SEATTLE, WA — December 2, 2020 — Avalara (NYSE:AVLR), a leading provider of tax compliance automation software for businesses of all sizes, today announced that it has acquired Impendulo Limited, a London-based provider of insurance tax compliance solutions. Financial terms of the transaction were not disclosed. Led by Chris James, founder and managing director, Impendulo gives Avalara access to the global insurance compliance business, a new market that could benefit from automation technology.

Impendulo offers insurance tax compliance management technology and services, specializing in support for multinational insurance companies. Impendulo helps its clients in a multistep process from acting as the required in-country tax representative and agent, to providing rate calculations, filings, returns, and audit support. Similar to many other types of indirect tax, regulations vary regionally. For example, in the United States, insurance brokers often file and pay on behalf of those purchasing the insurance, whereas in Europe, insurance companies mainly have the legal obligation to file and pay directly.

“Insurance companies continue to accelerate or mature their digital strategies, and with Chris at the helm of Avalara’s insurance compliance strategy, we have the opportunity to build out a solution that will disrupt this industry,” said Jayme Fishman, SVP of corporate development at Avalara. “The expertise and leadership from Impendulo will expand our reach to new segments, and in turn we will bring technology and automation to improve their current services.”

“This is an exciting and important transition for our business and clients. With the support of Avalara’s deep resources and talent, we have ambitious plans to grow the depth and range of Avalara’s digital services to the insurance sector. As a team we are greatly looking forward to maximizing this opportunity for the benefit of our customers globally,” said Chris James, founder and managing director, Impendulo.

Acquiring leaders in tax compliance verticals has been core to Avalara’s mission and growth strategy since its founding. Last month, Avalara acquired the operational assets of Business Licenses, LLC to expand its platform to include a complementary compliance solution for licensing and registration requirements. With the acquisition of Impendulo, Avalara furthers its mission of being the leading global compliance automation provider.

SEATTLE, WA — November 5, 2020 — Avalara (NYSE:AVLR), a leading provider of tax compliance automation software for businesses of all sizes, today announced that it has acquired the operational assets of Business Licenses, LLC, a company that provides software and services for the research, acquisition, and management of business licenses, registrations, and permits for businesses of all sizes. The transaction is valued at approximately $97 million in cash and stock.

Acquiring the assets of Business Licenses represents a milestone for Avalara, as the company expands its platform to include a complementary compliance solution beyond tax. All of Avalara’s customers are required to obtain and maintain sales tax registrations in the jurisdictions where they have tax nexus, and building upon the existing partnership with Business Licenses, Avalara will now be able to support additional licensing requirements. Adding licensing allows Avalara to better help businesses of every size manage and reduce regulatory complexity.

Nearly every business must obtain some type of license, permit, or tax registration and keep it current. Like tax compliance, licensing requirements can create meaningful complexity as the regulations for licensing and registrations vary by jurisdiction and industry. Business activities such as opening or closing locations, moving locations, changing names, changing ownership, or launching products can all trigger the need for licensing or registration. The acquisition and ongoing maintenance of these licenses is daunting and can be a challenge for businesses of any size. Business Licenses has amassed an expansive database of licensing and registration content and deployed it through automated software and outsourcing services to help U.S. businesses start up and grow.

Avalara will benefit from the acquisition of the Business Licenses products and team in three areas:

• End-to-end tax compliance for businesses: Obtaining a business license and registering to collect sales tax are the first steps in a compliance journey. Now, companies will be able to turn to Avalara’s multiproduct platform to manage more of their compliance obligations from obtaining their initial business license to automating sales tax. With the assets from Business Licenses, this process will be more efficient for customers.
• License management for the enterprise: Large businesses manage many types of licenses across multiple jurisdictions, many of which require an annual renewal. Avalara has acquired the subscription-based SaaS license management solution that enterprise customers use to store, manage, and renew registrations, licenses, and permits. In addition, experts at Business Licenses offer professional services for ongoing licensing support as well as research and filing services for business expansion and M&A. Large businesses may manage a large set of documents, for example a national home improvement retailer uses Business Licenses software and services to manage more than 8,000 licenses. Business Licenses has nearly 200 enterprise customers, with a significant number of those customers in the Fortune 1000, that use its solutions to manage compliance.
• Expanded compliance content: The acquisition of Business Licenses content will add to Avalara’s existing database, including business license and permit requirements, rules and regulations, statutes, licensing authority contact information, and thousands of pages of license and permit forms, instructions, schedules, and other associated documents. Business Licenses provides documents and data for more than 30,000 unique licenses with more than 20,000 licensing authorities.

Together, Avalara and Business Licenses have enabled businesses to achieve compliance in the wake of considerable legislative change. Avalara and Business Licenses together launched Avalara Licensing in 2018 when the Supreme Court, in South Dakota v. Wayfair, Inc., ruled that states can require businesses without a physical presence to collect and remit sales tax on transactions in those states. Many states took advantage of the ruling and introduced new legislation requiring many out-of-state online sellers to collect sales tax; the first step to collecting tax is registering in each state.

“Business startup and growth begins with licensing and registration; it is the first step on a journey to achieve compliance,” said Scott McFarlane, co-founder and CEO of Avalara. “David Polatseck and Abe Brach architected some of the earliest compliance content aggregation and automation tools and deeply understand the needs of growing businesses. Together, we work toward providing a comprehensive and seamless customer experience throughout the entire compliance journey — from registrations to returns to business insights.” 

“Avalara and Business Licenses have been partners in alleviating the burden of compliance for years,” said David Polatseck, president of Business Licenses. “Our team has focused on helping companies navigate the critical licensing and registration component of compliance for more than 15 years. We are proud to join forces with a pioneer in the global compliance space to advance our shared vision of reducing compliance complexity through automation.”

Aggregating and providing regularly updated comprehensive tax content and solutions has been core to Avalara’s mission and growth strategy since its founding. Last month, Avalara acquired Transaction Tax Resources, Inc. to continue to build the industry’s leading content database for tax. With the acquisition of assets from Business Licenses, Avalara furthers its pioneering vision of being part of every transaction in the world by supporting the compliance life cycle through advanced technologies.

While you focus on your business, we stay on top of legislative and policy changes that can affect your sales tax compliance.

Tax news highlights from November include movement on the economic nexus front in Missouri and an unusual tactic for holding marketplace sellers liable for sales tax in Washington state. Read on for more details.

Bite-size updates.

There have been quite a few food-related wacky sales tax posts this year, covering everything from collection requirements for children operating lemonade stands to Utah’s unusual new policy for direct-to-consumer wine shipments. Learn more.

Colorado to increase tax on cigarettes and tobacco products.

Residents of Colorado voted to raise existing taxes on cigarettes and tobacco products as well as establish a new tax on nicotine products. The tax increases will occur in stages through July 2027. Learn more.

Economic nexus laws create new tax collection obligations for software and SaaS companies.

Software and SaaS sellers may be required to register then collect and remit sales tax because of economic nexus, which is enforced in 43 states, the District of Columbia, and some parts of Alaska. Learn more.

Four more states have legalized sales of recreational cannabis.

Residents of Arizona, Montana, New Jersey, and South Dakota voted to allow the possession, use, and retail sale of marijuana. The taxes on these products will be a welcome source of revenue. Learn more.

Kentucky prepares for direct-to-consumer (DTC) shipments of beer, wine, and spirits in 2021.

Businesses licensed as a manufacturer of malt beverages, spirits, or wine in their operating state can start the process of applying to make DTC sales in Kentucky. Learn more.

Missouri edges ahead in race to adopt economic nexus and marketplace facilitator law.

Of the two sales tax states that don’t yet have economic nexus (Florida and Missouri) and three that don’t yet require marketplaces to collect and remit sales tax on behalf of sellers (Florida, Kansas, and Missouri), the Show-Me state could be the first to put a bill on the governor’s desk. Learn more.

More online sales could create more sales tax collection obligations.

Online sales have exploded during the COVID-19 pandemic, underscoring the need for retailers to monitor sales in all states. Some states require remote sellers to register and start collecting sales tax as soon as they meet the economic nexus threshold. Learn more.

New compliance obligations for businesses making exempt sales.

Although manufacturers, resellers, and wholesalers may not need to collect and remit sales tax on online sales into other states, they may still need to register with the tax authorities and validate exempt sales. Learn more.

New York considers sales tax holiday for restaurants.

To help restaurants hit hard by the pandemic, a New York lawmaker wants to establish a weeklong sales tax holiday on restaurant food and drink. Learn more.

Washington state goes after marketplace sellers for past sales tax.

A marketplace seller can establish physical presence in Washington, and therefore an obligation to collect Washington sales tax, because the marketplace facilitator digitally transfers ownership of inventory in the state to the seller. Learn more.

Who needs a sales tax permit and how to get one.

We’ve updated our state-by-state guide to sales tax permits. Learn more.

Why it’s so hard to source in-state sales in Texas.

Sales tax sourcing in Texas is kind of like a square dance, which can make it hard to avoid tripping up. Learn more.

Tired of trying to keep up with sales tax changes around the country? Automating tax compliance can help.

Though it’s still possible to purchase software in a physical box, software is primarily sold as a digital download or cloud service. The shift from physical to digital sales of software and software as a service (SaaS) has caused selling models to evolve: Instead of charging one price for an off-the-shelf purchase or one-time service, companies charge customers recurring subscription fees for access to applications or platforms. Determining the tax due on recurring and subscription sales has become an acute pain point of tax compliance for SaaS and software companies.

Sales tax rules for software and SaaS vary considerably from state to state, which makes taxability complex and difficult to manage: These products and services are taxed 450 different ways across 45 categories. It’s often tough for businesses to determine the taxability of SaaS and software because state sales tax laws haven’t kept up with changes in technology. Just as states determine how to tax one new type of product or service, a new type comes along.

The taxability of software products may change depending on delivery model (physical or digital): In some states, physical sales of software are taxable but digital sales of software are exempt. Where tax applies to digital sales, it can be difficult to determine the proper rate to charge because rates can be based on the location of the customer, the vendor, or even the server.

Custom-built software is often taxed differently from prewritten software or packages that combine custom and prebuilt software. Training and support services can affect taxability too, as can using field sales or support contractors or staff. Adding recurring and subscription sales to the mix further complicates taxability.

Recurring billing and subscription billing are similar but not the same.

With recurring billing, the customer provides the seller with payment information such as a credit or debit card. The seller then automatically charges the customer for goods or services on a prearranged schedule; no further permissions are needed.

Recurring billing can be either fixed or variable. With a fixed recurring payment, the payment is the same every cycle (e.g., weekly, monthly, quarterly, annually, or custom). The variable recurring system allows for differences in billing amounts. For example, a payment management provider may use variable recurring billing because the amount of each bill will vary depending on the number of transactions made.

With subscription billing, consumers are billed for products or services on a time-determined basis, such as on the first or 10th day of the month, but they generally control the payments — they don’t need to share confidential credit card information with the seller. Furthermore, they can pay in advance or use a different payment method each payment cycle.

Subscription billing is generally the preferred model for SaaS products, mobile app providers, and companies selling recurring digital downloads or downloadable games.

With recurring and subscription sales, bill runs automatically gather information from customer accounts to generate hundreds or thousands of customer invoices on a set schedule. Thus, systems must be able to generate one-off invoices outside of bill runs and handle credit memos, invoice adjustments, and refunds. And of course, systems must be able to assign the proper rate of sales tax to each sale and account for sales tax exemptions. 

Traditional one-time purchase models generally use the primary address for the buyer to source tax jurisdiction(s) for tax determination and calculation. However, subscription models for SaaS and software sales often base tax on the location of where the service or software is consumed. Therefore, sellers generally need to know the physical address of all buy locations consuming the subscription.

Other complicating factors for managing sales tax for recurring and subscription sales include mass address validations, refunds, product/service returns, and credit memos. Since every billing cycle inevitably includes adjustments and one-offs, batch systems must be able to handle single invoice adjustments via a dynamic tax calculation request. Single refunds and credit memo generation are always facilitated via dynamic tax calculation request regardless of bill run processing model. 

And of course, one invoice error during a bill run shouldn’t prevent all other invoices from processing successfully. 

SaaS companies often scale quickly because their product offerings only require a customer to have access to a browser to subscribe. Because of this, and new economic nexus laws, the compliance burden for SaaS companies can increase in a short period of time.

Companies that sell software and SaaS need to be able to get sales tax right because they’re increasingly required to collect and remit it. 

Sales tax nexus — the connection between a state and business that enables the state to tax the business’s sales — used to be based primarily on physical presence in a state. That changed, however, when the Supreme Court of the United States overruled a long-standing physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018).

Although physical presence in a state still establishes sales tax nexus, businesses no longer need to have a physical presence in a state for the state to tax its sales. The Wayfair decision authorizes states to base a sales tax collection obligation on economic activity alone. This is known as economic nexus. 

Economic nexus laws are now enforced in 43 states, as well as the District of Columbia and many local governments in Alaska (there’s no statewide sales tax in Alaska, but local sales taxes exist). Generally, remote sellers are required to register once their sales in a state exceed the state’s economic nexus threshold. Many states have a threshold of $100,000 in sales or 200 transactions in the current or previous calendar year, but some of the most populous states, including California and Texas, have a threshold of $500,000 in sales. 

Although some economic nexus thresholds are based solely on tangible personal property, other thresholds count intangible property or services, including digital goods and services like software and SaaS. Details about each state’s thresholds can be found in this state-by-state guide to economic nexus laws. Taking a Sales Tax Risk Assessment can help you determine where you have an obligation to collect sales tax.

For businesses with a physical presence or economic nexus in multiple states, sales tax can be difficult to manage even for one-time charges of digital downloads or software. Compliance complexity only increases for sales with recurring or subscription billing.

Avalara’s cloud-based tax compliance solution for software and SaaS businesses helps thousands of software companies worldwide automate the costly, manual processes associated with collecting and remitting tax on sales of software products and services. 

The COVID-19 pandemic has underscored our collective reliance on ecommerce. In some parts of the country and world, in-person business dealings have been restricted to such an extent that ecommerce is the most effective (and sometimes the only) way to do business. For businesses handling exempt transactions, this poses some unique challenges.

Unless a sale is statutorily exempt — meaning sales tax doesn’t apply by law — exempt sales must be validated. A retailer generally isn’t required to collect California sales tax on a can of beans because most sales of food for home consumption are statutorily exempt from sales tax in California. However, because books are ordinarily subject to California sales tax, a retailer would need to validate an exempt sale of a book with an exemption certificate or resale certificate.

Ecommerce businesses with customers in multiple states may be required to validate exempt sales in multiple states because of the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. (June 21, 2018) and subsequent state action. In overruling a long-standing physical presence rule, the Wayfair decision enabled states to require out-of-state businesses to comply with sales tax laws. 

Physical presence in a state still triggers a sales tax obligation in all states with a sales tax. Thanks to Wayfair, 43 states, the District of Columbia, and some local governments in Alaska (which has no statewide sales tax but allows local sales tax) also now enforce economic nexus laws that base sales tax solely on a remote seller’s sales and/or transaction volume in the state — the economic nexus threshold.

Economic nexus laws can affect businesses dealing primarily or only in exempt transactions, such as manufacturers, resellers, and wholesalers. Although such businesses may not need to collect and remit sales tax, they may need to validate exempt sales with the proper exemption certificate.

There are several reasons why a taxable sale could be exempt. Typically, an exemption is due to the nature of the customer or the purpose of the purchase (e.g., for resale or incorporation into a final product).

In Colorado, for example, entities organized and operated exclusively for charitable, educational, religious, or scientific purposes can apply for tax-exempt status. If granted, they’ll receive a Certificate of Exemption from the Colorado Department of Revenue, which authorizes them to purchase items and services without state and state-administered sales tax (self-administered local tax may apply in some jurisdictions).  

Taxable items purchased for resale are exempt from Texas sales tax as long as the retailer accepts a properly completed Form 01-339 Texas Sales and Use Tax Resale Certificate (PDF) from the buyer instead of collecting the sales tax due.

Illinois provides a manufacturing, machinery, and equipment exemption for purchases of machinery and equipment that will be used primarily (i.e., over 50% of the time) in the manufacture and/or assembly of items for wholesale or retail sale. The seller must collect Form ST-587 Exemption Certificate (for Manufacturing, Production Agriculture, and Coal and Aggregate Mining) to validate these sales.

Whenever a seller doesn’t collect tax on a taxable sale, tax authorities need proof tax wasn’t collected for a legitimate reason. Thus, the retailer must validate the exemption by collecting the proper certificate from the consumer. There are often specific certificates for different purposes, though some allow retailers to use other forms or accept certificates from other states.

With in-person transactions, retailers typically ask for proof of a customer’s exempt status at the register, whereupon the customer must furnish a valid certificate. Retailers are required to retain a copy of the certificate, and auditors like to examine them during audits.

In states where certificates expire, as resale certificates do every three years in Illinois, retailers need to ensure the certificates they have on file for recurring customers are up to date. It’s a tedious process when done manually, but essential: Missing or expired exemption certificates are a common cause of negative audit findings.

Ecommerce can throw a wrench in the validation process for businesses used to collecting exemption certificates at the register. While some ecommerce platforms allow for customers to mark a transaction as taxable or exempt, that may be the extent of their capability; customers may not be able to digitally upload their exemption certificate. This can expose the seller to audit risk for not being able to validate an exempt transaction.

Alternatively, the customer may not be able to complete the sale without first contacting the seller and providing the necessary documentation. Rather than go through that hassle, customers may choose to abandon their cart and find a retailer that can provide a more streamlined experience.

Of course, a customer may go ahead and pay the tax then seek a refund of the tax paid. This can start a frustrating cycle for both the retailer and the customer, one that entails issuing a credit and a new invoice as well as collecting the necessary exemption certificate.

