Sales Tax 101 with Avalara

I have Christopher. Christopher, you're going to have to help me with your last name though.

0:11 Christopher

It's [unclear]. It's a very, very Italian name.

0:16 Kelley Birrell

Awesome, okay. And then we also have Kevin Cox. Both of them are from Avalara and they work in sales. And Lauren is our Service Delivery Director here at LedgerGurus.

And I'm really excited to hear what these folks have to say. They're all very knowledgeable in sales tax.

0:34 Kelley Birrell

Oh, some housekeeping things that we need to talk about. So there are going to be several polls throughout, because we want to know how we can best help you guys.

Also, the question and answer is going to be open the entire time. So if you have questions, please feel free to put them into the Q&A box, and we will do our best to answer them, whether we type in the answer or we answer it live on the webinar. We want this to be very interactive.

1:06 Kelley Birrell

So Chris, let's get started. Oh, I'm going to end the poll first.

And it looks like we have quite a few people working in consumer product businesses, and some accountants. So that's fantastic.

1:24 Kelley Birrell

And happy Halloween.

1:26 Christopher

Yes. I have my Jack Skellington mask over here ready to go, but I didn't want to scare anyone. And Lauren, the orange looks fantastic, I love it.

1:37 Lauren Maillard

Thank you for playing along. Just for Avalara.

1:42 Christopher

Just for Avalara.

1:44 Kelley Birrell

Well, great. So Kevin, do you want to introduce yourself really quick? Maybe talk about Pac-Man.

1:48 Kevin Cox

Yeah, well that's all I talk about in life, it's sales tax and Pac-Man. I don't want to blur out my background because that's half of my personality right there. But the other half, sales tax.

1:56 Kevin Cox

Nice to meet everyone. I've been at Avalara, I'm one of the newer guys actually, I've been here since earlier this year. I'm learning from the best right now. This is actually my first webinar as a panelist, so I appreciate it, it's an honour.

Yeah, if you're ever in Raleigh, North Carolina, where I'm from, free play, I don't charge for it. And yeah, sales tax, let's go. You guys ready?

2:27 Christopher

Fantastic. And then I'm Chris. I started at Avalara in 2014. I came over thinking sales tax was going to be super simple. In North Carolina where I live, it's like 7.25%, and I was a chemistry major, so math, super easy.

Started at Avalara and just realised how complex it actually is. And I'm guessing that's why everyone here is on the call.

2:56 Christopher

So what we're going to go through today. Why sales tax, like who cares, why does it matter? We're going to talk about some of the historical nexus, what that connection with the state means. We're going to talk about the different steps to managing sales tax. And then we'll wrap up with tips to streamlining, and how Avalara's partnership with LedgerGurus can really help everyone on this call.

3:27 Christopher

With that being said, Kelley, we'll turn it over to another poll question.

3:33 Kelley Birrell

Yes. We want to know, what is your biggest sales tax challenge? Is it the filing and remitting? Is it the tax collection? Is it exempt customers? Is it use tax? Is it figuring out where you have nexus? That seems to be a big question that we have. So take a few minutes and let's fill this out.

4:00 Christopher

Yeah, and also feel free to type in questions. Kelley and Lauren are going to be monitoring questions, and then we'll also have time at the end to answer questions. But feel free, jump in, ask questions, happy to answer those. This session is for you all, this isn't for us. So make it about you and we'll try to get everything answered for you.

4:26 Kelley Birrell

We're going to leave the poll open for about another 30 seconds, but right now it looks like nexus footprint and the filing and remitting are neck and neck. So it looks like those are major issues for a lot of people.

4:47 Kelley Birrell

Why don't you go on, and then as soon as this closes I'll share the results.

4:47 The five steps, and why sales tax matters

Christopher

Okay, fantastic. So I think that's a great segue, Kelley, because when we talk about the five steps to managing tax compliance, that most important step is understanding where you need to collect and remit tax.

5:15 Christopher

So, super important to understand where you need to collect and remit sales tax. We're going to dive in a little bit about how complicated it actually is.

And then the next step is you want to actually get registered in those states. If you're collecting sales tax and you're not registered, that's generally a very frowned upon practice, so don't want to do that.

5:49 Christopher

And then once you're registered, you calculate the tax. So you want to make sure that you are charging the correct amount of tax for your clients, so they feel good about purchasing from you, and also for yourself.

6:09 Christopher

Then we'll talk about tax exempt sales a little bit. That could be a whole other session, tax exempt sales. But each state will have different tax exemptions, whether it be for resellers, for religious purposes, non-profits, agriculture. There are a whole lot of reasons a sale could be tax exempt.

6:27 Christopher

And then lastly you want to file and remit those taxes. So once you have the tax, you know where you're supposed to be, you have it, you want to make sure that you're remitting that. And LedgerGurus partnered with Avalara to really help streamline that remittance process as well.

