Sales Tax 101 for the Internet Merchant - Amazon Web...

© Avalara

Sales Tax 101 for the Internet Merchant

Presented by Scott Newell, MBA

October 9, 2014

Making sales tax less taxing

Learning Objectives

Upon completing this webinar, you will be able to: • Determine appropriate Nexus – and Nexus triggering events

• Understand the current tax landscape and how special taxing

jurisdictions, including state tax holidays affect tax compliance

• Explain the steps your business needs to have in place to properly

collect and remit sales tax

• Identify whether or not your state is an SST State and how it affects

sales tax compliance

• Compare the different automation solutions available and how they

help with sales tax compliance


Agenda

1. The new state of commerce

2. Sales tax compliance landscape

3. Redefining nexus

4. Audit protection

5. Automation or not?

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The New State of Commerce

4


Polling Question 1



• According to a report by Forrester, more than 60% of

retail sales will involve the Internet by 2017.

• In 2013, 31 states projected budget deficits totaling $55

billion.

• NRF estimates $24 billion in sales taxes goes

uncollected on the Internet.

Therefore:

• As tax-collecting agents of the state(s), they are looking

to your business to find more money.

• This increased focus creates compliance risk for you.



When general

sales tax and

selective sales tax

are combined,

sales tax makes

up 47% of total

state revenue.

Other taxes 4%

Corporation net income

taxes 5% Total license

taxes 7%

Total selective sales taxes

17%

General sales and gross

receipts taxes 30%

Property taxes 2%

Individual income taxes

35%

Total State Government Tax Collection by Category



• States are finding more sales tax revenue by hiring

more auditors:

– California announces hiring 100 auditors over the next three

years

– Idaho hires 48 auditors that stay on as full-time staff

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Sales Tax Compliance Landscape

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Understanding the Basics: Sales Tax vs. Use Tax • Sales tax: imposed on the gross receipts from retail sale of tangible

property in state

• Use tax: imposed on the consumption or use of tangible property in

state

– Purchases of equipment and supplies from out-of-state for use in

business

– Withdrawals of inventory for taxable use such as R&D, promotional

materials, warranty repairs, etc.

• The difference:

– Sales tax: imposed on activities of a seller within or on transactions

originating and ending in a state

– Use tax: imposed on transactions or on purchases originating outside a

state


Sales Tax Compliance Considerations

• 11,000+ taxing jurisdictions

• Thousands of changes to tax laws, including:

– Jurisdictional rate changes

– Tax holidays

– Jurisdictions that levy new taxes or eliminate taxes

– Jurisdictions that expand geographic boundaries

• Accuracy is everything

– For customers, auditors, and for your business


E-tailers Struggle with:

• Do I have to collect (and, if so, from whom)?

• For what do I have to collect?

• How do I know what to charge (and is that rate current)?

• How do I register, report, and remit?


E-tailers Tell Us:

• Accurate sales tax calculations are critical

• Sub-second performance is vital for good customer

experience

• Managing sales tax rates and rules is a painful process

• Embedded reporting capability and real-time data access

is necessary to streamline the compliance process

• Reduction of risk associated with audits is vital

• Outsourcing sales tax compliance is strategic


Polling Question 2

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Redefining Nexus and Jurisdictions

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• 150+ million mailing addresses

• 11,000+ jurisdictional rules

• 35,000+ sales / use / rental tax rates

• ~ 30 M product / service exemptions

• 750,000+ buyer / seller exemptions


Redefining Nexus and Jurisdictions

Knowing where you are required to collect is becoming

more difficult.

• Nexus means a “connection.”

• Every state has the right to define who has to collect

sales tax, what those taxes are, and any exemptions that

may be allowed.

• Ecommerce merchants must have a connection to a

state in which a customer resides for the merchant to be

liable for sales tax.

• States define nexus in different ways, and this makes it

confusing.


How Do You Know if You Have Nexus?

• Do you have traveling salespeople in the state?

• Do you utilize contract labor in the state?

• Do you have company representatives in the state?

• Do you own or lease any real or personal property in the

state?

• Do you promote your products or services in the state?

• Do you participate in trade shows or exhibits in the state?

