the beginning: What’s the rate where he is?
He has to charge people a certain sales tax rate on certain items. He needs to think about where and how much he should file to the local taxing authority and to the state taxing authority. He also has to worry about product taxability: How are different products taxed in his area? Are some of them taxed at different rates or exempt?
2. After a while: Does he have tax exempt sales?
Fast forward a little bit. One day, Joe gets a call from a large client. It turns out that this client is tax-exempt. Now Joe has to make a decision: Does he turn this client away and say, “Oh no, we don’t do tax-exempt sales,” or does he invest in managing exemption certificates? And, if he is managing exemption certificates, does he try and dump a lot of time and resources into a sales-tax process now to get things exactly right (as much as he’s able) or does he not worry too much about getting it right and decide to carry some risk? (The risk is all in the future to him because if he ever got audited, there may be some problems.)
3. Stepping up his sales: Does he owe if he sells online?
Joe’s selling locally and he’s got tax-exempt customers… now he really decides to step it up a level. What does he do? He sells online, of course! Once Joe’s selling online, effectively he’s opened up to markets all across the U.S. As you can imagine, his sales tax requirements are going to increase dramatically because of this change. In some of the states where Joe is doing business, he might have to collect sales tax either because he goes to trade shows there, or he has inventory there, or he may owe sales tax for a whole host of other reasons.
Now that Joe’s business has really taken off…
Now that Joe has become successful, what does that mean in terms of his taxes? Well, for starters, now he’s got to worry about rates in different states. That green Roadmaster bike is going to be taxed differently in California than in New York, and that tax is different than in Florida.
This variability is the same with his tax filing.
Now that he’s in multiple states and must answer to multiple local taxing authorities, Joe has to worry about filing schedules: When to file with whom–and how much. He’s looking at different rules for product taxability between different states and he’s also facing some seasonal issues, like sales tax holidays. Back-to-school season might not impact Joe, but if your company sells back-to-school supplies it could impact you if you’re selling into a state with a back-to-school sales tax holiday.
You see the difficulties.
Did you forget about that tax exempt client Joe had?
Yeah, now he has a lot of them. And he has to handle them in each state. What’s more, rates and rules usually change over time and he has to track those variables everywhere he has to collect sales tax.
Again, Joe has a choice.
Does he invest more time, effort, and energy into his sales tax process to try and track his tax requirements–and stay compliant–or does he not worry too much about it and carry a bit more risk in the event of an audit?
So what happens to Joe?
Later on, Joe decides to take his business global and he begins selling to certain key countries overseas. With bigger markets and more profit, Joe’s bike business is still going really well. But… his sales tax requirements increase again. Now he’s dealing with different systems of indirect tax. As an example, he has to think about VAT or “Value Added Tax.”
You know the drill by now.
Joe’s got a choice. How much time and resources can he afford to invest in his sales tax process, versus how much risk is he willing to carry?
…Or is there another option?
For many businesses, increasingly, the option is clear. There is sales tax technology out there that can automate this whole process so that neither wasted time nor audit risk are significant worries.
Avalara makes tax choices easier
For example, Avalara’s AvaTax can handle each of these elements for Joe every step of the way. As he grows, the capabilities of AvaTax grow with him, and he doesn’t have to sink time and resources into his taxes, of all things. When his paperwork is right, he can keep his audit risk low.
In other words, Joe can worry about growing his business… and not worry about his tax pain growing. With Avalara, he’s covered.
What can you do?
Is your business in one of these stages? Take the time to get ahead of the game by reading the Sales Tax Survival Guide. It highlights the top eight business activities that will increase your tax burden and will explain what you can do to survive.