Fortunately, there are easier ways to validate exempt ecommerce sales. Some ecommerce platforms offer add-on solutions for exempt sales; others integrate with external exemption certificate management solutions. Either option can improve the overall experience by allowing retailers to collect, validate, and store exemption certificates digitally.

It’s hard to imagine any business succeeding today without an ecommerce store, especially given the circumstances of the COVID-19 pandemic. And since exempt sales are an everyday occurrence for many businesses, ecommerce systems must be able to handle exempt sales.

Learn more about optimizing sales tax compliance in Tax compliance for ecommerce sellers.

Ecommerce sales in the United States increased by more than 37% year over year during the third quarter of 2020, according to new data from the U.S. Census Bureau. That means nearly $1 out of every $5 spent between July 1 and September 30 was spent online. The fourth quarter could see even more impressive gains, given the holidays and the fact that Amazon moved its 2020 Prime Day sales event from July to October this year.

Furthermore, winter has brought a resurgence of coronavirus infections, and with it a new round of restrictions on in-person shopping. Retail stores in California and Washington must limit capacity to 25%, and several other states are capping capacity at 50%. This as we move into the busiest shopping period of the year.

Thus, though many consumers will undoubtedly shop in person when and where they can in the coming weeks, more shoppers than usual are likely to spend more online.

Black Friday has been experiencing mission creep for years. First it was Friday. Then stores started offering deals Thursday night and even Thanksgiving Day. Then the sales bled into the weekend and Cyber Monday was born. Now, what was once primarily an in-store event has “transitioned more into a digital affair,” according to GlobalData Retail analysis.

CNN notes that “This year, the Black Friday deals that are usually reserved for in-store shopping will appear online during the month.” Indeed, Walmart started offering deals online November 4 and plans to release new deals online the Wednesday before Thanksgiving. At Target, “It’s Black Friday all month with new deals each week.” Amazon’s Black Friday sales start today, November 20. 

Omnichannel retailers that sell through marketplaces as well as their own ecommerce stores may experience a surge in business as a result of these extended sales. While exciting, this can also lead to new sales tax collection obligations.

Many marketplace facilitators are required to collect and remit sales tax on behalf of their third-party sellers in most states. However, states may still require some marketplace sellers to register with the state and file returns.

43 states, the District of Columbia, and some cities and boroughs in Alaska now enforce economic nexus laws, meaning they require businesses making a certain amount of sales in the state to register then collect and remit the applicable sales and use taxes. Economic nexus laws affect businesses with no physical presence in these states* (aka remote sellers).

With the exception of Kansas, where making just one sale in the state can establish economic nexus, all states provide safe harbor for small businesses. In Alabama, economic nexus is triggered once a remote seller makes $250,000 sales in the state. In New York, a remote seller must make $500,000 in sales and 100 transactions to create economic nexus. Economic nexus thresholds vary by state; state-specific details can be found in this state-by-state guide to economic nexus laws.

Here’s the kicker: Several states may require remote sellers to register and start collecting sales tax as soon as they meet the economic nexus threshold. As in, on the very next sale. These include Alaska, California, Indiana, Maine, and Mississippi. Other states are more generous: Hawaii gives sellers until the first of the month after meeting the threshold; Minnesota gives sellers up to 60 days to register.

Even during the busiest days of the holiday shopping season — perhaps especially during the busiest periods — retailers should track sales in all states with economic nexus laws. It’s important to know if and when an economic nexus threshold is met.

States are increasingly strapped for revenue thanks to the ongoing pandemic. Consequently, though they’ve been easing into enforcement of economic nexus, which represents an enormous change for businesses, states are under intensifying pressure to increase sales tax audits on remote sellers. Taking a Sales Tax Risk Assessment can help you determine your state sales tax obligations.

Looking for ways to improve your customers’ experience in the coming weeks? Get 10 tips for successful selling in the 2020 holiday season.

*Having physical presence in the state also triggers nexus and an obligation to collect.

A marketplace seller can establish physical presence and sales tax liability in Washington state as a result of inventory stored in a marketplace facilitator’s warehouse — even when ownership of the inventory was transferred digitally by the facilitator and the seller didn’t know it had inventory in Washington.

Adding injury to insult, not knowing the inventory was in the state doesn’t preclude a marketplace seller from delinquent penalties or interest on the unpaid tax.

This big news comes from Washington Department of Revenue Determination 18-0255, which was requested by an out-of-state corporation (taxpayer) after it was assessed sales tax, penalties, and interest on inventory stored in a facilitator’s Washington warehouse through the facilitator’s inventory management system.

The inventory management system program allows a facilitator to commingle identical products owned by multiple third-party sellers that use manufacturer barcodes to identify and track products (rather than unique barcodes). This can hasten shipping, putting products into the hands of consumers more quickly.

Marketplace sellers that don’t participate in this inventory management system have unique facilitator barcodes for inventory, so their inventory can’t be commingled in this manner. As a result, orders are fulfilled from the warehouse where their inventory is located at the time the order is made. This may take a bit longer because the warehouse may be further from the customer.

Inventory management typically works like this: When a customer orders a product from a seller that participates in the inventory management system, the facilitator fulfills the order from a warehouse close to the customer. If the seller has inventory in that warehouse, the facilitator ships its product. If the seller doesn’t have inventory in that warehouse but another seller in the inventory management program does, the facilitator ships the other seller’s product to the customer instead.

The facilitator does this by digitally reassigning ownership of the property between the two sellers (the seller that took the order and the seller with identical inventory close to the customer). Thus, from the moment the facilitator reassigns ownership to the moment the inventory ships, the out-of-state seller has inventory in the state.

And bam, just like that, the seller has a physical presence in the state, which generally creates an obligation to register with the tax department then collect and remit sales tax.

That’s what happened to the taxpayer in question. It sold approximately 315 products to Washington consumers through a marketplace between 2011 and 2015 but didn’t ship any products to warehouses in Washington. Instead, these orders were fulfilled through the facilitator’s inventory management system, which digitally transferred ownership of the products to the taxpayer in question.

The taxpayer doesn’t dispute the sales or contest the department’s calculation of the tax due (plus interest and penalties). However, it insists it had no nexus with Washington at the time, arguing that a digital swap by the facilitator shouldn’t be considered physical storage in the state.

Essentially, the marketplace seller believes the marketplace facilitator should be liable for the sales tax because the facilitator processes all sales activity and has “complete control” over the taxpayer’s goods once it receives them.

The Washington Department of Revenue (DOR) disagrees.

According to the DOR, the fact that the facilitator had complete physical control over goods once it received them at its out-of-state fulfillment center doesn’t matter. The taxpayer was aware its products could be relocated to fulfillment centers in other states via the digital reassignment process.

Furthermore:

• The taxpayer agreed to let the facilitator manage its inventory
• The facilitator gave the taxpayer a digital “Inventory Event Detail” indicating the location of the fulfillment centers where its goods were located
• The taxpayer could opt out and choose to have the facilitator manage its goods separately, with no commingling of digital reassignment

In short, the DOR determined the taxpayer couldn’t prove its goods were sent to and stored in Washington “without its knowledge and consent.”

The fact that the taxpayer had title to the products until they were transferred to the consumer underscores that fact; title never transferred to the facilitator. Contracts signed by the taxpayer “clearly show that Taxpayer agrees it is the seller of record, and Taxpayer is responsible for all taxes due.”

The marketplace seller also argued that its sales and inventory activity in Washington were “insufficient to be considered significant activity for tax purposes.”

Again, the DOR disagrees: “The fact that goods owned by the Taxpayer were physically stored in Washington until sale, even briefly via digital reassignment of ownership, is sufficient to establish substantial nexus.”

Under Washington Law (RCW 82.04.067), a retailer establishes substantial nexus through having a physical presence in the state. This includes:

• Having property in the state
• Engaging in activities, either directly or through an agent or other representative, that are significantly associated with their ability to establish or maintain a market for their products in Washington

For additional details, check out Determination 18-0255.

Most states now have marketplace facilitator laws that require marketplace facilitators to collect and remit the tax due on third-party sales. However, these laws don’t protect marketplace sellers from past tax liability, as the Washington ruling shows.

California has also reached out to marketplace sellers over past tax liability. Like Washington, it holds that inventory held in marketplace facilitator–owned warehouses gave these sellers a physical presence in the state long before economic nexus or marketplace laws took effect. Learn more in Is California crushing online sellers with back sales tax?

Other states could follow the lead of California and Washington. According to Scott Peterson, vice president of government relations at Avalara, “Old-school sales tax consisted solely of physical presence and new-school sales tax consists of economic nexus and marketplace facilitators. This Washington ruling proves that the new school did not replace the old school, but instead is just another layer and taxpayers can still be caught by the old school.”

Not sure where you have physical presence or economic nexus? The Avalara Sales Tax Risk Assessment can help.

Updated November 24, 2020.

The Missouri General Assembly is considering a measure that would require certain out-of-state sellers and marketplace facilitators to collect and remit Missouri sales tax. The measure would also allow Missouri to participate in the Streamlined Sales and Use Tax Agreement as a nonmember state, which could greatly simplify sales tax compliance for remote sellers.

As introduced, House Bill 2, the Utilizing Streamlined Sales and Use Tax Services Act, would impose a sales tax collection obligation on out-of-state vendors whose cumulative gross receipts from sales of tangible personal property and digital goods and services in Missouri in the current or previous year equal or exceed $100,000.

Remote vendors meeting this economic nexus threshold in 2020 or 2021 would have to start collecting and remitting applicable Missouri sales and use tax starting January 1, 2022. After that date, vendors would start collecting tax on the first day of the first month that’s at least 30 days after hitting the threshold.

Missouri would also require marketplace facilitators meeting the $100,000 economic nexus threshold to collect and remit the tax due on all sales made through the platform, including third-party sales. This requirement would take effect January 1, 2022, as well.

HB 2 defines “marketplace facilitator” as a person who 1) facilitates retail sales by a marketplace seller by listing or advertising for sale taxable tangible personal property or services, and 2) directly or indirectly collects payment from the purchaser and transmits it to the seller. Under this definition, the collection requirement wouldn’t apply to Craigslist and other platforms that don’t process payments on behalf of sellers.

The bill also excludes persons providing travel agency services from the definition of marketplace facilitator.

Finally, HB 2 would allow (but not require) Missouri to participate in the Streamlined Sales and Use Tax Agreement (SST) as a nonmember state. This would enable out-of-state businesses selling in Missouri to use SST certified service providers (CSPs) and central registration system services.

A CSP is an agent certified by the SST to perform all sales and use tax functions for an out-of-state seller, other than the seller’s obligation to remit tax on its own purchases. Businesses can outsource most sales tax administration responsibilities to a CSP, thereby simplifying sales and use tax compliance. Perhaps best of all, in SST member states where a business is considered a “volunteer seller,” CSP sales tax calculation and reporting services are free for the business; CSPs are compensated by the states.

Missouri wouldn’t have to become a full SST member state, which would require adopting uniform tax base definitions and rules, simplified administration of exemptions, simplified state and local tax rates, and more — a big ask for a state with approximately 2,200 overlapping local tax jurisdictions.

Instead, the Missouri Department of Revenue would be permitted “to take all such actions as may be reasonably required” to participate in the SST as a nonmember state and “allow sellers to use [SST’s] certified service providers and central registration system services.” It would be the first state to do so.

Scott Peterson, vice president of government affairs at Avalara, explains, “The Streamlined Sales Tax uniformity provisions are a great benefit to sellers, but they can be very difficult for some states to adopt. However, certifying service providers along with taxability, rates, and local government boundaries would go a long way toward reducing the burden sellers have collecting the Missouri sales tax.”

In fact, the SST Governing Board (SSTGB) is encouraging participation by nonmember states; it’s concerned a remote seller will challenge a remote sales tax law if nonmember states don’t “do something to simplify their requirements and remove the ‘undue burden’ on remote sellers.”

When the Supreme Court of the United States overruled the physical presence requirement in South Dakota v. Wayfair, Inc. (June 21, 2018), thereby authorizing states to tax remote sales, it highlighted three aspects of South Dakota’s law that were “designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:

• Safe harbor for small businesses (the economic nexus threshold)
• Prospective enforcement of economic nexus
• South Dakota’s membership in the SST

Most of the more than 43 states with economic nexus provide safe harbor for small businesses and prohibit retroactive enforcement. However, only 24 states are members of the SST.

To help nonmember states remove undue burdens on remote sellers and increase uniformity among states, the SSTGB “invites nonmember states to participate” in numerous SST programs, including but not limited to the Streamlined Sales Tax Registration System (SSTRS) and the certification process for new CSPs.

In order to participate, a state must enact legislation indicating it will:

• Allow sellers to use the SSTRS without registration fees
• Develop and post rate and jurisdiction databases in the approved uniform format
• Complete and post the Streamlined Taxability Matrix, highlighting any differences between the state and SST definitions
• Participate in contracts with SST CSPs, including providing compensation for CSP services
• Provide liability relief as required under the SSUTA
• Agree to pay the annual membership dues

"Missouri has nearly 1,500 different local taxing jurisdictions," notes Craig Johnson, executive director of the Streamlined Sales Tax Governing Board. Were Missouri to provide a rate and jurisdiction database, taxability matrix, and CSP services like SST member states, "remote sellers would have the opportunity to much more easily comply with Missouri’s requirements. This would also put Missouri and its local jurisdictions in a position to be able to efficiently collect the applicable sales and use taxes on remote sales." 

This isn’t the first time Missouri lawmakers have tried to enact an economic nexus or marketplace facilitator law, nor is it the first time they’ve tried to get the state into the SST. Whether this effort will succeed where previous attempts have failed remains to be seen, but there are a few indications that it might.

For one, Missouri needs money. Its general fund tax revenue is projected to decline by $864 million in fiscal year 2020 and $1 billion in fiscal year 2021 due to the pandemic. According to Governor Mike Parson, “COVID-19 has had an overwhelming impact on our state.” The supplemental budget will provide access to federal funding released after Missouri’s FY 2021 budget was passed in May. If HB 2 is passed, taxing online sales would bolster the general fund.

Furthermore, Missouri lawmakers generally support a remote sales tax. Last August, the House Local Government Caucus urged Gov. Parson to “to call a special legislative session to establish a Wayfair tax law in Missouri” — referring to South Dakota v. Wayfair, Inc. Local governments and brick-and-mortar businesses also tend to favor taxing remote sales.

Avalara is a CSP in the 24 SST states and Pennsylvania, which runs its own program. Learn if you qualify for no-cost sales tax services. 

2020 has been a heck of a year, and more challenges lie ahead as COVID-19 cases rise and restrictions on in-person commerce reemerge. Yet ecommerce is thriving; online sales are projected to increase by more than 35% this holiday season, to nearly $190.5 billion in the United States alone. It appears that when the going gets tough, the tough shop.

Ecommerce is expected to account for approximately 30% of holiday sales worldwide*. In the U.S., roughly 71% of adults say they’ll do more than half of their holiday shopping digitally. That’s exciting news for ecommerce businesses, but it means you’ll have to be at the top of your game.

What can you do to help your ecommerce store succeed during the unprecedented holiday shopping season to come? Read on.

Holiday shopping started early this year with Amazon’s annual Prime Day event. Typically held in July, it moved to mid-October in 2020 because of COVID-19 and served as the unofficial kickoff to the holiday season. Despite the economic hardships many Americans are experiencing because of the pandemic, Prime Day sales rose by 36% year over year.

Ecommerce businesses whose sales surge this holiday season may develop new tax obligations through state economic nexus laws, which require out-of-state sellers with a certain threshold of sales in the state to register to collect sales tax. Strong holiday sales in October, November, or December could cause you to cross one or more state economic nexus thresholds, leading to new tax obligations.

To minimize surprise and risk, assess your sales tax risk now.

Marketplace facilitators like Amazon, Etsy, and Walmart can help you expand into new markets: Globally, digital marketplaces generated $2.03 trillion sales in 2019, or 57% of online sales. If you’re not yet selling through a marketplace, now could be a good time to start.

Because numerous states require many online marketplaces to collect and remit sales tax on behalf of third-party sellers, selling through a marketplace can allow you to grow your sales without dramatically increasing your sales tax compliance burden. However, marketplace facilitator laws don’t necessarily free marketplace sellers from all tax obligations. Many states require third-party sellers to register and file returns even when the marketplace collects and remits the tax. Understanding each state’s requirements from the start can help minimize surprises and compliance risk.

Manufacturers and wholesalers can increase sales this holiday season by selling directly to consumers (D2C). With D2C sales in 2020 expected to be 24% higher than in 2019, they could become a key source of revenue for businesses normally reliant on brick-and-mortar retailers.

Some state economic nexus laws count wholesales and resales toward the economic nexus threshold, so it’s possible for wholesalers and manufacturers to have reporting obligations even if they don’t make retail sales. Expanding into retail only increases the likelihood of triggering economic nexus, so again, it’s important to develop a good understanding of remote sales tax laws as soon as possible.

Remote sellers are required to register and start collecting tax immediately after crossing the economic nexus threshold in some states — as in by the very next sale. It’s therefore essential to closely monitor sales in all economic nexus states.

Different states include different sales in the threshold. Some states include only direct sales, some include sales made through a registered marketplace. It’s imperative for sellers to understand state economic nexus requirements and closely monitor sales into states with economic nexus and marketplace facilitator laws.

It’s also worth noting that physical presence in a state triggers a sales tax obligation in all states with a sales tax. And physical presence isn’t limited to having a brick-and-mortar store; physical presence can result from inventory stored for sale in a state, the presence of contractors or employees, or deliveries made in company-owned vehicles.

Given the anticipated surge in online sales this holiday season, it’s paramount websites and webstores be able to handle high traffic volumes. A clunky website can lead to cart abandonment, as there are too many other well-running options available. Ecommerce acceleration solutions can increase page load times and optimize image delivery, ensuring a smooth experience for consumers.