6:46 Christopher

So this is my favourite slide. I wish it just said who cares, but apparently our marketing team didn't like that as much as I did.

But it's like, sales tax, who cares? Why is it important? And this is why. 45 states rely on sales tax as their biggest singular stream of revenue.

7:26 Christopher

And you see there are 45 states on here, there are over 1,400 different taxing jurisdictions within those 45 states. And it's always a really fun conversation to have with Canadians, because it's so simple in Canada, and then they start selling into the US and they're like, wow, this makes no sense. And they are absolutely correct, it does not.

7:59 Christopher

So that's why sales tax matters. And states respond, instead of trying to balance budgets and spend less money, what we're seeing is they're trying to figure out ways to collect more money.

8:19 Christopher

And what they're doing is they're hiring more auditors, they're increasing the volume. Hopefully no one on this call has been through a sales or use tax audit. That could have been a good poll question. But hopefully no one has been on one.

8:32 Christopher

And then they're changing these economic nexus laws. We've seen states like Alabama that started at $500,000 for economic nexus, the next year it dropped down to 250, the next year it dropped down to 100,000. So they're changing these laws.

8:53 Christopher

They're changing what they tax. SaaS for example was only taxed in a handful of states. Now I believe it's taxed in 22 or 23 states. So more and more states are finding different ways to find that revenue.

9:12 Physical and economic nexus

Christopher

So we'll talk a little bit about nexus. And I don't know, Kevin, do you want to describe what nexus is, from a physical presence and from an economic presence?

9:20 Kevin Cox

Yeah, I'll take the baton.

So we have two types. We have physical nexus. Physical nexus meaning where you are physically located, where you have employees, where you have office space, where you have inventory, where you have employees or 1099s going into different states performing services, maybe going to trade shows. These could actually trigger what's called that physical nexus, where you would need to register with that state to start collecting and remitting sales tax.

9:57 Kevin Cox

On the other end, economic nexus. This is when you are selling into these states. This is when you need to start registering with the states to collect and remit sales tax.

Every state's different. Most commonly, what you're going to see depicted right here, is if you reach $100,000 in sales or 200 transactions in a 12-month period, you would be triggering nexus in these states. Then you would need to register with that state to collect and remit sales tax.

10:34 Christopher

Yeah. So hopefully everyone is as thoroughly confused as I am. But it's just, with anything sales tax, it depends. Which state you're selling into, what are you selling into those states.

You'll see for example certain states exclude resale, services, SaaS, digital. So it's really a moving target, and it continues to move.

11:00 Christopher

Kevin and I were just speaking with a customer and they're like, oh, I was talking with Georgia, and I thought it was $500,000 in sales in Georgia. And it was a few years ago, but Georgia has since lowered their threshold.

And so it is a constant moving target. A lot of people on this call, that was a big concern. We do offer tax risk assessments and things like that to help, if that is something of interest.

11:35 Christopher

So we'll talk a little bit about what is available to you outside of automation.

A lot of different ERP platforms, a lot of different ecommerce platforms offer you a way to manually track and keep up with sales tax. And a majority of those are going to be zip code based.

12:06 Christopher

Avalara used to offer zip code rate files. We stopped because we were finding they were only accurate about 80% of the time, and we didn't want to put our name behind something that was not 100% accurate. We didn't want to offer a service that wasn't necessarily helping people.

12:34 Christopher

And so what happens here, it's almost impossible to keep up with all the different tax code changes, the different tax holidays. You're probably familiar with back to school tax holidays, or companies will run, hey, we'll pay the sales tax, and things like that. So there are all these different things to keep up with that are nearly impossible.

12:59 Product taxability oddities

Christopher

I'm going to move ahead, and this is, Kevin, I'll let you talk about this one.

13:06 Kevin Cox

This is actually one of my favourite slides. Every place is different, everywhere's crazy out there. Nobody wants to stay in line, they just want to make it as confusing as possible so they can get you.

So like in New York right here, you can see tacos are tax exempt, burritos aren't. Chris, do you know why?

13:28 Kevin Cox

I don't know why. So hard shell, soft shell?

13:32 Christopher

So New York actually has a separate sandwich tax. As part of their legislation they have sandwich tax. And I feel like I have to tell everyone, but in New York hot dogs are actually considered sandwiches. So we'll just go ahead and end that debate right here. If New York says it, it's true.

13:51 Christopher

They tax hot dogs, they tax tacos, because those are both considered sandwiches. Burritos, not considered sandwiches.

14:03 Christopher

And then in Indiana, what's kind of crazy is they have a grocery tax exemption. And if a product has flour within the first three ingredients, it is considered a grocery item. So Snickers bars do not have flour within the first three ingredients, but Kit Kat bars and Twix bars do. So they fall into that tax exemption.

14:35 Kevin Cox

Interesting. Yeah, so now everyone's kind of getting into our world now, like how this is just so wild.