• And every year this list continues to grow.


ZIP Codes: the Wrong Tool for the Job

• Taxing jurisdictions don’t always follow ZIP codes.

• Individual counties and municipalities levy sales taxes in

addition to state rates.

• Tax rates can vary significantly within a ZIP code.

• ZIP codes:

– Are a blunt instrument for determining sales tax rates and

boundaries.

– Will almost certainly lead to calculation mistakes.

– Can lull you into a false sense of security.


Taking Care of Business

Crossing your t’s and dotting your i’s:

Once you’ve figured out where your business has nexus,

you need to ensure that you are properly set up to collect

and remit sales tax within applicable states.


Accuracy is Everything

• Sales tax is calculated based on specific laws, regulations and rates defined for state, city, county – and in some cases special taxing jurisdictions and Regional Transit Districts.

• These jurisdictions DO NOT line up with ZIP codes.

• In 2012, the number of changes in these rates, rules and boundaries equaled or topped seven thousand across 46 states.

• It is extremely important for ecommerce businesses to ensure accuracy in rates and taxability.


Polling Question 3


7.85%

4.35%

4.35%

6.85%

7.72%

7.35%

5.10%

80111 Taxes Represented:

2.9% Colorado State

.25% Arapahoe County

1.0% Douglas County

3.5% Englewood City

3.0% Greenwood Village City

2.5% Centennial City

1.0% Regional Transport District

.10% Football District

.10% Science and Cultural

District

Determining sales tax

rates by

ZIP codes is

inaccurate and risky.


7450 Leyden Street

Total Sales Tax: 0.0925

COLORADO: 0.0290

ADAMS: 0.0075

COMMERCE CITY: 0.0450

SCIENTIFIC & CULTURAL: 0.0010

DENVER AREA TR: 0.0100

7495 Locust Street

Total Sales Tax: 0.0475

COLORADO: 0.0290

ADAMS: 0.0075

SCIENTIFIC & CULTURAL: 0.0010

DENVER AREA TR: 0.0100


Streamlined Sales Tax States

24 and Growing:


Polling Question 4


Audits Happen. Protect Yourself.

• Keep your sales tax collection records in perfect order.

• Know where you owe.

• Ensure you have accurate rates & taxability.

• Properly manage exemption certificates.


Key Areas of Risk for E-tailers

• Incorrect tax rates due (often based on ZIP codes).

• Proper documentation for sales tax exemption.


Tips to Reduce Audit Risk

You should:

• Do a nexus study

• Stay up-to-date with rate,

rule, and boundary

changes

• Report consumers’ use tax

• Be compliant from day

one, especially new

businesses

• Automate with technology

Make sure you have:

• An understanding of your

filing requirements

• Calculations that are

rooftop accurate

• Product taxability coverage

• Detailed sales records

• A process for managing

exemption certificates


Avoid These Common Mistakes

• Failing to file a return

• Failing to report sales

• Taking excessive credits or exclusions on a return

• Filing returns with errors

• Return information that doesn’t match other records

• Mistakes found in previous audit

• Previous finding of exemption certificate misuse

• Not reporting use tax


Automation or Not?

• Periods of high growth, or upgrades or changes to your ecommerce site, provide good opportunities to explore how automating sales tax can help your business.

• Many ecommerce businesses find that automation:

– Saves time

– Increases accuracy

– Mitigates risk

– Improves efficiency

– Increases profitability

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How Does it Work?

34

Tax Rates

Tax Boundaries

Taxability Rules


Benefits of Automation

Just like outsourcing payroll, companies that outsource

sales tax benefit by:

• Achieving compliance

• Cutting costs

• Increasing efficiencies

• Focusing on growth

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Polling Question 5

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About Avalara

We’re a team of developers, accountants,

support specialists, marketers, salespeople,

researchers, and technologists who know

we’re on to something big.

We know we are part of a team that is

revolutionizing what is a huge drain for

businesses of all sizes: managing the

compliance of transactional taxes, from

sales and use tax to 1099s and more.


Questions?

Contact:

Scott Newell, MBA

National Sales Manager

Avalara

[email protected]

(206) 826-4900 x1355

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