Having a shopping cart that automatically calculates applicable taxes and shipping fees further streamlines the experience for consumers. Surprise costs at checkout can interfere with final purchases.

It’s more important than ever to meet consumers where they are. Approximately 42% of ecommerce sales now occur through mobile devices, and click-and-pick sales options like buy online, pickup in store (BOPIS) and curbside delivery have increased exponentially since the start of the pandemic. Having an omnichannel strategy is a must.

In addition to providing a seamless experience for consumers who may switch from desktop to mobile, and delivery to pickup, retailers must be able to monitor inventory across all channels. You’ll also want a tax compliance solution that can compile sales data from all channels to facilitate sales tax remittance.

The U.S. is a big market, but it’s a drop in the bucket of the global marketplace: close to 85% of the world’s purchasing power exists outside of the U.S. Tapping into that market could unleash a world of new opportunities. Yet to do so, you need to be able to handle customs duty and import taxes like VAT and GST. If customers don’t see and pay these taxes at checkout, their packages could be held up at customs and ultimately rejected.

With brick-and-mortar sales likely to lag this holiday season, more retailers will be focusing on ecommerce. Creative strategies can help you stand out in a crowded field. Offer sales at unexpected times, and market them through social media. Reward customers with deals that incentivize additional buys. And to minimize delays at checkout, offer flexible payment options like Apple Pay or PayPal.

Understand different shipping options and how they’re taxed. When the pandemic first shuttered brick-and-mortar stores and caused an unexpected lift in online spend, supply chains worldwide were stressed. Physical shelves were devoid of high-demand goods and normally speedy shipments encountered unexpected delays. The same could happen again this holiday season.

The more flexible you can be with shipping, the faster you’ll be able to get goods into your customers’ hands. However, different shipping options can have different tax consequences. Furthermore, different states tax shipping and delivery differently. As your sales expand into new markets, be sure you know how to handle shipping and tax.

Returns happen every holiday season. With more people shopping online in 2020, including many consumers who would rather be physically pulling items off the shelf, product returns could increase. It’s therefore essential to have a system in place to process returns quickly and efficiently, and to refund any sales tax that needs to be refunded.

As you prepare for this unprecedented shopping season, it’s important to consider how ecommerce growth will impact sales tax compliance. Avalara’s 10 tips for successful selling in a holiday season like no other includes advice from industry experts and tips to help you boost sales, satisfy customers, and understand sales tax implications. Get the guide.

*All statistics come from the report.

SEATTLE, WA — November 16, 2020 — Avalara (NYSE:AVLR), a leading provider of tax compliance automation software for businesses of all sizes, today announced its first code-focused event for global tax compliance designed exclusively for developers — Avalara NEXT. The completely virtual conference will take place January 27, 2021. Bringing together developers at the forefront of global commerce and tax technology, Avalara NEXT offers digital attendees the opportunity to learn about Avalara’s new products, APIs, tools, and best practices to help developers easily build tax compliance into their business applications.

“As businesses continue to grow through digital commerce, they’re running into increased tax compliance regulations on a global scale, creating the need for a next-generation tax compliance platform to manage expanding tax obligations,” said Sanjay Parthasarathy, Chief  Product Officer at Avalara. “Avalara NEXT will provide a forum for developers to connect and learn about the technology and best practices to integrate global tax compliance with their business applications.”

Avalara NEXT attendees — including Avalara customers, independent software vendors, system integrators, technology partners, and other industry experts — will walk away with an understanding of the innovation taking place at the intersection of tax compliance and commerce, and will learn about the tools and technology necessary to build tax compliance into business applications.

Avalara NEXT highlights:

• Live coding: Watch live coding demonstrations and learn how to build a tax integration to your business application in a few hours.
• Technical thought leaders: Hear from Avalara’s senior technical experts to learn how to optimize Avalara integrations.
• Partner success stories: Network with technology platform partners to learn how they’ve successfully leveraged Avalara’s solutions.
• New solutions: Learn about new global solutions from Avalara to drive value and efficiencies for your customers.

For more information or to reserve your spot for Avalara NEXT, please visit avalaranext.com.

Follow Avalara:

• Twitter: For Avalara NEXT news and event updates, follow @Avalara and join the conversations using #AvalaraNEXT.
• Facebook: Like Avalara on Facebook to view updates from Avalara NEXT.

Kentucky has taken another step on its long, slow march toward direct-to-consumer (DTC) alcohol shipments. On October 30, 2020, the Kentucky Department of Alcoholic Beverage Control (ABC) announced manufacturers could pre-apply for a license to ship alcohol directly to consumers. Retailers cannot make DTC shipments in Kentucky.

In April 2020, when restaurants, bars, and tasting rooms nationwide were reeling from the impact of COVID-19, the Kentucky Legislature passed a measure allowing licensed breweries, distilleries, and wineries (i.e., manufacturers) to make DTC alcohol shipments into the state. This represents a big change for Kentucky — and change takes time.

Though HB 415 officially took effect July 15, DTC sales won’t be permitted until the legislature finalizes and approves regulations governing DTC sales. According to Wine Institute, this is a time-consuming process that “requires publication, comment period, and legislative approval.” If the regulations are finalized by the end of the year, as currently expected, manufacturers should be able to start shipping directly to consumers in early 2021.

Meanwhile, the Kentucky ABC has opened its application portal to DTC licenses. Businesses licensed as a manufacturer of malt beverages, spirits, or wine in their operating state can now start the process of applying to make DTC sales in Kentucky.

From start to first sale, it’s a seven-step process under the draft regulations:

Step 1: Register with the Kentucky Secretary of State

Step 2: Pre-apply with the ABC

Step 3: Wait for the regulations to be finalized

Step 4: Pay the ABC $100 for the DTC permit

Step 5: Receive the DTC permit

Step 6: Register with the Kentucky Department of Revenue

Step 7: Start DTC sales

Before transacting DTC business in Kentucky, all businesses must obtain a Certificate of Authority from the Kentucky Secretary of State. The filing fee for all business entity types is $90. Applications must be remitted by mail or submitted in person (which may be impossible due to COVID-19).

The Kentucky Department of Alcoholic Beverage Control application portal is currently accepting applications from alcohol manufacturers looking to make DTC sales in Kentucky. The online application portal can be found here. This puts prospective licensees in the queue.

According to the ABC, “Pre-filed applications will be processed when the final ABC regulations related to this bill are approved by the appropriate legislative committees. Upon approval of the regulations, approved pre-applicants may remit a $100 filing fee and receive a license electronically.”

The ABC portal won’t accept payments until the legislature finalizes the regulations. Businesses that complete the online application will be contacted by the ABC once it’s ready to accept payments.

The ABC won’t process the application until the legislature finalizes and approves the regulations. There’s no way to know exactly how long that will take. Patience is advised.

During this time, the ABC will review your application to ensure all is in order.

Once the regulations have been finalized and approved, ABC-approved pre-applicants will be required to remit the $100 fee to the ABC. 

After the DTC regulations have been finalized, the ABC will issue a DTC permit to successful applicants who have completed all the necessary steps and paid all required fees. The license will be delivered electronically after payment has been made.

Manufacturers holding a Direct Shipper’s license from the ABC must create a revenue account with the Kentucky Department of Revenue.

DTC alcohol sellers are required to register with the Kentucky Department of Revenue to collect the following three taxes:

• Sales tax
• Wine excise tax ($0.50/gallon)
• Wine wholesale sales equivalent tax (10% of wholesale price; when no wholesale price is available, it’s assumed to be 70% of the retail price)  

Holders of a DTC permit may start making DTC sales in Kentucky. DTC sales will likely be permitted in early 2021.

As in most other states that allow DTC shipments, manufacturers shipping directly to consumers in Kentucky must abide by certain rules. For example, there’s a cap on the amount of beer, wine, and spirits manufacturers can ship to each consumer per month; shipments to consumers in dry areas are prohibited; the consumer’s age must be verified at delivery; and so on. 

Manufacturers of alcoholic beverages have two options at this point:

1. Pre-apply with the ABC without knowing the final regulations
2. Wait for the regulations to be finalized before applying

There’s no cost to pre-apply; applicants won’t be charged until the regulations are finalized and the application is approved. One of the things to keep an eye on in the final regulations is whether shipments will be allowed from fulfillment houses. 

Avalara for Beverage Alcohol can help businesses ship directly into Kentucky or any other state. Contact us at 877-855-9956 or visit our solutions overview to learn more.

Figuring out how to tax each transaction can be one of the most challenging aspects of sales tax compliance, especially in Texas. The Lone Star State is known for its spectacularly intricate sales tax sourcing rules. 

Sales tax rates and rules are determined by state and sometimes local governments. When a seller and buyer are in different locations, as often happens with internet, mail-order, mobile, and phone sales, sourcing rules determine which jurisdiction governs sales tax. There are essentially three options:

• The location of the seller (origin sourcing)
• The location of the buyer (destination sourcing)
• A combination of the location of the seller and the location of the buyer (mixed sourcing)

Sellers must know the governing sourcing rule in order to properly tax sales for delivery.

Texas uses mixed sourcing. Origin sourcing applies to certain city, county, special purpose, and transit sales taxes. Destination sourcing kicks in for local use taxes, when applicable. Different rules apply to in-state and out-of-state sellers.

There are more than 1,500 different local tax jurisdictions in Texas, many of them overlapping. To protect Texans from having to pay Texas-sized taxes, the total combined tax rate for any one transaction cannot exceed 8.25%. Consumers undoubtedly appreciate the 2% local sales tax cap, but for sellers, the cap seems to complicate sourcing rules.

According to David Lingerfelt, director of North American tax content maintenance at Avalara, sales tax sourcing in Texas “is akin to a do-si-do square dance.” As he explains it, the sourcing dance goes a little something like this:

Step 1. City sales tax sourced at the origin

Step 2. County sales tax sourced at the origin

Step 3. Special Purpose District sales tax sourced at the origin

Step 4. Metropolitan Transit Authority sales tax sourced at the origin

Step 5. City use tax sourced at the destination if no city sales tax is imposed at the origin and the 2% local tax limit isn’t violated

Step 6. County use tax sourced at the destination if no county sales tax is imposed at the origin and the 2% local tax limit isn’t violated

Step 7. Special Purpose District use tax sourced at the destination if no Special Purpose District sales tax is imposed at the origin and the 2% local tax limit isn’t violated

Step 8. Metropolitan Transit Authority use tax sourced at the destination if it can be imposed without violating the 2% local limitation

In Local Sales and Use Tax Collection – A Guide for Sellers 94-105 (2016), the Texas Comptroller breaks it down to four steps for sellers, like so:

1. Collect no more than the 2% cap
2. Collect local use taxes in the following order:
   1. City
   2. County
   3. Special purpose districts
   4. Transit authorities
3. Do not collect a local use tax and a local sales tax of the same type
4. Collect applicable local use taxes only if engaged in business in the local tax jurisdiction

Despite these guidelines, “it’s nearly impossible to correctly source in-state sales in Texas,” says Scott Peterson, vice president of government relations at Avalara. Lingerfelt concurs, noting “Texas is still not a traditional destination sourcing state. Texas’s intrastate sourcing remains complex.”

Remote sellers use destination sourcing for orders not received or fulfilled from a Texas place of business (they can also apply to collect the alternate single local use tax rate for all sales delivered into the state). However, in-state sellers must collect their home city sales tax, and the destination city use tax if the home city sales tax is less than the 2% cap.

The Texas Comptroller has been working to simplify sales and use tax sourcing. In May 2020, it amended Texas Administrative Code §3.334 concerning local sales and use taxes. Yet to give interested parties an opportunity to seek a legislative change, some changes won’t take effect until October 1, 2021.            

Not sure how the Texas do-si-do impacts your business? Worried you'll trip over your feet? The professional services team at Avalara can help.

BRIGHTON, U.K. — November 3, 2020 — After a turbulent 2020, this year’s annual Black Friday/Cyber Monday could well be the most competitive and potentially lucrative one yet.

With the decline of the high street, European online retailers have seen increased growth due to the rise in mobile shopping, convenient delivery options, and payment innovations.

For European ecommerce merchants selling to customers in the United States for example, this jump in orders could trigger new sales tax obligations or “nexus.” Given the number and complexity of sales tax jurisdictions in the U.S., it can be challenging for businesses to assess whether they are liable for sales tax and what the U.S. remote seller thresholds are. With fourth quarter sales volumes expected to be the largest of the year, EU sellers shipping cross-border may also be pushed over both the EU VAT Distance Selling thresholds.

Sacha Wilson, director of Tax Technology Solutions at Avalara, said: “Faced with the highest budget deficits in a generation, governments will be relying on taxes more than ever, most likely in the form of tax increases and new forms of tax legislation over the coming months.

“For example, a number of EU countries — including Germany, France, Italy, and Austria — are requiring marketplaces to report sellers’ transactions in detail. In the U.S., similar marketplace responsibilities have been rolled out in many states.”

Wilson also predicts tax authorities will continue investing heavily in staff and analytics software to spot sellers who have passed sales thresholds.

With Black Friday and Cyber Monday fast approaching, retailers will be pushing out discounts and price breaks to capitalise on peak trading. While the U.S. is a large market, it is important for retailers to know where the financial limits are and where to draw the line.

Following the 2018 Wayfair ruling of the U.S. Supreme Court, nearly all U.S. states can now tax foreign sellers. Some U.S. states operate on a $100,000 sales threshold or a company providing over 200 products into the state, whichever comes first. “It is important to remember that every state has its own rules around product taxability and sales thresholds, with sales tax ranging from 0% to 11.5% and the penalties can be costly for getting it wrong,” Wilson said.

For companies exporting goods into the EU, HMRC says UK VAT should be charged until the value of a seller’s supplies in a calendar year exceeds the distance selling threshold in that country.

“Many new marketplace obligations include the power for tax authorities to force platforms to block offending sellers,” Wilson said. “This means it is more important than ever that sellers identify if they are over any tax threshold. In the EU, the tax threshold can be as low as EUR35,000.”

Additionally, if a company trades above the UK Intrastat threshold, all distance sales that were made to a non-taxable person should be reported on an Intrastat Supplementary Declaration form — even if the distance sales from the U.K. are “below the distance selling threshold in the EU member state of arrival,” according to HMRC’s online guidance.

While you focus on your business, we stay on top of legislative and policy changes that can affect your sales tax compliance.

Tax news highlights from October include new battles over direct-to-consumer wine sales, new efforts to establish real-time tax remittance, and a new sales tax holiday. Read on for more details.

A spin doctor for cranberries.

Dried cranberries have a public relations problem. Though a fruit, they’re often categorized, and taxed, as candy. Learn more.

Alabama moves to annual tax license renewals.

Numerous tax licenses must now be renewed annually in Alabama. Learn more.

Battles brew over direct-to-consumer wine shipments.

Even as the pandemic underscores the value of direct sales, Michigan and Ohio are working to limit or outright prevent them. Learn more.

Bread so sweet it’s taxed as cake.

The Supreme Court of Ireland ruled bread served by an Irish Subway franchise contains too much sugar to qualify for the 0% VAT rate normally applied to bread. Learn more.

Louisiana creates new sales tax holiday.

A one-time sales tax holiday will take place November 20–21, 2020, in Louisiana. Learn more.

Marketplace sellers challenge California.

The California Department of Tax and Fee Administration is being sued for holding Fulfillment by Amazon sellers liable for back sales tax based on inventory. Learn more.

New education models could lead to potential tax issues.

As more education shifts online, states will need to determine how to apply existing sales tax laws to new models. Learn more.

New Orleans cuts sales tax rate for diapers and feminine hygiene products.

Qualifying products are now exempt from half of the local sales tax in New Orleans. Learn more.

Omnichannel selling can complicate tax compliance.

Different ecommerce channels speak to different demographics, yet each can also create unique sales tax compliance issues. Learn more.

Real-time tax remittance rears its head.

A sales tax modernization plan under consideration in Massachusetts would introduce real-time sales tax remittance in two phases. Learn more.

Sales tax rate changes.

November brings just a few. Learn more.

TTB rulings provide more flexibility for alcohol labeling.

New voluntary labeling guidelines provide greater flexibility for producers, sellers, and importers of alcoholic beverages. Learn more.

Unregistered remote sellers face increased audit risk in Kansas.

Out-of-state retailers that aren’t registered to collect and remit Kansas sales tax could soon hear from the Kansas Department of Revenue. Learn more.

Utah makes initial foray into allowing direct-to-consumer wine sales.

The new system loosens restrictions, but just a bit. Learn more.

Vermont Legislature does some housekeeping.

New laws in Vermont affect income tax reporting for use tax, non-collecting seller use tax reporting, and universal service charges for retail sales of prepaid wireless telecommunications. Learn more.

Words matter.

Why would the Vermont Legislature change an any to a the? Because words matter. Learn more.

Tired of trying to keep up with sales tax changes around the country? Automating tax compliance can help.

Ecommerce was thriving this time last year. It’s even bigger now.

Online sales in the United States reached $60.4 billion during September 2020, a 43% increase over September’s sales in 2019. October brought[GC1]  more stunning growth thanks to the annual Amazon Prime Day event, which was pushed from July to October this year because of COVID-19. Prime Day sales outpaced sales during the previous 30 days by an astonishing 340%, surpassing projections to reach $10.4 billion. Even retailers offering no Prime Day deals saw sales increase by approximately 110%[GC2] .

With cases of COVID-19 spiking throughout the U.S., Europe, and other parts of the world, many consumers are turning to online sellers to get what they want and need. In a recent survey of 2,000 U.S. consumers by ecommerce software provider CommerceHub, 67% of respondents said it was more convenient to buy online than in store, and 89% planned to continue spending the same or more online through November.