14:42 Christopher

Cool. So some other things. We talked a little bit about product taxability there and different products.

But what more people, I don't know how many people on this call sell Kit Kats and Snickers and Twix, but anyone that sells anything does deal with shipping. And shipping is taxed differently state to state. Sometimes it's based on if your products are taxable, sometimes it's just based on if that service is taxable.

15:09 Christopher

Then we also have drop shipping. Avalara refers to this as the Bermuda Triangle of sales tax, because the tax gets lost. We don't know who has the liability, where is it going, who's buying it. And so it's really fun to deal with. And I'd say that tongue in cheek, fun. Kevin and I have a different view of fun than probably most people on this call.

15:35 Christopher

Then we're talking about exempt sales, if you're selling to tax exempt customers, government entities, resellers, manufacturers. And then if you're adding new products, and adding new products just comes with growth, comes with changing, and just being able to keep up with how those products are taxed state to state.

16:02 Christopher

So we'll go through tax returns as well.

Very important, each state is going to have a different form. Very important that you know which form is to be filed. Very important to break out the different types of sales. A lot of states are going to ask you to do each jurisdiction broken out separately. They're going to want to see your marketplace sales, they're going to want to see your total gross sales.

16:35 Christopher

And each state has a different time that they want these filed. They have different rules around prepayments and things like that. And so it's just not something that you necessarily want to keep in house.

16:53 Kelley Birrell

And I want to jump in real quick. Here at the very end we are going to be giving you a link that you can go to if you're like, man, this stuff is way too confusing, I don't want to do this myself. We can help here at LedgerGurus, and we're going to be giving you a link to start that process. Anyway, continue.

17:14 Christopher

Yeah, and Kelley, that's perfect timing, because now we're to poll number two.

17:19 Kelley Birrell

Awesome. How much time do you guys spend on sales tax? None, less than two hours a month, two to 10 hours per month, 10 plus hours per month? How much time is this taking you?

17:33 Christopher

Yeah, and we talk with people that are in every one of these categories. Typically if you're not spending any time managing sales tax, you're just avoiding it, which is a problem, folks.

17:46 Lauren Maillard

Yeah, it really is something that you need to be paying attention to, even if you're brand new.

18:03 Christopher

The old, who is it, bury your head in the sand. I want to say a flamingo, but I don't think a flamingo is, ostrich.

18:10 Lauren Maillard

Ostrich, that's what it is.

18:12 Christopher

But yeah, not the ostrich approach, not the best strategy.

18:16 Lauren Maillard

No. We actually use a graphic of an ostrich in one of our masterclasses on sales tax. It's like, don't do this, this is a bad idea, pay attention, pull your head out of the sand.

18:28 Lauren Maillard

Yeah, because here's the thing also, folks. It's becoming an even worse idea now to not pay attention than it used to be. Because sales tax audits are becoming more and more of an issue. These business activity questionnaires that states are sending out is becoming more and more of an issue. I'm not going to go into too much detail because I suspect you're probably covering some of that later on, right, Chris?

18:52 Christopher

Yeah, yeah.

18:53 Lauren Maillard

But it's a big deal, folks. Pay attention.

18:57 Kelley Birrell

Okay, I'm going to end the poll. It looks like there are some people who aren't paying any attention at all, there are some people that are spending various amounts. So we're going to help on this.

19:09 Nexus stories, VDAs, and registration

Christopher

Awesome. So we talked a little bit about understanding nexus.

Kevin, I don't know if you have any stories of companies that you spoke with and you've helped walk them through this process. Do you have anything in mind that you want to share?

19:29 Kevin Cox

Yeah. Oftentimes when somebody's coming to us and they don't fully understand where they may have triggered nexus, we can usually get a good sense of that just based on your past sales data. You could send that to me and I could tell you right then and there where you have triggered nexus, if we're just talking from a sales or transactional standpoint.

19:51 Kevin Cox

But oftentimes there's a lot more complexity to this. So again, let's say you're traveling into different states, going to trade shows, you have 1099 employees, then it gets a little complex.

20:03 Kevin Cox

And we could actually introduce you to somebody on our team. They're referred to as tax directors, and they could actually do like a four to five year look back. And depending on what you're selling, who you're selling to, where you're traveling into, they could do a full nexus study to figure out what you owe states. And then we can help you reconcile with those states by running what's called a voluntary disclosure agreement. We can help you waive any kind of penalties by working through us, who in turn will be working with the state to remediate things.

20:44 Christopher

And that's something we work with LedgerGurus on as well. So if those questions come up, obviously go to LedgerGurus and they'll point you in the right direction for next steps.

20:57 Christopher

But that is one of the most difficult things, just understanding those nexus obligations. They do change state to state.