Omnichannel shopping should continue to grow, too. Many consumers now prefer buying online and picking up in store (BOPIS), as it allows them to abide by public safety recommendations while avoiding the delays of delivery. It’s hard to beat safe and immediate gratification.

Consumers willing to wait to get just what they want are turning to international ecommerce sellers with increasing frequency. They’re taking advantage of the online marketplaces, like Etsy, that help connect retailers and buyers the world over.

While the expanding online market is exciting, this astonishing spike in online sales does create challenges for ecommerce businesses. Most states now require most online sellers to collect and remit sales tax — even sellers based in other states. Global sellers face unique compliance challenges as well. In addition to getting goods and services tax, sales tax, and value-added tax right, cross-border sellers need to ensure customs duties and import taxes are properly accounted for.

U.S. states won the right to impose a sales tax collection obligation on out-of-state sellers in June 2018, with the Supreme Court of the United States decision in South Dakota v. Wayfair, Inc.

Before the Wayfair decision, states could only require a business to collect and remit sales tax if the business had a physical presence in the state, such as an office, retail store, or employees. Physical presence in a state still triggers a sales tax collection obligation in all states with a sales tax, but in the post-Wayfair world, states can also base a sales tax collection obligation solely on economic activity, such as sales or transaction volume. This is economic nexus.

Since the Wayfair decision, 43 states, the District of Columbia, and numerous local governments in Alaska have adopted economic nexus laws. While good for state purses, these tax laws are a bear for businesses.

Perhaps the most complicating aspect of economic nexus laws, at least initially, is that they provide an exception for small sellers. This has proven to be a double-edged sword: While businesses with very few sales likely don’t need to register with the tax department then collect and remit sales tax, growing businesses must constantly monitor sales into all economic nexus states with an eye toward that threshold.

Unfortunately, economic nexus thresholds vary from state to state.

Many states, inspired by South Dakota (of South Dakota v. Wayfair, Inc. fame), adopted South Dakota’s threshold of $100,000 in sales or 200 transactions. Yet these apparent similarities are deceptive. When calculating the threshold, some states require businesses to count exempt sales, some states include sales of services, and some states tally sales of intangible goods. Simply put, even thresholds that resemble one another on the surface can be quite different.

Furthermore, numerous states have strayed from the $100,000 sales/200 transactions threshold: Alabama has a threshold of $250,000; California and Texas have thresholds of $500,000; and New York’s threshold is $500,000 and 100 transactions. Again, the exact makeup of a threshold differs by state.

Several states require out-of-state sellers to register as soon as the threshold has been reached, as in, by the next sales transaction. Thus, it’s essential for businesses to understand the components of each state’s threshold and how close they are to meeting it. Avalara’s sales tax risk assessment can help.

Ecommerce sellers with a global customer base face additional challenges due to cross-border taxes.

Selling into other countries requires product classification and documentation domestic sales don’t need. For an internationally shipped package to arrive without delay at a customer’s door, all applicable customs duties, import taxes, and shipping costs must be paid. Therefore cross-border transactions generally need to have a Harmonized Tariff Schedule Code (HTS code, or HS code).

Every product that can be shipped across an international border has a corresponding HS code so customs officials can track the flow of goods and ensure the correct international tax has been paid. Manually assigning the proper code to each product in a shipment is difficult because there are millions of codes. For example, a woman’s short-sleeve button-down cotton blouse has a different code than a woman’s long-sleeve button-down cotton blouse. Each HS code is associated with a tariff rate, so it’s important to get the tariff codes right.

Low-value goods (those with a sales price below the entry country’s de minimis threshold) are exempt from customs duty, therefore don’t need an HS code, but they’re still subject to oversight by customs officials. And the recent flood of low-value global ecommerce shipments has caused backups at customs, especially during the COVID-19 pandemic. That means it takes longer for customers to receive their orders.

Businesses shipping low-value goods into the U.S. can sidestep delays by applying for Entry Type 86 clearance. But everything comes at a cost: To obtain this expedited clearance, sellers or their shipping partners must assign the proper HTS code to all shipments. Most other countries have a similar expedited process. Avalara Item Classification helps importers swiftly assign the proper HS code to each shipment.

These are challenging times for all businesses, but they also offer opportunities for ecommerce growth — provided tax rules don’t bog you down. Learn how the right technology can help streamline tax compliance for interstate and cross-border sellers in Tax compliance for ecommerce sellers.

In the past month, the Alcohol and Tobacco Tax and Trade Bureau (TTB) has issued two new labeling and advertising requirements for wine, distilled spirits, and malt beverages. The first pertains to calorie count, the second to gluten-free claims. Both are voluntary and allow greater flexibility for producers, sellers, and importers of alcoholic beverages.

Producers and sellers of beer, wine, and spirits are currently permitted — but not required — to include nutritional information (e.g., calorie and carbohydrate counts) on their labels. Under a 2004 TTB ruling, businesses that provide this information were required to test each batch to verify the accuracy of the nutritional information. This is extremely burdensome, especially for wineries: The nutritional content of wine is inherently more variable than that of beer or spirits because the raw materials are highly variable.

In late September 2020, TTB updated its guidelines for nutrient content statements, essentially eliminating the requirement to test each batch. A few weeks later, TTB issued a ruling allowing for greater flexibility for voluntary gluten-free claims on labels or in ads. Read on for details.

In April 2004, TTB held that calorie and carbohydrate representations would be misleading unless they included a statement of average analysis listing the number of calories and grams of carbohydrates, fat, and protein contained in a single serving of the product. 

TTB expanded its position in July 2004 by providing the following tolerance ranges for labels and advertisements:

• A caloric content of +5 or -10 calories (e.g., a label showing 96 calories would be acceptable if TTB analysis found a caloric content between 86 and 101 calories)

• A carbohydrate and fat content of no more than 20% above the labeled or advertised amount (e.g., a label showing 4.0 grams of carbohydrates would be acceptable if TTB analysis found a carbohydrate content of not more than 4.8 grams)

• A protein content of no more than 20% below the labeled or advertised amount (e.g., a label showing 1.0 gram protein would be acceptable if TTB analysis found a protein content of not less than 0.8 gram)

Additional guidelines for industry members looking to provide voluntary nutrient content statements were issued in 2013. These:

• Permitted the use of optional “Serving Facts statements” on labels in advertisements
• Held that Serving Facts statements must be “truthful, accurate, specific, and non-misleading”
• Applied the 2004 tolerance ranges to Serving Facts statements

Labeling flexibility enhanced for calorie statements in 2020

In September 2020, TTB expanded the 2004 tolerances for voluntary calorie statements on labels and ads for distilled spirits, malt beverages, and wine to be “more consistent” with the Food and Drug Administration’s (FDA) food labeling regulations. 

TTB Ruling 2020-1 holds that caloric content cannot be more than 20% above the labeled or advertised amount. Thus, a label showing 100 calories per serving would be acceptable if TTB analysis found a calorie content of not more than 120 calories per serving. This provides much more flexibility, as previously, caloric content had to be within +5 or -10 calories

Tolerance ranges for carbohydrate, fat, and protein content remain unchanged from the 2004 levels: Carbohydrate and fat content may not be more than 20% above the labeled or advertised amount, while protein content may not be more than 20% below the labeled or advertised amount. 

The new guidelines afford greater flexibility for industry members who provide voluntary nutrient content statements by allowing them to use databases and typical value charts to support their claims. What matters is that they can support them. TTB hopes this will encourage broader use of voluntary nutrient content statements in the labeling and advertising of alcoholic beverages.

For wineries, the key takeaway is that the new expanded tolerances eliminate the batch testing requirement for most wine. Industry members may now use a number of reasonable methods to support caloric content claims, provided the methods are accurate and reliable. According to Wine Institute, the updated guidelines “will significantly reduce the burden on wineries that choose to voluntarily provide nutritional information.” 

TTB has also updated its policy on gluten content statements for labels and advertisements of wines, distilled spirits, and malt beverages regulated under the Federal Alcohol Administration Act (FAA Act).

Back in 2014, TTB Ruling 2014-2 held that the term “gluten-free” could be used on labels and in advertisements only if the product would be entitled to make a gluten-free label claim under the standards set forth in FDA regulations 21 CFR 101.91. It’s been difficult to do this for alcohol products produced from grain because no recognized standards or methodologies can ensure these products contain less than 20 parts per million (ppm) intact gluten, as required by FDA. 

Now the FDA regulations have been updated. As of October 13, 2020, 21 CFR 101.91(c)(2)–(4) provide that when a scientifically valid method isn’t available because the food is fermented or hydrolyzed, manufacturers wishing to make a “gluten-free” claim must maintain records demonstrating that the product met FDA’s definition of gluten-free before fermentation or hydrolysis, and that measures were taken to prevent cross-contact with gluten during manufacturing.

For distilled products, FDA finds that good distillation practices remove all gluten. Furthermore, a scientifically valid analytical method (protein testing) can now reliably detect the presence or absence of gluten.

Given FDA’s new regulations, TTB has revised its policy to allow greater flexibility for industry members wishing to make voluntary gluten-free claims on labels or in ads for spirits distilled from gluten-containing grains. 

There are three main points to the TTB Ruling 2020-2:

• The term “gluten-free” may be used if it meets FDA’s “gluten-free” labeling claim.

• The term “gluten-free” may be used for distilled spirits distilled from gluten-containing grains so long as manufacturers follow good manufacturing practices that prevent the introduction of any gluten-containing material into the final product.

• Labels and advertisements for products fermented from gluten-containing grains may claim the product was crafted, processed, or treated to remove gluten, provided an appropriate qualifying statement is included and necessary documentation is available to substantiate the claim.

This ruling doesn’t change requirements for approved labels or TTB’s policy regarding malt beverages fermented from gluten-containing grains.

Products that don’t include any ingredients containing gluten, such as wines fermented from grapes and spirits distilled from potatoes, may continue to make “gluten-free” claims as allowed by FDA regulation 21 CFR 101.91. TTB expects manufacturers making a gluten-free claim to take appropriate measures to prevent cross-contact with gluten-containing grains during production, processing, storage, or other handling practices.

Need help with labeling? Avalara for Beverage Alcohol includes options for filing COLAs, filing state product registrations, and revising and renewing product registrations.

Dried cranberries have a public relations problem. They’re packed full of antioxidants and nutrients, but because they’re extremely tart, they’re typically sweetened. This has caused them to be categorized — and taxed — as “candy” in approximately half of the United States.

Wisconsin, the world’s top producer of cranberries, thinks it’s time for that to change. But since Wisconsin is a member state of the Streamlined Sales and Use Tax Agreement (SSUTA), it can’t simply exempt dried cranberries while continuing to tax most other candy. It needs the Streamlined Sales Tax (SST) Governing Board to be on board with the change.

The SST isn’t some sort of sales tax mafia. It was created to make sales tax compliance less burdensome and costly for businesses. This is achieved, in part, by requiring member states to have uniform tax base definitions and rules.

There are currently 24 SST member states, including Wisconsin. Though each state defines “candy” the same way for tax purposes, not all tax candy the same. Some states, like New Jersey and Wisconsin, apply the general sales tax rate to candy, while others, like Michigan and Nebraska, exempt candy from sales tax. Either way, they treat dried cranberries like a bar of milk chocolate.

The SSUTA currently defines “candy,” in part, as “a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces.”*

Dried cranberries fall into this category due to their tart nature; they almost always contain additional sweetener(s), typically sugar. It’s also common for some sort of oil to be added to prevent them from clumping like their naturally sweet, clumpy cousins, the raisin. Therefore, they end up meeting the definition of “candy” and being taxed as such.

Seeking to change this, Wisconsin introduced a motion “to allow states to exclude certain products from the definition of ‘candy’ contained in Part II of Appendix C of the SSUTA” at the SST Governing Board Annual Meeting earlier this month.

Wisconsin initially proposed the following amendment: “A member state may exclude from its definition of ‘candy’ a preparation that only contains a combination of dried or partially dried fruit, sugar, and a sweetener or combination of sweeteners. The exclusion does not apply to a preparation that includes chocolate, nuts, or other ingredients or flavorings. For purposes of this exclusion, nuts are not considered fruit.”

After discussing the matter, a revised amendment was proposed: “A member state may exclude from its definition of ‘candy’ a preparation that contains dried or partially dried fruit and one or more sweeteners, and may contain oils, natural flavorings, fiber and preservatives. This exclusion does not apply to a preparation that includes chocolate, nuts, yogurt, or a preparation that has a confectionary coating or glazing on the dried or partially dried fruit. Dried or partially dried fruit does not include fruit that has been ground, crushed, grated, flaked, pureed, or jellied.”

The revised amendment would further ensure dried cranberries, which often contain oil, could be pulled out from the definition of “candy.” Yet it still prevents states from excluding chocolate-covered and yogurt-covered raisins or nuts from the definition of candy. 

The SST Governing Board plans to review this proposed amendment, as revised, in December. If it’s adopted, Wisconsin and other SST member states will be able to exempt dried cranberries like Craisins while continuing to tax chocolate bars and other “candy.” If they so choose.

One argument for allowing for the exemption comes from a 2009 advisory opinion issued by the New York State Department of Taxation and Finance that determined, “‘Craisins’ are not a candy or confectionary subject to sales tax.”

The department wrote: “We accept … that the process of infusing the dried cranberries with a sugar solution is a process distinct from merely coating an otherwise exempt food item with sugar or chocolate. The infusing process sweetens naturally tart cranberries so that they are suitable for consumption as a snack or baking supply, but it does not make the cranberries candy or confectionary.”

Although New York isn’t an SST member state, it makes a sound argument. Sugar isn’t added to cranberries to turn them into an irresistible candy. It simply makes edible a product that would otherwise be hard to swallow.

According to Scott Peterson, vice president of government relations at Avalara, “Candy as a concept is hard to define. Chocolate can be a coating, an ingredient, a filling, or the only thing. The same can happen with some kinds of sweeteners.” He would know, having helped draft SST’s definition of candy while executive director of the Streamlined Sales Tax Governing Board.

Peterson goes on to explain why uniform definitions are essential, as well as why they shouldn’t be carved in stone: “It’s important that SST definitions be changeable over time as products change. It’s critical that a definition be so clear that a retailer doesn’t have to call a department of revenue but can look at the item’s ingredients and immediately know whether the product is candy.” 

Unless and until the SST Governing Board decides to adopt the amendment proposed by Wisconsin, dried cranberries must continue to be treated as candy for sales tax purposes in SST member states. So, move over M&Ms — this tart little treat deserves a spot on the Halloween candy shelves. Candy sales are up in 2020, even though traditional trick-or-treating likely won’t happen because of the pandemic.

Check out our state-by-state guide to sales tax on candy (just in time for Halloween) to learn which states tax candy and which states exempt it. And to learn how registering through SST can streamline tax compliance, visit our Streamlined Sales Tax Questions Answered page.

*Though not entirely relevant for this discussion, it’s worth noting that “candy,” as defined by the SSUTA, “shall not include any preparation containing flour and shall require no refrigeration.”

SEATTLE, WA — October 28, 2020 — Avalara, Inc. (NYSE: AVLR), a leading provider of cloud-based tax compliance automation for businesses of all sizes, today announced the availability of Avalara AvaTax Advanced Transaction Rules (ATR). ATR allows businesses to create, modify, and apply business and taxability rules that can be used before and after a tax calculation occurs. With ATR, businesses can define and relate tax content decisions with enterprise resource planning (ERP), ecommerce, and other billing systems at the business process and transaction level.

Large, enterprise businesses process substantial volumes of transactions, many of which include complex scenarios like bundles, multiproduct orders, or products being sold in numerous tax jurisdictions. As transactions become more complex, businesses often must apply custom taxability rules to specific line items within a transaction to improve accuracy in tax calculations. For example, a business that sells holiday gift baskets may have products that contain taxable and tax-exempt products that must all be calculated in a single transaction. For many enterprise businesses, having the ability to easily assign custom tax rules to transactions is key to tailoring calculations across transactions and reducing the costs and time associated with creating custom tax rules within their systems.

• Find and replace: ATR allows users to create custom rules to modify tax calculation based on line-level fields within an invoice or other transaction values.
• Allocations and aggregations: Products and services that are taxed differently when sold in a bundle or used in multiple tax jurisdictions can now be allocated in AvaTax itself without users needing to customize their existing systems.
• Reference lists: Tax teams can now upload data from their systems to AvaTax and write data-driven rules to ease the setup of taxability rules.

AvaTax Advanced Transaction Rules helps enterprise businesses manage and create consistent rules across business systems. This enables businesses to:

• Customize tax calculations: Tax configuration is placed completely in the hands of the organization’s tax professional. Rules can be developed and maintained to deal with a wide array of tax situations resulting in more accurate tax calculation.
• Minimize business system connector modifications: As business rules change, modifications to the systems and channels being used are minimized or eliminated.
• Accelerate product implementations: Since modifications to the business system connectors are minimal, businesses implementation timeframes are reduced.
• Reduce burden on IT resources: Businesses can reduce the amount of time spent configuring taxability within ERP, ecommerce, and other billing systems by providing transaction rules through AvaTax.  

“AvaTax Advanced Transaction Rules provides enterprises with a set of business and taxability rules to deliver a more accurate tax calculation based on their business specific needs,” said Sanjay Parthasarathy, chief product officer at Avalara. “Businesses can improve compliance on complex transactions by using consistent rules to deal with all tax situations across all of their systems, while saving time on customization, development, and product implementation.”

Avalara continues to enhance its enterprise capabilities and create the leading content database for tax. This new offering follows the announcement of the acquisition of Transaction Tax Resources, Inc., which expanded Avalara’s enterprise expertise.   

For additional information on AvaTax Advanced Transaction Rules, please click here.

Just as COVID-19 has led to a sharp rise in online retail, the pandemic has caused an increase in B2B ecommerce. In fact, according to a recent survey by Digital Commerce 360, close to 60% of B2B buyers now transact at least a quarter of their business through online B2B marketplaces. Increasingly, businesses are cutting out intermediaries and buying online directly from distributors, manufacturers, and suppliers. It’s convenient, quick, and often a less expensive option, so long as exempt sales can be validated. 

2019 experienced great growth in business-to-business (B2B) ecommerce, and a 2019 study predicted global B2B ecommerce would be double business-to-consumer (B2C) ecommerce by 2020’s end. COVID-19 is accelerating growth because online buying allows businesses to minimize in-person sales. The pandemic could help global B2B ecommerce reach $20.9 trillion by 2027. In the United States alone, Forrester Research now expects online B2B sales to reach $1.8 trillion, or 17% of all B2B sales, by 2023.

To handle such growth, B2B ecommerce sellers need to put processes in place to streamline online buying.

Most B2B transactions qualify for a sales and use tax exemption, but that doesn’t mean they’re statutorily exempt. To validate a tax-free sale of a taxable good, the seller must obtain an exemption or resale certificate from the buyer. In the absence of such a certificate, sales tax must be collected.

Collecting certificates is never simple, even when a sale occurs in person. Once the transaction moves online, it becomes considerably more difficult. Most ecommerce platforms don’t offer an easy way to accept exemption and resale certificates. If they’re set up to collect sales tax, they may not allow tax-exempt sales — they’ll automatically apply sales tax to all transactions, even those that should be exempt.

Consequently, it’s not uncommon for manufacturers, suppliers, and other B2B sellers to simply charge sales tax at checkout then credit the buyer for the tax once they obtain a valid exemption or resale certificate.

This process is not ideal. For starters, it’s a public relations fiasco: Customers generally don’t appreciate being charged tax when they know they’re exempt. Unhappy customers strapped for cash, as many businesses are in the time of COVID-19, may dispute the charges or even cancel the sale. At a minimum, they’ll expect to be refunded the tax.

Yet tax can’t be refunded unless a valid certificate is on file. Thus begins the inevitable back-and-forth of communications, which adds to overall costs and can increase Days Sales Outstanding (DSO), the number of days it typically takes for a business to collect its account receivables or convert credit sales into cash. The longer the DSO, the more strain on the business.

Fortunately, it’s possible to validate exempt ecommerce transactions.

Avalara CertCapture connects to common ERP and ecommerce systems, streamlining tax compliance for manufacturers and retailers alike. It enables businesses to collect exemption certificates at checkout — whether the transaction occurs online, in store, or in the field. It then works with Avalara AvaTax to automatically charge no tax at checkout when a valid certificate is on file.

CertCapture stores certificates securely in the cloud, so they can be easily located and accessed in the event of an audit or compliance question. The solution knows which certificate to use and how it should be filled out. It also tracks expiration dates and automatically sends renewal requests, ensuring certificates won’t expire and expose sellers to risk.

B2B ecommerce has gained a lot of traction in the past two years, and growth will only continue. Tax compliance on exempt sales is in many ways harder to manage than taxable sales. Businesses in largely exempt industries like manufacturing, distribution, and wholesale can benefit from spending 20 minutes getting a better understanding of how automation can help them achieve compliance. Click here to schedule a consultation. 

Sales tax rate changes are set to take effect in a handful of states on November 1, 2020, including Alabama, Michigan, Missouri, and Tennessee.

Tracking down local sales tax rate change information is time-consuming, especially for businesses required to collect sales tax in multiple states. Automating tax compliance saves time and money while improving accuracy.

The Louisiana Legislature has unanimously approved legislation creating a one-time state sales tax holiday. It will take place November 20–21, 2020.

According to the fiscal note for House Bill 26, “The proposed holiday has the same applicability as the currently suspended Louisiana Annual Sales Tax Holiday, which is typically held during the first weekend in August.” Louisiana suspended its three annual sales tax holidays in 2018 to prevent the state from falling off a fiscal cliff. The annual tax-free periods aren’t scheduled to resume until June 30, 2025.

During the one-time sales tax holiday, the state sales and use tax won’t apply to the first $2,500 of the sales or cost price of any consumer purchases of tangible personal property, with the exceptions of vehicles subject to license and title, and meals furnished for on-premises consumption. 

For the exemption to apply, one of the following must occur:

• Title or possession is transferred from the seller to the customer at the point of sale
• A customer selects an eligible item and the seller sets it aside and places it on layaway for future delivery to the customer
• A customer makes final payment and withdraws an item from layaway that may have been placed in layaway before the sales tax holiday
• A customer orders and pays for an eligible item and the seller accepts the order for immediate shipment — even if delivery is made after the sales tax holiday — provided the customer hasn’t requested delayed shipment

Eligible items purchased with rain checks qualify for the exemption, “regardless of when the ‘rain checks’ are issued.” However, sales tax will apply if a rain check is issued during the sales tax holiday and the otherwise eligible item is purchased after the tax-free period has concluded.

No additional tax is due when eligible items purchased during the sales tax holiday are exchanged after the tax-free period, provided the exchanged item is “essentially identical” to the original purchase (e.g., it’s a different size or color).

However, if a customer returns an eligible item after the sales tax holiday and receives credit toward the purchase of a different item, tax is due on the new transaction.

Finally, sales tax will not be refunded on eligible items returned within 60 days of the conclusion of the sales tax holiday unless the customer provides a receipt proving the state sales tax was paid, or the retailer has other documentation proving the tax was paid.

Although the first draft of the bill would have permitted local governments to exempt qualifying items from local sales tax, the final version of HB 26 doesn’t allow local governments to provide a local sales tax holiday during the state sales tax holiday.

All retailers registered to collect and remit Louisiana sales tax must comply with the sales tax holiday, including those based in other states. For online sellers, automating sales tax collection and remittance helps ensure the proper amount of sales tax is collected.

The November sales tax holiday was created “to provide relief for recovery as a result of Hurricane Laura and the COVID-19 pandemic.” After starting 2020 with a projected surplus, Louisiana was expecting a deficit because of COVID-19 when Hurricane Laura hit. One of the most powerful storms to ever make landfall, Laura caused billions in damage to buildings, crops, forests, and utility systems.

The sales tax holiday won’t help the state recoup sales tax revenue lost when the pandemic forced retailers to close, but it will provide some relief to taxpayers struggling to make ends meet.

Sometimes, persistence pays.

Since taking office in 2015, Massachusetts Governor Charlie Baker has introduced several plans to accelerate payment of sales tax and room occupancy and meals tax. He’s at it again, and this time, at least part of his plan could be adopted.

Transaction tax payments in Massachusetts and other states are collected over the course of a month and remitted toward the end of the following month. It can take up to 50 days, or longer, before collected taxes are available for use. Accelerating remittance would give Massachusetts access to tax revenue much sooner.

The latest plan was introduced in the governor’s revised Fiscal Year 2021 (FY21) budget recommendation. As in many other states, the budget conceived before COVID-19 needs to be adjusted. In introducing the new plan, the governor’s office said sales tax acceleration would help fund economic recovery and development efforts for small businesses, “as they navigate the COVID-19 economic landscape.”

Gov. Baker pointed out that the revised FY21 budget proposal (Revised House 2) modernizes taxes without raising them. If his plan is approved as introduced, modernization would occur over two phases.

The first phase would only affect businesses that collected and remitted more than $150,000 in sales tax or room occupancy and meals tax in the prior year. According to the budget executive summary, phase one would not apply to “nearly 95% of Massachusetts businesses.”

Starting in FY21, affected businesses would be required to remit collections from the first three weeks of each month in the final week of the same month. Taxes collected during the final week would continue to be remitted in the following month, as now. Reconciliation of the monthly filing would also be due the following month.

Phase one would last three years and fund:

• Economic growth and development to mitigate the economic impacts of COVID-19 ($100 million)
• The Massachusetts Bay Transportation Authority ($40 million)
• The Massachusetts School Building Authority ($40 million)

According to the budget summary, many businesses subject to the accelerated filing requirement “have benefited from the changing economic landscape and new consumer patterns.” It’s time to give back.

During the second phase, which would start in 2024, all retailers and credit card processors would be required to “capture sales tax at the time of purchase.” The tax collected through credit cards and other electronic transactions would be remitted daily. Retailers are already required to file and collect sales tax electronically.

As noted above, this isn’t the first time Gov. Baker has pushed a plan to “modernize” sales tax. His earlier attempts were unsuccessful. The Retailers Association of Massachusetts called the 2017 plan  “not a cost effective or workable solution,” and the Council On State Taxation said it “would impose staggering initial and recurring costs to businesses.”

So, is the current plan likely to be approved?

Scott Peterson, vice president of government affairs at Avalara, says it’s too soon to know, “although phase one seems very likely.” He explains, “Opponents of acceleration suggested phase one to the governor hoping that would keep him from proposing phase two. Now they might get both.”

Phase two would be considerably more burdensome for both businesses and payment processors. When Massachusetts solicited feedback on this idea in 2017, the Associated Industries of Massachusetts (AIM) urged the Department of Revenue “to determine that this policy is neither feasible nor cost-effective.” AIM said daily remittance would:

• Create compliance burdens for businesses and payment processors
• Complicate audits
• Discourage physical stores from accepting credit cards via mobile devices
• Hurt niche proprietors (e.g., flea market vendors)
• Increase barriers to starting a business
• Increase costs for retailers and payment processors
• Reduce economic growth in Massachusetts

Commenting on an earlier version of the FY21 plan in Accounting Today, Peterson said, “While the breakdown of electronic sales data is most likely available for most businesses, digesting and transmitting the data to payment processors will take time, money and technological resources. Without reliable sales information from sellers, it would be nearly impossible for payment processors to remit the correct amount of tax, and even harder for a state to enforce the liability on the payment processor.”

Peterson explained that complying with real-time remittance requirements would mean retailers “would have to completely overhaul their reporting processes and technology, costing them time and money.” Processors would also need to make substantial investments in order to fulfill the new obligations.

In 2017, the State Tax Research Institute estimated banks, payment processors, and retailers would need to spend more than $1.22 billion to upgrade their systems and $28 million annually to comply with the proposed daily remittance requirement. The cost of compliance almost certainly would be even greater now.

The real-time remittance requirement Gov. Baker has proposed is a hard sell. There’s likely to be less resistance toward another sales tax modernization proposal of his: Outlawing the sale and installation of automated sales suppression devices (aka, sales tax zappers), which help businesses evade taxes by falsifying electronic records. It’s already illegal to buy and install sales tax zappers in more than 20 states.

No matter what ends up happening in Massachusetts, retailers can streamline tax compliance by automating sales tax collection, remittance, and filing. Visit the Avalara tax compliance platform page to learn more.

Can a state use the 21st Amendment Enforcement Act to prevent out-of-state wineries or wine retailers from shipping directly to consumers in the state? Attorneys general in Michigan and Ohio are arguing that they can. Out-of-state wineries and wine retailers insist doing so is discriminatory.

Battles brewing in Michigan and Ohio come on the heels of a seminal decision by the Supreme Court of the United States in Tennessee Wine and Spirits Retailers Assn. v. Russell F. Thomas (June 2019). The high court ruled Tennessee’s 2-year durational residency requirement for retail liquor store license applicants “violates the Commerce Clause and is not saved by the 21st Amendment.” Essentially, it clarified that states cannot discriminate against out-of-state businesses for protectionist reasons. 

Though the Tennessee ruling was answering the narrow question of residency requirements, Wine Spectator suspects the decision could “have larger consequences for the wine market, including opening the door to challenges to laws that ban wine retailers from shipping to customers in other states.” The events unfolding in Michigan and Ohio could bear that out. Or not.

One battle is brewing in Ohio, where the liquor law prohibits direct-to-consumer (DTC) wine shipments by out-of-state wine retailers and some out-of-state wineries (some remote wineries can make DTC shipments into the state). After an investigation initiated by Ohio Attorney General Dave Yost revealed multiple out-of-state wine providers were making DTC sales into the state, Yost filed for a preliminary injunction in federal court to “immediately stop the flow of illegal liquor shipments into the state.” 

When announcing the case in July, Yost said it was “one of the first-ever lawsuits centering on the 21st Amendment,” which repealed prohibition and prohibits the “transportation or importation into any State, Territory, or Possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof.” 

According to the complaint filed by Yost, “Ohio will suffer irreparable harm” because the “continued violations will threaten Ohio’s ability to effectively monitor and regulate the importation of intoxicating liquor into the State.” The attorney general also insists DTC sales into Ohio “hinder the State’s ability to assess and collect excise and sales taxes on the wine sold.” 

Yost emphasizes the lost tax revenue is “something Ohio can ill-afford … particularly in these challenging economic times.” Yet Tom Wark, executive director of the National Association of Wine Retailers (NAWR), points out that Ohio could “create a legal path for out-of-state retailers to ship wine to Ohioans that also requires the remittance of sales taxes.” Instead, the attorney general is hoping the 21st Amendment can fortify Ohio’s laws preventing out-of-state DTC wine shipments.

Meanwhile, Michigan is fighting to prevent DTC wine shipments by out-of-state retailers. This isn’t Michigan’s first time in the ring.

In 2005, the Supreme Court of the United States held that Michigan and New York were “explicitly” discriminating against out-of-state wineries because they allowed in-state wineries to make direct sales to consumers but prohibited out-of-state wineries from doing the same (Granholm v. Heald). The Supreme Court decided the 21st Amendment “does not allow States to regulate direct shipment of wine on terms that discriminate in favor of in-state producers.”

Today, both in-state and out-of-state wineries are permitted to make DTC wine shipments in Michigan. Yet out-of-state wine retailers, breweries, or distilleries cannot ship directly to consumers in the state. According to the Michigan Liquor Control Commission (MLCC), “An Outstate Seller of Wine (OSSW) license … may sell and deliver only to Michigan wholesalers.”

In 2018, a district court ruled Michigan’s law preventing DTC sales by out-of-state wine sellers was unconstitutional in Lebamoff Enterprises, Inc. v. Whitmer. The district court opinion referenced the Supreme Court’s decision in Granholm v. Heald, finding the ruling to invalidate “state laws that discriminate against interstate commerce.”

However, the United States Court of Appeals for the Sixth Circuit overturned the district court’s decision on appeal in April 2020. This seemed to go against the precedent set by the Supreme Court’s 2019 Tennessee wine ruling — a decision many believed had put the issue to rest.

Lebamoff is currently appealing the Appeals Court decision to the Supreme Court of the United States. It would be unusual for the Supreme Court to accept another case on interstate wine sales so soon after issuing a ruling on the matter. Yet, in an amicus brief urging the Supreme Court to take the case, the National Association of Wine Retailers (NAWR) argues that allowing the Lebamoff decision to stand “will create such chaos and uncertainty in the legal system that wine retailers will be unable to make reasonable business plans.” 

NAWR says allowing Michigan to prohibit out-of-state DTC wine shipments would be particularly damaging now because many retailers are relying on online sales to survive during the COVID-19 pandemic.

Michigan’s newest effort to block DTC wine shipments

Against this backdrop, Michigan Attorney General Dana Nessel recently filed lawsuits against two California-based retailers for making DTC shipments into Michigan. Both businesses had been sent cease and desist notices from Michigan, which they allegedly ignored. According to the MLCC, neither company applied for or received the license needed to make DTC shipments in the state.

Attorney General Nessel says the suits are necessary in order to “restrain” the companies “from engaging or continuing to engage in the violations alleged, to enforce compliance with Michigan law, to enforce Michigan’s authority over the transportation and importation of alcoholic liquor into Michigan, and to protect the health, safety, and welfare of its citizens.”

In both instances, Nessel is seeking preliminary and permanent injunctive relief under our old friend the 21st Amendment Enforcement Act, as well as the Michigan Consumer Protection Act. If the companies are found to be in violation of Michigan’s Consumer Protection Act, they could face fines of up to $25,000 per violation.

Michigan lawmakers roll up their sleeves

As if all this isn’t confusing enough, the Michigan Legislature is considering several bills related to DTC sales.

Companion bills Senate Bill 819/House Bill 5579, introduced March 2020, would make it legal for out-of-state wine retailers to ship wine directly to consumers in Michigan. If enacted, out-of-state wine retailers would have the same privileges as out-of-state wineries. It’s a big “if,” as both have been stuck in committee for months. However, another bill would prohibit certain out-of-state wineries from shipping DTC.

Even as the pandemic underscores the value of direct sales, Michigan and Ohio are working to limit or outright prevent them. And Michigan and Ohio aren’t alone. The Tennessee Alcoholic Beverage Commission (ABC) is actively enforcing direct shipping laws; in September, it sent a cease and desist letter to a spirits marketplace that’s been shipping spirits into the Volunteer State. In addition, Texas is currently auditing all 1,600 wineries licensed to ship DTC into the Lone Star State. 

Learn more about states where breweries, retailers, and wineries can ship directly to consumers. 

To find out how Avalara for Beverage Alcohol can help solve your compliance challenges, contact us.

Words matter. If they didn’t, lawmakers wouldn’t bother changing them, as the Vermont Legislature did recently.

Vermont House Bill 954 (Act 175)  amends a consumer use tax individual income tax reporting obligation, eliminates a non-collecting seller use tax reporting requirement, and makes marketplace facilitators liable for the Universal Service Charges due on retail sales of prepaid wireless telecommunications services. It also makes a small but important change to the economic nexus lookback period by changing an any to a the.

Economic nexus laws base a sales tax collection obligation solely on a remote business’s economic activity in a state (i.e., sales and/or transaction volume). As originally created in House Bill 873 (Act 134), Vermont’s economic nexus law requires a remote retailer that regularly solicits sales in Vermont to register to collect sales tax if it’s made sales to destinations in the state of at least $100,000 or totaling at least 200 individual sales transactions “during any 12-month period preceding the monthly period with respect to which that person’s liability for tax under this chapter is determined.”