Some states like Nevada, that have a lot of trade show activity, you have to spend over a certain amount of time in that state before you would trigger nexus. Other states like a Kansas, if you just set foot in that state, then you would have created that nexus in Kansas, and they would expect you to register, file and remit.

21:32 Christopher

And so that's something, if you have questions, great to work with LedgerGurus' team. If they need Avalara, they'll bring us in for those evaluations and things like that. But it is something we work together on.

21:46 Kelley Birrell

And actually I have something I'm going to be putting a link into the chat for. Our download that's called the 10 steps to ensure sales tax doesn't burn down your ecommerce business. We have a whole section in it about nexus, as well as a chart at the end that has all of the economic nexus thresholds by state. So I'm putting that into the chat right now.

22:09 Christopher

Oh, that's fantastic, Kelley.

And I just had a quick story I wanted to share. There was this company called the Mattress Queen and they were based out of Oregon. And I don't know if we know or not, but Oregon does not have a state sales tax. And so the Mattress Queen was not charging sales tax.

22:29 Christopher

And this auditor would go get coffee every day, and he was sitting at his normal coffee spot, and he noticed on the bridge from Oregon to Washington that this Mattress Queen truck would drive by. He'd see a couple of them every day. And he's like, huh, that's super interesting, let me go talk to the Mattress Queen.

22:54 Christopher

And he went, and they had sold millions of dollars of mattresses into the state of Washington, had never gotten registered. And they ended up having to close their doors because of the amount of outstanding sales tax.

23:13 Lauren Maillard

Right. So Washington is very aggressive. That's not the first kind of nasty story that I've heard from a Washington auditor.

23:19 Christopher

Yeah. And Lauren, correct me if I'm wrong, you want to get ahead of this. You want to reach out and understand it before that Washington auditor reaches out to you.

23:32 Lauren Maillard

Oh, absolutely. This is one of those things where if you do bury your head in the sand, the liability just doesn't go away. When you hit nexus in a state, you just continue to create a liability for yourself that you're going to be responsible for.

23:52 Lauren Maillard

And so you really need to be aware of what obligations you have. And if you're not compliant, you want to talk to Avalara, talk to us, and we'll come up with a plan with you. We want to make sure that we're helping you make good business decisions. You have to take that into account. Sometimes it doesn't make sense to be 100% compliant, compliant down to the little penny. But you'll want to have a conversation and see what we can do to help you out, and to create a better relationship with the states.

24:25 Kevin Cox

And when you are connected with us at Avalara, you're not just dealing with me, a sales guy. I can actually introduce you to somebody that used to be an auditor. They'll tell you exactly what you need to know. And all conversations with us are completely confidential. So don't think if you're breaking any laws, you have any liabilities, we're going to take that information to the state. That's not how this goes, so don't worry about that.

24:49 Christopher

And I think that's a good segue into the registration piece and remittance. So once you have created that link, created that nexus with a state, you'll want to get registered in that state.

25:03 Christopher

And I'll tell a little story. We actually run into this quite a bit when companies are being acquired, or companies are trying to get funding, and part of that acquisition process is that historical liability review.

25:24 Christopher

We were working with a company, and this individual was due about $2 million. And this money was put in escrow until he was able to have their tax liability figured out. And so what he had to do is he had to go back, he had to go through the registration process. And some states where he owed a little bit more money, they will also accrue penalties and interest on that back tax that's owed.

25:56 Christopher

And so there are programs out there such as the voluntary disclosure program, in which we can get penalty abatement from those states, and also we are able to limit that liability look back period.

26:17 Christopher

Texas is a great example, because if you've created nexus in Texas, not only does it rhyme, but Texas has an unlimited liability look back. If you were to go with that voluntary disclosure program, they then limit that liability look back to the past five years. So great reduction in tax, plus we get the reduction in penalties and interest.

26:43 Kelley Birrell

So I just got a question that came in. Does Avalara have attorney client privilege that legally allows them to not have to respond to legal requests for information?

26:56 Christopher

So we do not, no. We would not do that, that would be on our clients to respond. We only provide the information to our clients. We do not provide information to the states that has not been signed off on and approved by our clients.

27:17 Lauren Maillard

Awesome. Kelley, just to go a little bit further with the VDA, if a client wants to do a VDA and they're working with us, we'll go to the state, and the state understands that we're going confidentially to the state. We do not provide any information to the state as to the identity of the company, and that is only revealed after an agreement has been decided.

27:43 Lauren Maillard

And it is penalties and the look back that can be limited. The states do not actually, in my experience, they don't waive interest. Chris, you might have seen things a little different, but that's not something that in my experience the states do.

28:03 Christopher

Yeah, so that's correct. Penalties and look back.

28:09 Christopher

And some of those penalties, I mean they get very high. We're talking 12, 15% in some states annually.

28:18 Lauren Maillard

I think I heard somewhere that Washington is 39%. Is that true?

28:21 Christopher

I have heard that. I need to go and look. I won't confirm that without looking and verifying that.

28:27 Lauren Maillard

Ouch. Ouch.

28:33 Lauren Maillard

Actually, there's one thing I want to point out here that we've recently become aware of. There are occasionally tax amnesty programs. Massachusetts is getting ready to start one tomorrow that will go through December 30th of 2024. And if you'll go and do this tax amnesty, then it's an opportunity for you to pay the taxes and interest and register and get your returns in, but not have to pay the penalties. Those penalties can be waived.

29:04 Lauren Maillard

So there are things that can help you. It can be really scary if you've got a lot of back taxes that you're dealing with, but it doesn't have to be. Don't let it paralyse you. There are things that you can do to get on top of it and get compliant again.

29:22 Kelley Birrell

So continue. Kelly had a question in the chat.

So if I haven't met the requirements for nexus in the state that I made a sale, do I just not collect the sales tax for the sale, if I live in New York?

29:35 Kevin Cox

Good question. So unless you have nexus there, unless you're physically in New York, you do not need to collect sales tax, unless you have that economic nexus, so you cross their threshold, which is 500,000 and 200 transactions.

29:57 Kevin Cox

So no. If you do cross the threshold however, every dollar once you cross you're liable for. So that's when you're going to want to register, probably register a little bit before crossing the threshold, just so you can start collecting that sales tax right away.

30:14 Kelley Birrell

Oh, great question. Thank you. I just want to make sure that we make that super clear.

You are not responsible for sales tax before you cross the threshold. After you cross the threshold you are not responsible for all the sales tax before you cross the threshold. You're only responsible from the threshold on. But you are responsible from that point on.

30:28 Lauren Maillard

Let's add to that point. Even if you have hit nexus, you are responsible for that sales tax, but you are not allowed to collect it if you are not registered. So please do not collect sales tax unless you are registered in a state.

30:52 Christopher

Yeah, we've run into that quite a bit as well, Lauren.

30:59 Lauren Maillard

Our biggest cleanup projects come from really well-intentioned sellers who will go in, usually on Shopify, they'll turn on their tax settings everywhere. They think they're doing a good thing. But if you're not registered, you actually don't have a way to remit, and you're not allowed to hold on to those funds. So please don't collect unless you're registered.

31:21 Kelley Birrell

So we just had another question come in, and I don't know the answer to this one, so hopefully you guys do. What is a reciprocal state, and how does that help if our state is reciprocal?

31:34 Lauren Maillard

I don't have any experience with that. Chris, do you?

31:39 Christopher

I'm not sure I understand the context of a reciprocal state.

31:46 Kelley Birrell

Okay. If you want to provide a little more clarification there, that would help.

31:53 Kelley Birrell

So Penny, go ahead and give us more information on that so we can answer. And in the meantime, let's continue on.

31:58 Kelley Birrell

Looks like Kelly also had a follow-up question. If I do print on demand, does that count as having nexus? They are located in a different state.

32:12 Lauren Maillard

It might be good to take this, maybe we just have a quick conversation afterwards and dive into your specific scenario.

32:17 Christopher

I'll just make a really quick comment there. That's getting into drop shipping, which is the Bermuda Triangle that we were talking about earlier, where the complexity really goes up a few notches.

32:37 Lauren Maillard

So yeah, why don't you ask some questions and then we can maybe talk offline.

32:46 Calculating tax and exempt sales

Christopher

Okay, perfect. So let's keep going.

And the next piece, so now we have understood where we have that tax obligation, we're understanding our physical and economic nexus thresholds, we are registered in the states that we need to be collecting tax. Now the real fun begins, of actually being able to calculate the correct amount of tax.

33:13 Christopher

And this is a really great example on Locust Street. I have a feeling that 751 Locust Street gets a lot of packages from his next door neighbour at [unclear], because they are saving about four and a half percent sales tax by getting their stuff shipped next door.

33:36 Christopher

And I would just have to assume that they are really good friends, or they really don't like each other, because he's getting all his packages.

33:47 Christopher

But this scenario happens way more than you think. I was working with a company where one side of the highway is taxed differently than the other side. So they would have an address with a sign at one side of the highway, and the sign said deliveries, with the arrow this way, just so they could save that two or three percent sales tax on all their orders.

34:17 Christopher

So not only are there these jurisdictional boundaries which make very little sense, but there are also different tax rates, different tax rules, and then the boundaries as well.

34:39 Christopher

So with the tax rules, that's around the shipping being taxed differently state by state. A Kit Kat or a Twix is taxed, the Snickers isn't. And we actually have some fun examples of those tax rules.

Kevin, I don't know, I know you're from New York, if you want to talk about bagels.

35:02 Kevin Cox

I mean, I lived there for, we'll just say I'm from New York.