Act 175 changes “any” to “the.” Thus, a remote retailer must register to collect Vermont sales tax if it reached the $100,000 sales or 200 transactions threshold “during the 12-month period preceding the monthly period with respect to which that person’s liability for tax under this chapter is determined.”

Most state economic nexus laws base the economic nexus threshold on the current or preceding calendar year, not any calendar year or 12-month period. And that’s probably what the Vermont Legislature originally intended. After all, they’ve changed it to the now.

But that’s not what the law said, and that matters. According to Scott Peterson, vice president of government relations at Avalara, “Replacing one three-letter word for another changes the lookback period from infinity to one year.”

That’s big. Who knew such a little word could have so much power?

There are several references to the $100,000 sales/200 transactions economic nexus threshold on the Vermont Department of Taxes website. As of this writing, both “any preceding 12-month period” and “the preceding twelve-month period” are on the Sales Tax and Wayfair Frequently Asked Questions page. Hopefully, the department will ensure the correct word is used on all pages moving forward. As Peterson points out, “tax departments don’t get to change law via what they post on their website.” However, they can clarify or obfuscate the law.

This isn’t the first time one word has muddled sales tax. After the decision by the Supreme Court of the United States in South Dakota v. Wayfair, Inc. (June 21, 2018) overruled a physical presence rule and paved the way for remote sales tax, many states rushed to enact economic nexus laws. Despite what were undoubtedly the best of intentions from lawmakers and tax departments, statutes and department websites sometimes ended up with less-than-clear language. (Find more details about similar situations in New York and West Virginia).

At the end of the day, it’s the language of a statute that matters. Peterson explains that if a law contains a typographical error or even just a poor choice of words, it can have unintended consequences. States can be — and have been — sued over poorly written laws. Perhaps that’s why Vermont lawmakers recently took the time to turn an any into a the.

If there’s a lesson here for legislators, it’s that words matter. If there’s a lesson for businesses, it’s to read laws closely and understand their impact on your business. Not so you can sue a state over a poor word choice, but to assure you comply with the law. When in doubt, it’s worth checking with the state tax authority or a trusted tax advisor.

If you make sales in Vermont but aren’t registered to collect Vermont sales tax and aren’t sure whether you should be, check out our sales tax risk assessment. It can help you figure out where you may have an obligation to collect.

Any business with customers in other states is at risk of creating sales tax nexus with those states, which is essentially an obligation to register with the tax authority and comply with applicable sales and use tax laws. Yet simply making a sale into another state doesn’t necessarily give an out-of-state business nexus. Sales tax laws are more nuanced than that.

A sales tax risk assessment can help you determine where you have sales tax nexus and where you’re most at risk of establishing it. But first, it’s worth reviewing how sales tax nexus is created.

There are several ways to create sales tax nexus, including having ties to in-state affiliates. Yet the most common ways businesses establish nexus is through physical presence or economic activity in a state. 

Physical presence creates sales tax nexus all states with a sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax, though Alaska allows local sales taxes). Having a physical presence in a state includes leasing, owning, or renting a physical facility such as an office or warehouse. It can also include inventory in the state, like when a marketplace seller has inventory in a marketplace facilitator’s warehouse. Beyond these obvious physical ties, physical nexus can be established through the presence of employees or contractors in a state, even temporarily: How much or what type of physical presence establishes nexus varies by state.

Economic nexus triggers are even more varied. They’re also newer and less understood, since a physical tie was a requisite for nexus until the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (June 21, 2018). Because of the Wayfair decision and subsequent state action, today a remote business can establish nexus solely through economic activity in 43 states, the District of Columbia, and some local jurisdictions in Alaska. Florida and Missouri are the only two states that have a statewide sales tax but don’t enforce economic nexus.

Most economic nexus laws provide an exception for small sellers — those selling beneath a distinct economic nexus threshold. Though this is undoubtedly appreciated by extremely small sellers, it makes determining nexus more complicated because every state’s economic nexus threshold is unique. Thus, you need to constantly monitor sales tax nexus laws and your sales into all states to determine whether you’ve met an economic threshold. It’s the kind of job that gives new meaning to the term “herculean task.” 

Fortunately, you don’t have to ascertain your nexus risk on your own.

Avalara’s in-depth Sales Tax Risk Assessment gives you a detailed analysis of your sales tax obligations. You’ll learn where you likely already have sales tax nexus (but didn’t know it) and where you’re most at risk of developing it. All you need to do is fill out a sales tax nexus questionnaire. That can be hard enough — but providing that information can save you money. If you don’t have the bandwidth for this and would rather hire an accountant to sift through all your records, we have many partners who can help. 

Once we know what you sell, how much you sell, and where you sell it, you’ll receive a comprehensive written report detailing your sales tax liability risk, as well as a consultation with a nexus specialist — during which you can ask questions and deepen your understanding of your sales tax risk.

If you discover you have sales tax nexus in one or more states where you’re not registered to do business and are not already collecting and remitting sales tax, our team will help you understand your options. These may include pursuing a voluntary disclosure agreement (VDA) with the state, which can limit the look-back period, reduce or waive penalties, and provide some audit protection, or registering through the Streamlined Sales and Use Tax Agreement (SST).

No matter your situation, Avalara’s sales tax experts will help you understand your sales tax risk and options. What you decide to do with that information is up to you.  

If you’re selling into states where you’re not registered, you’re at risk of developing an obligation to collect and remit sales tax. And the more time passes, the greater your risk of a negative audit findings, penalties, and interest. States need revenue, especially now: The COVID-19 pandemic turned many states' budget surpluses into deficits in a matter of months, and the future is uncertain. 

Many businesses have suffered during the pandemic, and states are often willing to work to alleviate the tax burden for struggling businesses. But some businesses — especially ecommerce businesses — are thriving. If you’re one of them, you may pique the interest of states. And if you’re not collecting as you should, you could end up owing back taxes, penalties, and interest.

It’s simple, really: You can’t be sales tax compliant if you don’t know where you have an obligation to collect and remit sales tax. So, remove the guesswork. Find out where you likely have sales tax nexus with Sales Tax Risk Assessment.

There are obvious costs that come with getting an ecommerce website up and running. To keep it working successfully, there are also ongoing expenses. If you’re not expecting these, they can feel like hidden costs. 

Here are six hidden costs to consider when setting up an ecommerce site.

Consumers want intuitive, straightforward experiences. Easy navigation is essential, as are good descriptions and pictures. 

Source: Clutch 2018 Consumer UK Survey

How you build your website affects overall costs and options:

• Fully automated online website builder: the cheapest but most inflexible option
• Content Management System (CMS): comparatively cheap while allowing for more control
• Build from scratch: expensive to build and maintain but affords the most precision 

Automation tools and plug-ins frequently add to overall costs. It’s critical to be aware of all possible associated costs for these in order to factor them into your budget plan.

Design and branding are impactful parts of any business, so it may be worth paying a designer to create banners, campaigns, or logos. A recent study found that 83% of respondents think it’s important for businesses to have a beautiful and updated website; it affects how consumers feel about companies. 

Integrating multiple channels into your ecommerce business can boost sales and help retain customers. A recent study found that omnichannel sellers retain 89% of their customers, as opposed to 33% for companies with “weak omnichannel customer engagement.” 

Source: Marketing Charts

Handling sales across multiple channels requires using the right tools to manage orders. Edge computing can aid your omnichannel experience, too, as it allows customers to switch effortlessly between channels. It offers minimized latency, translating to almost immediate message delivery and quick collection of data. It's an easy way for retail businesses to optimize and bring value to customers and their own company. 

Paying tax is an inevitable part of running an ecommerce business. This doesn't have to be a daunting task, as long as you prepare for it. Make sure your business is tax compliant right from the outset. 

Your ecommerce store needs to be able to handle all the complexities of sales tax compliance. By spending time setting this up correctly at the start, you'll save yourself issues later on.

Taking advantage of available tax deductions can also have a significant impact, so make sure you're caught up on all of these. 

How well your business manages inventory can contribute hugely to its success or failure, but managing inventory can be overwhelming, at least at first. Tools like order management software can help.

Source: Brightpearl

Track the status of your orders at every step in the process. Tap into the power of inventory visibility to improve item data management. This will result in more automation, higher order volume, and inventory reduction. Retail inventory management software can be a useful tool to invest in, too. It gives you a centralized view of your operations and helps to automate many processes. 

No matter how well you design your website and manage orders, there will still be questions. 

Source: https://optinmonster.com/facebook-messenger-marketing

Setting up a customer service team comes with the costs of hiring and training staff. It also requires investing in additional software and hardware to enable customer support. Thankfully, automated omnichannel contact center solutions provide customer support and allow continuity across channels. 

It’s key to offer streamlined customer service options. Most consumers report frustration with having to repeat their issue to multiple representatives. This can be mitigated through creating a strong and consistent customer experience across all channels.

Collecting, analyzing, and interpreting data allows you to understand your customers and business. This is an area you must not neglect. 

Offering post-purchase surveys can be a great way to show customers you value their opinion.  Without a feedback program, interactions with customers are necessarily limited. You'll likely only deal with customers personally when they return an item or complain. 

It’s also important to pay attention to online reviews, as companies with consistently high reviews are better able to grow organically through referrals. More than ever, customers are taking to public forums to share their experiences and opinions. Replying to reviews allows you to communicate with customers and indicates superior customer service. It also shows you care and are willing to take constructive feedback to heart.

Source: BrightLocal

While some costs related to setting up an ecommerce site are obvious, hidden costs can add up. Knowing what to expect can help you create an ecommerce site that runs smoothly and brings in sales. And if you do these things well, you might just land your company in a coveted spot as one of the best online retailers.

Ecommerce is proving to be the main way retailers connect with consumers today. The COVID-19 pandemic has restricted in-person shopping in many parts of the country and world, forcing even the most reluctant online shoppers to shop online. How can retailers remain top of mind among existing customers and rise above competitors to gain new customers?

Avalara commissioned business intelligence platform PSFK to learn more about the customer purchase journey. The resulting report provides valuable insights about the five states of the customer journey:

• Discovery
• ‘Store’ experience
• Shopper education and assistance
• Payment and tax
• Fulfillment and support

This article explores how the post-purchase experience affects shoppers’ overall experience.

Consumers have become less patient in recent years; next-day delivery now seems impossibly long for some. More than half of all consumers* say they’d be more loyal customers if companies could guarantee two-hour deliveries.

The pandemic has amplified that trend. Consumers unable or unwilling to shop in-store have become dependent on delivery and pickup. Businesses able to quickly get goods into the hands of buyers are rewarded with loyal customers. This has been true during lengthy stay-at-home orders, and it’s likely to remain true once the pandemic passes; conveniences are not given up willingly.

A growing number of businesses now offer a buy-online-pick-up-in-store option. This allows them to meet customer demand while complying with health decrees. It’s also extremely convenient for consumers, who can shop online at their convenience and have their purchases plopped into the back of their car in an instant.

Some retailers have gone even further. Walmart’s grocery arm is piloting a program that enables shoppers to have online orders securely delivered into their homes, even during their absence. Home security cameras and wearable video cameras help provide peace of mind.

Companies are increasingly discovering how offering a little service after a sale can go a long way. Consumers value help setting up products, whether that involves screwdrivers and wrenches or a computer. They appreciate education, expertise, and ongoing support. If you show someone you care about them after they press “buy,” you’re likely to earn a customer for life.

For example, the plant nursery Avalow provides customers with personalized gardening advice and troubleshooting. Plant selections take into consideration the buyer’s location. Consumers can share their challenges and success stories in a shared garden journal, an ideal way for novice gardeners to learn from more experienced green thumbs. The company doesn’t just help its customers build more beautiful gardens — it builds community.

Just about everyone appreciates a reward, especially one offered simply for shopping with favorite brands. It’s even better when you can choose what type of reward you’ll be given. Approximately 85% of consumers say they’d like loyalty programs to be personalized based on their preferences and purchases.

Foot Locker’s membership platform FLX allows customers to receive loyalty points across all six of the company’s retail brands. This encourages engagement across all channels. The meal app Snackpass not only enables users to skip lines at restaurants when picking up to-go orders, it rewards repeat users with free meals or virtual gift cards. 

Your customers want to be recognized and rewarded, even when shopping online. In fact, they’ve come to expect it. The most effective retailers are those that add value to customers’ lives, allowing them to browse, buy, and obtain products conveniently. Those able to cater to differing needs rather than taking a one-size-fits-all approach will rise above the rest.

Interested in gaining more insights? You’ll find them in this Digital Commerce Playbook.

*All statistics come from the report.

Diapers and feminine hygiene products are now exempt from half of the local sales tax in New Orleans, Louisiana. However, they continue to be subject to a 2.5% city sales tax and the 4.45% Louisiana state sales tax rate.

The New Orleans City Council announced the proposed exemption in August, saying it would lower the cost of “these essential items during the pandemic-induced economic downturn.” In fact, the council first proposed the exemption in 2019, before COVID-19 hit the United States, but it couldn’t act on the idea at the time.

Louisiana is a home rule state, so local governments can administer their own local sales taxes. Yet there are certain limits to local authority, especially with respect to taxation. Before New Orleans could exempt diapers and feminine products from a portion of the local sales tax, it needed the Louisiana Legislature to grant them the authority to do so.

During a December 2019 New Orleans City Council meeting, the council unanimously adopted a resolution “expressing support for the Louisiana State Legislature to introduce and pass legislation to allow local governments to grant tax exemptions on feminine hygiene products and diapers.” Governor John Bel Edwards signed the resulting bill into law on August 1, 2020. It authorizes political subdivisions to exempt purchases of diapers and feminine hygiene products from local sales and use tax “by ordinance or resolution,” through December 31, 2021.

By August 20, 2020, the New Orleans City Council had adopted a resolution exempting feminine hygiene products and diapers (adult and children) from City of New Orleans sales and use taxes. The resolution doesn’t mention specific rates, but according to Council Vice President Helena Moreno, the 5% city sales tax isn’t “completely eliminated” for these products because the council only has authority over half (2.5%) of the city’s sales and use tax. The remaining 2.5% funds the Regional Transit Authority and New Orleans Public Schools.

The 2.5% city rate will be in effect “so long as authorized by La. R.S. 47:337.10.2 or by any other applicable provision of state law.” For now, that means it will expire December 31, 2021.

According to the City Council, New Orleans is “the first city in Louisiana to grant a sales tax exemption on feminine hygiene products and diapers.” It won’t be the last. In fact, the East Baton Rouge Parish Metropolitan Council passed an ordinance to exempt them from city sales tax during its October 14, 2020, meeting. That exemption will take effect January 1, 2021.

In February 2019, Senator Jean-Paul (JP) Morrell introduced legislation (SB 4 and SB 5) seeking to eliminate the statewide sales tax on diapers and feminine hygiene products. While there was some support for the idea, the bills failed to win the votes needed to become law.

However, these products are exempt from state and local sales tax in a growing number of states, including California (temporarily), New York, and Washington.

Keep your finger on the pulse of sales tax news by following the Avalara blog.

Every year in October, I tell myself this is the year I’ll be on top of holiday gift giving. 

Wine subscriptions have saved my bacon. No longer do I regularly pay through the nose to get gifts delivered across the country in time for a holiday or special occasion, which given my past is inevitably the next day. I simply hop online, place an order, and sit back as far-flung family members receive email notifications of wine to come. Wine subscriptions are a procrastinator’s salvation — so long as recipients don’t live in Utah.

Utah prohibits direct-to-consumer (DTC) shipments of wine and other alcohol. However, earlier this year, the enactment of House Bill 157 loosened restrictions. A bit.

HB 157 doesn’t permit DTC wine shipments. Instead, it requires the Utah Department of Alcoholic Beverage Control (DABC) to establish and administer a wine subscription program that “shall permit an individual to subscribe to a wine subscription that a wine subscription business sells or offers for sale by enrolling in the wine subscription program in a manner the department prescribes.”

The new law allows individuals to:

• Authorize the DABC to purchase a wine subscription in their name
• Pay the DABC in a manner prescribed by the DABC
• Designate the state store or package agency where the individual would prefer to collect the wine

After receiving such a request from an individual, the DABC would:

• Purchase a wine subscription on behalf of the individual
• Designate the department warehouse to which the wine subscription business sends the wine shipment
• Deliver the purchased wine to the appropriate state store or package agency
• Notify the individual when wine purchased through the subscription program is ready to be collected

The new system doesn’t offer the convenience of traditional wine clubs, which typically deliver wine to the recipient’s doorstep. Utah’s new process is unlikely to be quick. However, it does potentially bring Utah a step closer to allowing DTC wine sales.

During a hearing for the bill in February, Tyler Rudd of Wine Institute expressed concerns. Wine Institute supports DTC shipments and hopes Utah will eventually embrace the practice, as most states have, because it helps small wineries reach more consumers. Yet Rudd said small wineries were unlikely to participate in Utah’s system due to its cumbersome nature and high cost.

Utah imposes significant mandatory markups on sales of liquor in the state. Like other sales of wine in Utah, the markup for wine sold through the department’s subscription program will be “not less than 88% above the landed case cost to the department.” According to Rudd, the 88% markup would make many bottles cost prohibitive. In fact, he said a similar program in Pennsylvania was a bust; consumers didn’t use it because of the high costs associated with it.

Despite Rudd’s reservations, HB 157 has been enacted. During the February hearing, lawmakers said it offers an “initial foray” into wine clubs, giving Utahns an opportunity to obtain wine that isn’t generally available in DABC stores. 

Presumably, once the program is up and running, an out-of-state individual could purchase a wine subscription from the DABC on behalf of a Utah resident. However, that’s not specified in HB 157, and I could find nothing about the new wine subscription program on the DABC website.

HB 157 also removes the requirement for a person moving to Utah from outside the state to obtain DABC approval before moving any liquor into the state and paying the department “a reasonable administrative handling fee.”

And it removes the requirement that a person who inherits liquor located outside of Utah obtain DABC approval before bringing it into the state.

With the holidays approaching, I’m starting to think about sending wine to friends and family far and wide. If you’re like me, you may want to know which states allow breweries, distilleries, and wineries to ship directly to consumers. Take my advice, and don’t wait too long.

Cheers.

Vermont recently enacted legislation affecting use tax reporting, non-collecting seller use tax reporting, and universal service charges for retail sales of prepaid wireless telecommunications.

House Bill 954 changes how individuals can report use tax on Vermont individual income tax returns. This requirement takes effect retroactively January 1, 2020, and applies to tax years beginning on and after that date. Vermont taxpayers can calculate the use tax due in one of two ways:

• Report the exact amount of their use tax liability
• Report a percentage of their adjusted gross income

Taxpayers opting to report use tax based on their adjusted gross income should use the following table to calculate use tax owed on items with a purchase price of $1,000 or less:

The maximum use tax owed in a year based on income is $150. However, taxpayers will still owe use tax on items with a purchase price exceeding $1,000.

H.954 also repeals a use tax reporting requirement for certain non-collecting vendors.

As of July 1, 2017, Vermont requires out-of-state non-collecting vendors with no obligation to collect Vermont sales tax to provide a transactional notice explaining consumer use tax obligations with every taxable Vermont purchase. Non-collecting vendors are also required to send a list of total purchases made during the previous calendar year to consumers who made at least $500 worth of taxable purchases during that time. Finally, non-collecting vendors with $100,000 or more in annual Vermont sales are required to give the Vermont Department of Taxes an annual customer information report listing every purchaser that received an annual purchase summary. See this state-by-state guide to non-collecting seller use tax for additional details.

However, as of July 1, 2018, Vermont requires out-of-state sellers with $100,000 in sales or 200 separate transactions in the state in the preceding 12-month period to register with the Department of Taxes and collect and remit sales tax. Since this economic nexus law renders the non-collecting use tax reporting requirement for out-of-state vendors with $100,000 or more in Vermont sales moot, it’s being repealed.

Effective July 1, 2021, marketplace facilitators that are required to collect and remit sales tax on behalf of third-party sellers are required to collect the Universal Service Charge owed on retail sales of prepaid wireless telecommunications services made through the platform.

Retail sales of prepaid wireless telecommunications services have been subject to a Universal Service Charge since January 1, 2020. Sellers are currently responsible for collecting and remitting it.

Additional details are available in the text of H.954.

See our Vermont sales tax guide for more information about sales tax in the Green Mountain State.

The California Department of Tax and Fee Administration (CDTFA) is being sued for “crushing thousands of small business owners” by holding Fulfillment by Amazon sellers liable for back sales tax. The Online Merchants Guild, a trade association for small online businesses, is the plaintiff.

The language of the suit is at times inflammatory: It warms up by referencing “California’s massive subsidization of Amazon, which CDTFA laundered through the state sales tax system.” However, the issue it raises is interesting: Should the CDTFA be able to hold Fulfillment by Amazon (FBA) sellers liable for back sales tax based on inventory stored in the state, perhaps unbeknownst to them, in Amazon warehouses?

Marketplace facilitators like Amazon, eBay, and Walmart have been required to collect and remit tax on all sales made through their platforms, including third-party or marketplace sales, since October 1, 2019. Prior to that, marketplace facilitators weren’t responsible for the tax on marketplace sales because they weren’t considered the retailer. In the eyes of the state, the individual marketplace sellers were the retailers.

Prior to April 1, 2019, when California’s economic nexus law took effect, marketplace sellers and other retailers generally couldn’t be required to collect and remit California sales and use tax unless they had a physical connection to the state. States lacked the authority to tax remote sales until the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018), clearing the path for economic nexus. Under California’s economic nexus law, remote retailers must register to collect and remit sales tax once their annual sales into the state exceed $500,000.

Thus, prior to April 1, 2019, a retailer could be required to collect and remit California sales tax only if it had a physical tie to the state — like inventory held for sale in an Amazon fulfillment center. 

Last year at about this time, Philadelphia-based FBA seller Brian Freifelder received a disturbing notice from the CDTFA. It said he could owe California up to $1.6 million in back sales tax, plus penalties and interest, because he had inventory stored for sale in Amazon warehouses in the state.

The CDTFA eventually decided the $1.6 million estimate was “higher than it should have been.” However, it apparently didn’t clear Freifelder of all past sales tax liability. Freifelder is a member of the Online Merchants Guild (OMG) and one of several FBA sellers mentioned by name in the lawsuit filed against the CDTFA.

The OMG isn’t arguing FBA sellers like Freifelder didn’t have inventory stored for sale in California during the period in question, nor does it claim inventory isn’t physical in nature. Instead, it insists Amazon — not the individual sellers — should be liable for any past tax owed on marketplace sales, as they are now.

According to the compliant, “FBA generally works as follows. Third-party merchants, such as OMG members, source products for possible sale on Amazon. Merchants propose a sale price to Amazon. Amazon has full discretion to approve the products for sale, and to approve or reject the price. … Amazon also retains editorial control over product listings. Amazon also controls where and how products are listed on the site. …

After Amazon approves a merchant’s proposed listing, Amazon will direct the merchant to ship the products to a warehouse of Amazon’s choosing. From there, Amazon may keep the goods in that warehouse, or ship them anywhere for positioning. …

After a consumer purchases a product in Amazon’s store, Amazon is responsible for selecting the warehouse from which to draw the product, packing the product, and shipping it to the consumer. Amazon also collects payment, and — after holding onto the funds for several weeks — credits the merchant’s account. On FBA sales, Amazon charges merchants a commission that can reach 45%.

Amazon is in privity with consumers, whom Amazon deems the company’s ‘customers.’ By contrast, under the terms of merchants’ agreement with Amazon, merchants are not in privity with consumers. Amazon generally forbids merchant contact with consumers.”

The complaint goes on to note that once OMG members transfer custody of their goods to Amazon, “they have no say in where Amazon moves the goods,” or how Amazon fills orders (i.e., from where it selects inventory to ship). 

Amazon has been required to collect and remit California sales tax on direct sales since September 15, 2012, because of its warehouses and fulfillment centers in the state. According to the complaint (page 15), the CDTFA is now going after FBA merchants “for retrospective taxes back to 2012.”

California has a lookback period of eight years, meaning the CDTFA can generally reach back eight years to assess overdue use tax. However, a bill passed in 2019 afforded some relief to qualifying marketplace sellers. It prohibits the CDTFA “from assessing sales and use taxes on sales made by a ‘qualifying retailer’ prior to April 1, 2016, and requires the CDTFA to relieve any penalties imposed on a ‘qualifying retailer’ with respect to sales made for the period April 1, 2016 to March 31, 2019.”

To qualify for this protection, a retailer must meet all the following conditions:

• Not register with the CDTFA prior to December 1, 2018
• Not file sales or use tax returns or make sales or use tax payments prior to being contacted by the CDTFA
• Voluntarily register with the CDTFA, and by September 25, 2019, file completed tax returns for all tax reporting periods for which a determination may be issued (i.e., on and after April 1, 2016)
• Engage in business in California “solely because you used a marketplace facilitator to facilitate sales for delivery in this state and the marketplace facilitator stored your inventory in this state”

The CDTFA could reach back beyond April 1, 2016, for marketplace sellers that didn’t take advantage of the above.

The complaint was filed September 29, 2020, and can be found at Online Merchants Guild v. Maduros (hat tip to Bloomberg).

Worried you may have a sales tax obligation in a state where you’re not registered? This free sales tax risk assessment can help you find out.

Out-of-state retailers that aren’t registered to collect and remit Kansas sales tax could soon be hearing from the Kansas Department of Revenue.

This enforcement effort shouldn’t come as a surprise. In August 2019, the Kansas Department of Revenue published a notice announcing sales tax requirements for retailers doing business in Kansas. It explained how the United States Supreme Court’s decision on South Dakota v. Wayfair, Inc. (June 21, 2018) had overturned “prior rulings that a remote seller must have a physical presence in a state before that state can require the remote seller to collect that state’s sales or use tax.”

Because of the decision, the notice said, “Kansas can, and does, require on-line and other remote sellers with no physical presence in Kansas to collect and remit the applicable sales or use tax on sales delivered into Kansas.”

Kansas isn’t alone in taxing remote sales, but it is unique. Following the Wayfair decision, legislatures in most states adopted economic nexus laws requiring certain out-of-state businesses to register then collect and remit sales tax. The Kansas Legislature hasn’t enacted an economic nexus law (more on this below). Even so, the Department of Revenue believes the Wayfair decision gives it the authority to tax remote sales.

What the Wayfair ruling doesn’t do, according to the department, is give it the authority to establish a small seller exception.

Every state except Kansas provides safe harbor for small sellers, those whose sales or transaction volume is under a certain economic nexus threshold. For example, California’s economic nexus threshold is $500,000; South Dakota’s is $100,000 in sales or 200 transactions; and so on. Economic nexus thresholds vary from state to state, as seen in this state-by-state guide to economic nexus laws.

Since Kansas has no safe harbor for small sellers, it has no economic nexus threshold. Thus, even very small out-of-state sellers are required to register to do business and collect sales tax in the Sunflower State. In fact, the state has reportedly collected approximately $5 million in sales and use taxes from remote sellers with less than $100,000 in annual sales in the state since the Kansas Department of Revenue began enforcing its remote sales tax requirement on October 1, 2019.

Out-of-state businesses that aren’t currently collecting tax on their Kansas sales should expect to hear from the department in the coming months. At a tax conference earlier this week, Revenue Secretary Mark Burghart said the department intends to contact large sellers first, before moving on to small sellers. 

Though Kansas doesn’t have an economic nexus law on the books, it’s not for lack of trying. In March 2019, the legislature passed a bill that included an economic nexus provision. It also would have required marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. Governor Laura Kelly vetoed it.

However, Gov. Kelly supports taxing remote sales. She believes the Department of Revenue’s policy “reaffirms” tax fairness. Should another economic nexus and marketplace bill land on her desk, she’ll likely sign it. Burghart expects the legislature to enact a small seller threshold in the upcoming session, scheduled to start January 2021.

Like most states, Kansas could use the additional revenue. Total tax collections in September 2020 were ahead of projections, but they were still $15.2 million lower than September 2019 collections. This was largely due to a decline in retail sales tax, which came in $2.4 million (1.2%) less than anticipated.

On the other hand, consumer use tax collections were higher than expected. Consumer use tax (aka compensating use tax) is due when Kansas residents buy goods from non-collecting vendors in other states — either in person, online, or through another channel — without paying any sales tax or paying less than the rate in effect at their home address. The fact that consumer use tax revenue has increased and sales tax revenue has decreased indicates Kansans are still consuming — they’re just buying less from retailers that collect sales tax.

If the department’s forthcoming notices have their intended effect, more out-of-state retailers will register to collect Kansas sales tax in the coming months.

According to Scott Peterson, vice president of government relations at Avalara, “The effort Kansas just announced is just the beginning of state remote seller enforcement actions. Most state budgets are in trouble because of the recession and two years have gone by since the Wayfair decision was issued.”

Mark Friedlich, senior principal at Wolters Kluwer Tax & Accounting, made a similar prediction in July, calling economic nexus compliance “fertile territory for tax auditors.” And Jamie Yesnowitz of Grant Thornton LLP expects states to undertake “more aggressive auditing” once the pandemic passes.

Avalara helps businesses of all sizes register to collect sales tax. If you’re not sure where you need to register, our free sales tax risk assessment can help you figure out your state tax obligations.

When headlines last week screamed about Subway’s bread not being “bread,” I was delighted. Not because I have a beef with the bread — I don’t — I was simply pleased to see a wacky tax story get the attention it deserves.

In case you missed it: The Supreme Court of Ireland recently dismissed an appeal by an Irish Subway franchise seeking a refund from the Revenue Commissioners for value-added tax (VAT) payments made between January 2004 and December 2005. The franchise claimed the heated sandwiches and hot drinks it sold during that time should have been subject to a 0% VAT rate, rather than the composite rate it paid of 9.2%.

The case backfired. Instead of finding in favor of the 0% rate, the court determined the sales in question were subject to a 13.5% VAT rate.

VAT rates vary by country and by type of product or service. In Ireland, home of the forlorn franchise, the relevant rates are currently:

• 21% standard rate. Applies to most goods and services, including confectionary food (the rate was temporarily lowered from 23% on September 1, 2020, due to COVID-19)
• 13.5% reduced rate. Applies to certain food and drink, including hot takeaway food and heated drinks
• 0% rate. Applies to certain food and drink, including staples like bread

A weighty matter

For bread to qualify for the 0% rate under the Value Added Tax Act of 1972, fat and sugar cannot exceed 2% of the weight of the flour included in the dough. The bread used by the franchise in its heated sandwiches has a sugar content of 10% of the weight of the flour.

Because of the high sugar content, the Supreme Court ruled the bread “falls outside the definition of ‘bread’ for the purposes of the Act,” and “outside the 0% exemption.”

Responding to the ruling, Subway stated simply, “Subway’s bread is, of course, bread.”

In arguing its case, the franchise said excluding their bread from the category of bread subject to the 0% rate breached the principle of fiscal neutrality, “which prohibits the treatment of similar goods differently from a VAT perspective.”

The Supreme Court disagreed, explaining that to limit the 0% rate to bread, it’s necessary to define bread. Any definition must include some products and exclude others: “When a definition is laid down, … it is always possible to dispute the marginal cases on either side of the line. In every examination, there must always be a last candidate who passes with the lowest mark among those who passed, and a first candidate who fails with the highest mark among those who fail. The differences between the two candidates may well be marginal. But that … will not invalidate a distinction being made between them if the distinction has a valid basis, as this clearly has.”

Thus, heated sandwiches made from the bread are subject to the 13.5% VAT, the rate that applies to hot takeaway food.

The Supreme Court’s ruling is an entertaining read, if you like that sort of thing. It references “pedantic” and “punctilious” schoolteachers who “might point out” that the language of the VAT Act “could be expressed more clearly and precisely.” It expresses “some sympathy for the beleaguered draftspersons and for the tortured language to which they sometimes have to resort in order to carry into effect a reasonable statutory policy.” Good stuff.

Then again, you could just wait for the next Wacky Tax Wednesday on the Avalara blog.

Alabama taxpayers must renew certain Alabama tax licenses annually by January 1, 2021. This is a significant change in policy, as these tax licenses never required renewal in the past. Taxpayers can start renewing licenses for 2021 on November 1, 2020.

• The annual license renewal requirement applies to the following tax types:
• Lodging tax
• Rental tax
• Sales tax
• Sellers use tax
• Simplified sellers use tax
• Utility gross receipts tax

To renew a license, a business must confirm it still operates the same business entity type for which the current license was issued. If the business entity type has changed since the last license was issued — for example, from a Sole Proprietorship to a Corporation or LLC — the business will need to apply for a new license type and will receive a new license number.

Annual licenses will be good for one calendar year only, and failure to renew a license by the start of a calendar year will result in automatic cancellation of that license. Thus, taxpayers should allow ample time for the Alabama Department of Revenue to process a license renewal request. It typically takes three to five days to receive an account number.

To renew a license, taxpayers must review and update as needed the following information on the My Alabama Taxes website:

• Current legal name
• Owner/Officer/Member information
• Phone number(s)
• Social security number(s)/FEIN(s)
• Location address(es), including d/b/a, for each location
  • Main address 
  • Location address(es)

While sales tax permits and other tax licenses last the life of a business in many states, Alabama certainly isn’t the only state to require renewal of tax licenses. For example, sales tax licenses must be renewed every two years in Connecticut and every five years in Pennsylvania. Find more details in this state-by-state guide to sales tax permits.

Learn how Avalara can help businesses of all sizes register in all states. 

SEATTLE, WA — October 5, 2020 — Avalara, Inc. (NYSE: AVLR), a leading provider of tax compliance automation for businesses of all sizes, today announced that it has acquired Transaction Tax Resources, Inc. (TTR) for approximately $377 million in cash. TTR, known as the tax answer company, primarily serves enterprise businesses and their internal tax teams, offering U.S. sales and use tax rates, laws, software, and customer support required for the biggest and most complex companies.

Avalara and TTR bring together leading tax technology with trusted tax content, extending Avalara’s current products, adding new capabilities, and reaching new segments. TTR’s team, with its culture, training, and experience serving enterprise businesses, will add enterprise capabilities across Avalara’s content, product, sales, and customer support. TTR brings Avalara more than 1,400 customers, including blue chip customers that represent more than 30% of the Fortune 500, the largest or second largest company in each of 40 industries, 9 of the top 10 healthcare companies, 8 of the top 10 telecommunications companies and 5 of the top 10 IT services firms. TTR will operate as a subsidiary of Avalara, continuing to serve its customers with trusted solutions while integrating key products into Avalara’s automation tools.

As companies of all sizes continue to introduce, accelerate, or mature their digital strategies, with the addition of TTR, Avalara will build an enterprise-ready tax automation suite. The combination of Avalara’s powerful technology platform with TTR’s enterprise expertise, service, and go-to-market capabilities will reach new customer segments but also flow richer information and value into content and data that reach all Avalara customers.