Yeah, so if you're in New York, a whole bagel, funny enough, it's exempt. And then if it's sliced, it's taxable. So rule of thumb, just take the extra time to cut that bagel, you're going to save yourself a little cash.

35:26 Christopher

That's the Cox family motto.

35:31 Christopher

And then everything's bigger in Texas, even waistlines. They give you a tax exemption for buying more than five donuts. So they're encouraging that.

35:48 Christopher

And there are just different crazy laws state by state. This is just an example, just so you can see how ludicrous some of this stuff is.

36:00 Christopher

And we'll go on just a little bit more. So the other piece is just being familiar with the laws.

Some states are destination based, so the tax is based off where you're shipping to. Some states are origin based. So if you're selling something to Texas inside of Texas, that's going to be a pretty simple tax calculation, because it's always going to be based on the origin.

36:34 Christopher

If you're selling something to Oklahoma from Texas, now we're getting a little more complicated, because now you're having to deal with the different tax jurisdictions outside of Texas.

36:47 Christopher

And then California makes everything super fun, because California has a mixed tax law, where sometimes it's origin, sometimes it's destination, and sometimes it's a blend of the two. So just being able to understand all of this.

37:04 Christopher

All right, let's get a poll. Who's confused?

37:17 Christopher

Perfect. So now we've gone through understanding where you've created a tax liability, gone through registration, gone through the calculation piece.

Going to talk really briefly on tax exempt sales. This is when you have a customer that is tax exempt for some reason or another. A lot of times it's when you're selling to resellers, you're selling to manufacturers. Some states have agriculture exemptions, some states government exemptions, which could include schools, some states non-profit. And I say some states, because these are not holistically accepted across every state.

38:01 Christopher

So you need to understand who your clients are, if they qualify for an exemption, and if that state even recognises that as an exemption.

38:14 Christopher

And so then once you've done that, it's very important to be able to track and manage those tax exemptions. Because not only do some states not recognise some, but each state is going to have a different tax exemption form.

38:31 Christopher

So each one of those forms is going to be for a different tax exemption. Each one of those forms is going to have different laws around how long they last, if they expire, when they expire.

38:45 Christopher

And then you'll see there in the tip, if your companies change names, you may need a new exemption. So if your company or your client's company has changed from an LLC to an S corp, or they've changed their name from LedgerGurus to The LedgerGurus, or something along those lines, that could disqualify that tax exemption.

39:07 Christopher

So it's important to keep up with those, being able to have those in a centralised location where you can easily manage those tax exemptions.

39:22 Lauren Maillard

And I think it's worth pointing out too, because this happens all the time, but I have customers, they don't realise that when they're collecting exemption certificates from their customers, and their customers are in different states.

39:40 Lauren Maillard

I had one company I was working with, they sell energy drinks to different grocery stores and whatnot, and those grocery stores have different locations. You need an exemption certificate for each state that you're shipping to for that one customer. So one customer could in theory have 30, 40 certificates that you need to collect. So it gets a little complex. It's hard to manage when you have so many exempt customers.

40:07 Kevin Cox

Yeah, you do have some exemption certificates that do cover multiple states. So you have the SST exemption certificate, and then the MTC exemption certificate too. So if you use those it is simplified just a little bit.

40:27 Christopher

Yeah, absolutely. There are some programs in place to try to simplify or streamline the processes. But it's still very important that those are recognised and qualified in those states. Because while they would count for the 24, 25 SST states, they wouldn't count for the other 20 states that you may have tax exemptions in. So it's important to note where your clients are tax exempt.

41:02 Remittance, automation, and questions

Christopher

Then the last piece here is going to be around tax remittance.

And so with the tax remittance, spoiler alert, it's going to be different for each state. Each state has a different form, each state's going to have a different timeline, and they're each going to have their unique requirements.

41:27 Christopher

And so some things to keep in mind. There are different ways to file. Some states do e-file, some states will still allow paper remittance. When we talk with companies that have been doing it for a very long time, maybe there's someone in the back office that's still filling out those forms by hand.

41:47 Christopher

They're going to be different due dates. Some are due the 15th, 16th, 17th, 18th, 25th, 20th.

41:57 Christopher

And then states are going to also offer, from time to time, timely filing incentives. So you'll actually get some money back for paying on time. And then they almost always are going to charge you more if you're filing late. And so it actually costs you to not pay on time.

42:19 Christopher

And so with this, Avalara has a fantastic partnership with LedgerGurus, in the sense that, and I'll jump over to the next slide real briefly, Avalara on our side, we're going to be able to help maintain those tax calculations. We're able, through with LedgerGurus, to help you figure out where you have those tax requirements, so where you have created that link with the state, or you've created that nexus with the state.

42:54 Christopher

And then we're also able to help with those sales tax exemptions and managing those. And then working with LedgerGurus, LedgerGurus is able to take that data straight out of Avalara and they can create, file and remit those sales tax returns on your behalf, ensuring that they're going to be on time, they're going to be filed correctly. And then also notices that are received from the states are going to be managed as well.

43:24 Christopher

And Lauren, I don't know if there's anything you want to add to that process.

43:30 Lauren Maillard

Yeah, I would say, as a tax professional, in my opinion Avalara just stands out as the expert in calculating sales tax. So AvaTax is really, for me, where Avalara shines. They do such a great job. There are thousands and thousands of sales tax jurisdictions and rates, and it's just crazy. And so you really do need to have the support of a software like AvaTax.

44:10 Kevin Cox

I think to add to that too, we touched about it a little bit, but a lot of other tools that do sales tax calculations, they're only using zip codes to determine that tax rate. And as we kind of went over on these slides, there are going to be some zip codes that have multiple jurisdictions within, so they have different tax rates. So it's not going to be accurate. You might be making overpayments, and then you're going to have to refund your customers. You might be making underpayments to the state, that's tax fraud.

44:34 Kevin Cox

So what we're going to do is use geolocation. We drop a pin on the map and we're going to give you the most accurate rate possible. We have a team of about 80 to 90 tax researchers, their sole purpose is to keep up to date with all the rates and tax law changes out there. So we do provide you with the 100% guarantee this is going to be accurate. If it's not, we actually eat that penalty for you. Not many companies are going to say that.

45:01 Christopher

Yeah. So when you think about it, why would you want to automate sales tax? And it's around the accuracy, the efficiency.

You're reducing that time. Kelley, when you put up that poll there were people that spend over 10 hours a month with sales tax. That's a significant investment from your staff.

45:24 Christopher

Then also your customer satisfaction. If your customer is being charged the incorrect sales tax, these customers, they know. Like my friend that had the sign pointing across the street, they know what their sales tax is. They build it into their business. They know when they make a purchase.

45:50 Christopher

And we've had plenty of conversations with companies that say, hey, actually that's not taxable, we don't pay tax on software because we're located in California. And so those conversations come up. Being able to accurately calculate that just continues to build that trust with your clients.

46:10 Christopher

Then you're eliminating that risk, and it allows your business to grow.

46:22 Christopher

We've spoken with so many companies, it's kind of funny, so we have a tool where we can look at your website and see where the traffic is coming from. And we have companies that have 15, 20% of their traffic coming from overseas in other countries, but they're afraid to sell overseas, or to open up those new markets, because they don't know the tax obligations. So they're potentially losing out on 15 to 20% business growth by just not understanding the tax obligations.

46:57 Christopher

So that's something that an automated tax solution, that's something that an Avalara can manage for you, is opening up these new territories, whether that be new states, whether that be new countries, and just being completely automated and allowing your business to grow.

47:14 Christopher

I think that was just about everything I had before our last poll question, and then we're just going to open it up to question and answer. I think we might have an extra chat or two that popped in.

47:28 Christopher

So what is your next step? Are you going to just blindly continue to ignore sales tax, pretend it doesn't exist? Don't recommend that one. Maybe you don't have any problems, maybe you are just fine. Or maybe you'd like to talk to us. Any of those, those are good.

47:54 Kelley Birrell

So yes, we have had some questions come in on the chat. We've answered several of those. If you have any other questions, please put them into the Q&A, because we're happy to answer whatever we can help you with.

48:09 Christopher

Yeah, and I'll just put this up so that the link is showing as well.

48:15 Kelley Birrell

Yes, and as a matter of fact, I was going to be putting that link in for everybody in the chat as well. So thanks for the reminder.

48:27 Christopher

Yeah. And Penny, I love the question. So Penny asked, and not everyone can see the question, Penny, do you have to establish exempt status at the time of purchase, or can you take care of it later?

48:53 Christopher

So that's a fantastic question, Penny. You're not going to like the answer, because it depends on which state you're selling into.

49:07 Christopher

Some states will allow you to actually come back. So we've worked with a number of companies that had a very large number of tax exempt sales. They were not collecting exemptions, and by working with them, when you're doing that VDA, they will allow you to just have an exemption on file. It doesn't necessarily need to be on file at the time of purchase.

49:40 Christopher

That is not best practice by any means. Best practice is, if you're going to exempt a sale, you want to make sure that you have that exemption certificate on file.

49:52 Christopher

Lauren, you had mentioned a program called Streamlined Sales Tax. And what that is, that's a group of 25 states that have come together to try to streamline sales tax. And if you're going to participate in that program and you are going to exempt a sale, you have to have that tax exemption on file at the time of purchase for that sale.

50:16 Christopher

But there are circumstances where, going through an audit, going through a voluntary disclosure, some states will allow you the opportunity to go and collect tax exemptions.

50:38 Lauren Maillard

Yeah, Chris, what I would add to that is, as a seller, if you have nexus, you really have an obligation to collect one of two things. One, you collect the sales tax, or two, you collect an exemption certificate.

50:49 Lauren Maillard

Once you have that exemption certificate on file, it's going to be good for quite a while, depending on the state and the certificate that you're using. At the time of sale you don't have the state looking over your shoulder, but like Chris said, it is best practice to get that exemption certificate, have it on file. Because the state at some point will audit you, or potentially will audit you, and you're responsible for that sales tax if you haven't collected it or if you don't have an exemption certificate. So you don't want to pay sales tax out of pocket. Just get your exemption certificates if that's what you need.

51:36 Christopher

Any other questions pop up, Kelley, Lauren? Anything else?

51:42 Lauren Maillard

I'm just reading one from Joey right now. Any recommendations for high volume transactions for small cost for small ecommerce clients? We feel Avalara is not the avenue for these clients for this situation. Otherwise I think AvaTax is great and would recommend it for accurate reporting.

52:08 Lauren Maillard

In my experience AvaTax is the best, that's just the way it is. At LedgerGurus we do lots of reconciliations for our clients, where we're really looking at the difference between what was collected and what the state is telling us we need to remit. And AvaTax has always been the best at that.

52:31 Lauren Maillard

Otherwise, it's going to depend on what sales channel you're selling with. If you're with Shopify, Shopify does have their own sales tax engine software that will do it for you, and it's pretty good. But like Kevin said, it's going to be based on zip code and not by the geolocation. So it won't be as accurate, but it will get you really close.

53:07 Christopher

And just to add a little colour, Lauren. As a company we had to pick a pricing strategy, and we understand that that pricing strategy does not work for every single company.

53:13 Christopher

So there are scenarios like what was just brought up where we are able to customise agreements to better help your business. For some companies our pricing model works incredibly well, for some companies it doesn't. And so we understand that as a business.

53:38 Christopher

And at the end of the day we want to be able to work with you. We want to be able to continue to grow our partnership with LedgerGurus, which is very important to us. And if we're not able to partner with you as an end user, then we're not able to help. So happy to have those conversations offline. But I did want to add that we know that our pricing model isn't perfect for every single business model out there, so we are willing to work with you.

54:05 Lauren Maillard

There's another question from Joey about dietary supplements. And what I would say there is, when you're thinking about sales tax and exemption certificates, the first thing you need to ask is, do I have nexus? Do I have an obligation to be registered to collect and remit for a state?

54:27 Lauren Maillard

If you do, then you ask yourself a question. Okay, am I going to collect the sales tax, or am I going to collect the exemption certificate? So just always go back to those questions. Even when you start thinking about drop shipping, do I have nexus, what am I going to collect? And it really will simplify things.

54:42 Lauren Maillard

And I think if you need to go beyond that, then you're going to want to talk to someone from LedgerGurus, one of our sales tax accounting experts. Talk to Chris or Kevin and they'll get you one of their sales tax directors who will be able to give you some more guidance.

54:55 Lauren Maillard

You know, the way that things have been presented here is that sales tax is very straightforward. Sales tax is not straightforward. It really isn't. I kind of giggle when people think that sales tax is just 7.25 times whatever you're buying, whatever you're selling. It's really not that simple.

55:20 Lauren Maillard

But there are a lot of experts who can give you some advice and just reassure you that what you're doing is the right thing. And the states, it's scary, the states can be big and scary, but as a seller they're willing to work with you.

55:32 Lauren Maillard

So I would just say, my advice is, don't bury your head in the sand. There are people who are willing to help you, and we're experts at this. And I'm sure that for most of you that are on here, you're experts at other things. So come to us and we'll help you with what we're experts at, so that you can get back to doing what you're best at.

55:52 Kevin Cox

Yeah, and at a minimum you can make a good business decision based off of the findings. So that way, if anything comes up, it won't be a surprise. You'll know, hey, maybe I owe five or $600 in back taxes in Texas, I'm fine with that. If they find me, they find me.

56:12 Kevin Cox

Or maybe it's the opposite. I owe five or $600 in Texas, I want to get this taken care of now, I want to get this liability off the books. So in my experience, Lauren, it's always better to know what that liability is, as opposed to being surprised by it.

56:30 Lauren Maillard

Yeah, make a decision. Not making a decision is a decision, right? And it's one that's just going to lead to issues down the line.

56:45 Kelley Birrell

Yeah. Well, thanks guys. Can you hear me okay? I think we lost me for a minute. Okay, awesome, good.

56:58 Kelley Birrell

Anyway, thank you. This has been delightful. I'm hoping that everybody who has attended has found this to be really helpful. Continue to reach out. I did put the link to our contact page into the chat, which is the same one right here. And we will talk to you folks later. Have a great rest of your day.

57:14 Christopher

Yeah, happy Halloween. Don't eat too much candy.

57:17 Kelley Birrell

Thanks, Chris. See you, bye bye all.