To best serve businesses of all sizes, Avalara and TTR have the opportunity to create industry-leading solutions in three key areas:

1. Indirect Tax Content: With TTR, Avalara will now have the opportunity to build the most robust compliance content library available through a cloud-based, integrated automation platform. Since its founding TTR has focused almost exclusively on tax content and as a result has amassed an enviable database of content that complements, expands, and enriches Avalara’s existing database. It adds to some of Avalara’s most important vertical markets such as retail, telecommunications, food and grocery, and manufacturing, and contributes new categories including automobile, construction, and financial services.
2. Content Subscriptions: TTR’s core business is a subscription service for tax professionals in mid- and large-sized businesses to determine and validate tax decisions and avoid costly mistakes. The content required for subscription services of this kind extends Avalara’s existing database to now include detailed research and documentation. For the first time, Avalara will have a subscription product for its customers to validate, manage, and action tax content to support their business.
3. Certificate Management: Avalara and TTR manage two leading tax document management platforms, Avalara’s CertCapture and TTR’s Exemption Certificate Management System (ECMS). Avalara intends to combine the two offerings to create an industry-leading product family to support any business size.

“Avalara works every day to improve and expand our compliance content for businesses of all sizes,” said Scott McFarlane, co-founder and CEO of Avalara. “I have long admired the TTR team and I am excited to have them join Avalara. As our teams work to integrate and execute, we believe the exchange of expertise, information, and technologies between the two companies will improve our products, grow our business, and continue to pioneer tax technology services in our field. As more businesses move to rely on digital infrastructure, we believe our technologies will change how tax teams think about cloud-based tax automation to support their business decision-making and growth.”

“Avalara and TTR have a shared vision of alleviating the burden of tax compliance on businesses,” said Shon Holyfield, founder and CEO of Transaction Tax Resources, Inc. “I work alongside the brightest minds in tax every day — on our team and with our customers. With Avalara, we have a partner that is committed to expanding the reach of our expertise for the benefit of tax and finance teams across all business sizes and verticals.”

Aggregating and providing the most up-to-date, comprehensive tax content has been core to Avalara’s mission and growth strategy since its founding. Last year, Avalara acquired Indix AI technology to aggregate, maintain, and deliver global product and tax information. With the acquisition of TTR, Avalara furthers its pioneering vision of being part of every transaction in the world through superior content deployed through advanced technologies.

Avalara acquired TTR for approximately $377 million in cash for 100% of the equity of Transaction Tax Resources, Inc. with a portion held back for a 2-year performance-based earnout and to satisfy potential future indemnity claims.

Avalara estimates that on a standalone full-year basis TTR would produce approximately $20 million in 2020 GAAP revenue and be break-even on GAAP operating income.

Details regarding the anticipated financial impact of the acquisition, including an expected deferred revenue write-down, will be provided on our fiscal third quarter 2020 financial results conference call on November 5, 2020.

Avalara will host a conference call today, October 5, 2020, including an accompanying slide presentation, to discuss the acquisition, at 2:00 p.m. PT (5:00 p.m. ET). A live webcast of the conference call, as well as a replay of the call and the presentation, will be available at https://investor.avalara.com. The conference call can also be accessed by dialing (866) 393-4306, or (734) 385-2616 (outside the U.S. and Canada). The conference ID is 5999982. A telephone replay of the conference call will be available until 8:59 p.m. Pacific Time on Monday, October 12, 2020. The telephone replay will be available by dialing (855) 859-2056 or (404) 537-3406 outside the U.S. and Canada with conference ID 5999982.

Headquartered in McMinnville, OR, TTR is a leading provider of research, consulting, and tax automation tools as well as direct access to tax experts. With more than 1,400 customers, TTR has become a "best practice" in the area of sales, use, and transaction tax. TTR also provides software solutions for companies and governments. TTR’s Exemption Certificate Management System (ECMS) and proprietary nationwide GIS Tax Rate System allow businesses and governments to Get Tax Right.

This press release and the slide presentation accompanying today’s conference call contain forward-looking statements including, among others, statements about the financial outlook for TTR for the full year 2020 and expected growth opportunities and synergies arising from the acquisition. In some cases you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.

These forward-looking statements involve risks, uncertainties, and assumptions that could cause actual performance or results to differ materially from those expressed or suggested by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, our actual results could differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include risks associated with: our ability to successfully integrate TTR into our business; our ability to sustain our revenue growth rate, to achieve or maintain profitability, and to effectively manage our anticipated growth; and the risks described in the other filings we make with the Securities and Exchange Commission from time to time, including the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent quarterly reports on Form 10-Q, and which should be read in conjunction with our financial results and forward-looking statements. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.

There are good reasons to focus on one sales channel, but better reasons to sell through multiple channels. Retailers able to reach consumers where they’re most comfortable are better equipped to foster brand awareness and loyalty. Those that allow consumers to seamlessly browse by phones or social media platforms will get more eyes on their products. And the more places a person can click “buy,” the more often “buy” will be clicked.

During a normal year, a brick-and-mortar store may get enough foot traffic to pay the rent and then some. But as we all know, 2020 is not a normal year. Within weeks or months of watching the ball drop, nonessential businesses in many parts of the country and world were forced to shutter or operate under severely restricted circumstances. The number of feet crossing the threshold of even the most heavily visited stores dwindled alarmingly or stopped altogether.

Foot traffic will bounce back; it already has in some parts of the world. But the pandemic has highlighted the limitations of physical stores. Survival for many retailers now hinges on ecommerce and making the most of the opportunities the internet provides. 

Different ecommerce channels speak to different demographics: baby boomers tend to be most comfortable shopping from branded online stores, while younger consumers (Generation Z and millennials) are more likely to shop on social channels like Instagram and Snapchat. The sandwich generation, Gen X, spreads its dollars across all channels: Amazon, eBay, physical stores, and various social media platforms.

Each channel brings unique opportunities. Influencers can promote products on social media platforms, where their opinions can be validated by peer reviews. Branded stores cultivate familiarity; they can identify repeat customers and serve them products most suited to their tastes. Marketplaces enable easy comparisons and may provide the speediest, most reliable delivery.

Selling across multiple channels allows retailers to reach consumers where they’re most likely to buy. But it also brings unique challenges when it comes to sales tax compliance.

The more you sell in a state, the more likely you are to develop sales tax nexus — an obligation to collect sales tax. Most states now require out-of-state businesses to register with the state tax department then collect and remit sales tax once their sales into the state reach a certain threshold (the economic nexus threshold).

Unfortunately, each state’s economic nexus threshold is unique. For example:

• California’s threshold is $500,000 in sales of tangible personal property
• The threshold in Illinois is $100,000 in sales or 200 transactions of taxable or exempt tangible personal property (excluding sales for resale)
• New York’s threshold is $500,000 in sales and 100 transactions of tangible personal property

Some states include services, some include exempt sales, and so on. As soon as you have customers in a state, you need to start tracking your sales into that state to ensure you’ll know to register should your sales meet the economic nexus threshold. Once you establish economic nexus, you’re obligated to register, collect and remit sales tax as required by law, and file returns on time.

Most states also have marketplace facilitator laws requiring marketplaces to collect and remit sales tax on behalf of third-party sellers.

This is a double-edged sword. While marketplace facilitator laws  may relieve marketplace sellers of the grind of collection and remittance, they don’t necessarily relieve sellers of their obligation to file returns: Some states require all marketplace sellers to register and file, even those with no physical presence in the state.

Some states include marketplace sales in the economic nexus threshold; in other states, retailers should only include direct sales when calculating whether the threshold has been met. So, while selling through marketplaces can help you broaden your reach, it also complicates sales tax compliance. 

Success in retail relies on being adaptable and responding to changing circumstances. The same is true for successful management of sales tax.

For retailers selling across multiple channels, handling sales tax manually can quickly become an unsustainable burden. Aggregating sales data from multiple systems and marketplaces to get an accurate picture of your sales tax obligations can be a nightmare. A better option is to use an automated sales tax solution that can consolidate sales information from all your sales channels.

Learn more about optimizing sales tax compliance in tax compliance for ecommerce sellers.

COVID-19 is changing the way we do school, like so much else. Thousands of school districts and post-secondary educational institutions in the United States started the 2020–21 school year remotely, offering synchronous or asynchronous online classes only. Other schools and districts are finding creative ways to provide in-person classes or blending in-person and virtual classes. And a variety of continuing education and training, from music classes to professional development, are also teaching outside the traditional box.

Moving learning online has wide-reaching consequences, including one that could be unexpected: Online education and training services are more likely to be subject to sales tax than in-person classes. As more education shifts online, states will need to determine how to apply existing sales tax laws to new models.

For example, a ruling recently issued by the Tennessee Department of Revenue explains that while live, instructor-led online courses aren’t subject to Tennessee sales and use tax, self-paced online classes that provide no live online instruction are taxable. The department considers the student to be “paying for the use of computer software” rather than the instruction.

The ruling was requested by a corporation with no physical presence in Tennessee. It prepares students for new careers via three different online instruction formats:

Format 1: Students must complete a certain number of course hours and take a specified number of structured online classes. Instructors give “live online” presentations and take written and verbal questions from students. The instructor and students are on video chat for the entire session.

Format 2: Students must complete a certain number of course hours over a specified period. As with Format 1, instructors give live online presentations and take written and verbal questions from students. The instructor and students are on video chat for the entire session.

Format 3: Students complete the curriculum within a set time frame, at their own pace. Students may take longer than the suggested amount of time but will be charged additional tuition if they do. There’s no live online instruction, but students must attend weekly one-on-one sessions with a subject matter expert in the field. Students access course modules, which include optional prerecorded video content, through their online accounts. “Most students choose to access the optional video content.”

Students don’t download software or course content to their personal computers for any of the three formats.

Tennessee sales tax applies to retail sales of prewritten computer software, as well as “the retail sale, lease, licensing or use of computer software in this state, including prewritten and custom software.” In 2015, Tennessee specified that “‘use of computer software’ includes the access and use of software that remains in the possession of the dealer who provides the software or in the possession of a third party on behalf of such dealer.”

When the software is accessed from Tennessee, the access is “deemed equivalent to the sale of licensing of the software and electronic delivery of the software for use in the state.” Thus, as of July 1, 2015, the access and use of computer software in Tennessee is subject to sales and use tax “regardless of a customer’s chosen method of use.”

The ruling also notes that when a taxable and nontaxable transaction are bundled together in a single sales price, taxability is determined by the transaction’s true object. For Format 1 and Format 2, described above, the software platform allows students to access live lectures online. Thus, “a student’s use of the platform software … is merely incidental to participating in the live class.”

In the case of Format 3, however, students learn primarily by reading online text and watching videos. The Tennessee Department of Revenue determined that although some of the services provided in Format 3 may be exempt from sales tax, “the true object of the Format 3 courses is access to the online course modules” — a taxable transaction.

Although cooking shows abound and YouTube is full of how-to-cook-this-and-that videos, some aspiring cooks prefer in-person instruction. An entrepreneurial individual in New York seeks to meet that demand by offering private baking, cooking, and decorating lessons in clients’ homes.

The cooking instructor offers three types of services:

Service 1: Clients hire the cooking instructor to teach them practical cooking skills while making between one and three dishes. The instructor provides customers with physical or electronic copies of recipes and any pertinent information. The customers purchase all ingredients to prepare the dishes.

Service 2: The same as above, except the cooking instructor supplies some or all ingredients.

Service 3: Clients hire the cooking instructor to teach them decorating skills. The instructor provides a partially finished product (e.g., cut-out cookies or undecorated gingerbread houses), along with necessary decorating items.

There’s a lump-sum charge for each type of service — charges for ingredients and supplies are included in the price.

According to the New York State Department of Taxation and Finance, the services aren’t subject to sales tax. Although New York sales tax does apply to certain enumerated services in the Empire State, cooking and baking lessons aren’t among them.

Some of the ingredients and supplies provided by the instructor could be taxable. While food and food products sold by food stores are generally exempt from New York sales tax, candy is generally taxable. However, since the instructor charges one lump sum for the services and doesn’t separately state charges for the ingredients and supplies, they’re considered incidental to the sale of a nontaxable service. The instructor should pay sales tax on the purchase of any taxable ingredients and supplies.

Sales tax is highly nuanced; slight differences in a service can affect how that service is taxed. The longer the pandemic continues, the more likely education services offered by schools and post-secondary educational institutions will be tweaked. Some such changes could impact taxability.

Learn more about taxing online classes and sales tax requirements for out-of-state businesses. 

The pandemic has given ecommerce sellers a lesson in how high demand can stress supply chains and impact sales. Consumers who accepted back orders and shipping delays this past spring will become less forgiving as the holidays approach. To meet heightened demand, online sellers will need to partner with logistics professionals capable of helping them quickly by efficiently putting packages into the hands of customers worldwide.

Global ecommerce has seen enormous growth during the pandemic, up 71% year over year in the second quarter alone. But it hasn’t all been smooth sailing. In spring, consumers advised to stay at home took to online shopping in droves, clearing virtual shelves of everything from canned goods to office chairs. The unanticipated spike in sales caused stocking problems and shipping delays on leading ecommerce sites, inspiring consumers to explore new sellers — including those based in other countries.

Ecommerce sales during the 2020–2021 holiday season are expected to grow by 25% to 35% year over year, according to Deloitte’s annual holiday retail forecast. To get a piece of that growth, cross-border retailers must be able to provide a seamless shopping experience and speedy delivery. That requires negotiating the complex world of international shipping.

Supply chain and logistics professionals can offer an invaluable service to ecommerce retailers by helping them:

• Navigate tariff codes
• Streamline shipping
• Understand risk

To minimize delays at customs, especially during the critical holiday season, many ecommerce sellers shipping goods into the United States will want to use the expedited Section 321 Type 86 clearance. Freight forwarders and carriers can help facilitate Type 86 clearance for clients through HS code classification. Once ecommerce merchants realize how long it can take to match each product to the proper Harmonized System (HS) code, they’ll likely look to offload that task to a trusted partner.

Avalara Item Classification speeds up the process, allowing you to increase efficiencies in your own business while streamlining international operations for clients. By relying on machine learning to identify and produce HS codes, it eliminates the need to manually search through clients’ product catalogs.

Another way for ecommerce merchants to avoid unnecessary shipping delays is to ship Delivery Duty Paid (DDP). This entails collecting customs duties and import taxes from customers up front, ideally at checkout. In addition to eliminating surprise (i.e., unwanted) costs for customers upon delivery, it allows packages from international sellers to be left on doorsteps like domestic packages.

Carriers able to help merchants assess the correct customs duty and collect it up front will stand above those that cannot.

Shipping products internationally tends to be riskier than shipping products domestically, in part because global trade depends on political and trade agreements.

Because of Brexit, for example, the process for importing and exporting goods to and from the U.K. will change effective January 1, 2021. Shipments that once flowed freely will now face higher tariffs and tightened controls, likely leading to reduced margins and delays. Retailers will need to work with their logistics partners to ensure the accuracy of their HS codes and keep goods moving with minimal interruptions.

People are eager to return to brick-and-mortar stores. Yet the convenience of ecommerce will inevitably persuade consumers to continue to shop online even when face masks have been relegated to dark corners in storage closets (a day that must surely come). Salesforce predicts close to 30% of global retail sales this holiday season will occur online. This will likely stress the supply chain, as happened this past spring. Virtual shelves could be emptied, making fulfillment a challenge. Last-mile delivery systems could be overwhelmed.

Supply chain professionals can help global ecommerce businesses navigate these challenges successfully. Learn how in this Reuters report.  

While you focus on your business, we stay on top of legislative and policy changes that can affect your sales tax compliance.

September’s sales tax news covers a variety of topics, from deductions in New Mexico to tax relief in several states. Read on for more details.

Bottoms up!

Out-of-state wineries shipping directly to consumers in Texas have new tax obligations. Learn more.

Change happens.

Especially when sales tax rates are involved. Learn more.

Colorado gives it the college try.

The Colorado Department of Revenue is trying to make sales tax compliance easier for out-of-state sellers. Learn more.

Delivering deductions.

Grocery stores in New Mexico may not be able to claim a gross receipts tax deduction for grocery foods that are delivered to the consumer. Learn more.

Drop shipping dilemmas.

Who’s liable for sales tax in California when the retailer isn’t the true retailer? Learn more.

How to tax shipping and delivery fees.

There’s no one way to get products into the hands of customers, and there’s no one way to tax delivery charges. Learn more.

Increased enforcement can lead to increased sales tax collections.

As more states feel the effects of COVID-19 on their budgets, they’ll look for easy ways to increase sales tax collections. Learn more.

It’s not much, but it can help.

A growing number of states are offering tax relief to businesses and individuals affected by hurricanes, wildfires, and other natural disasters. Learn more.

Names matter.

There’s a difference between consumer use tax, seller use tax, and sales tax. Learn more.

Sold!

Everything you needed to know about how North Carolina’s remote sales tax laws affect animal auctioneers. Learn more.

Streamlining cross-border shipping comes at a cost.

Businesses importing low-value packages into the U.S. can expedite customs clearance. Learn more.

Teaching outside the box.

Opening online classes to students in other states can boost enrollment. It can also put schools at risk for sales tax. Learn more.

Tennessee lowers economic nexus threshold to boost sales tax collections.

Approximately 3,000 more businesses are expected to develop sales tax nexus when Tennessee’s economic threshold drops from $500,000 to $100,000. Learn more.

Tired of trying to keep up with sales tax changes around the country? Automating tax compliance can help.

Effective October 1, 2020, remote retailers must register to collect and remit Tennessee sales tax if their sales into the state during the previous 12-month period exceed $100,000. This is a significant change: The remote seller threshold has been $500,000 since July 1, 2019.

Another big change: Marketplace facilitators with more than $100,000 in sales in the state are required to collect and remit sales tax on behalf of third-party sellers starting October 1, 2020.

As in most states, out-of-state businesses can now establish a sales tax obligation in Tennessee through their sales activity in the state, or economic nexus. Physical presence in a state still triggers nexus, it’s just no longer the sole requirement because the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc. (June 21, 2018).

Although the Supreme Court didn’t impose any requirements on states, it did praise South Dakota for providing an exception for small sellers. Remote sellers are required to register with the South Dakota Department of Revenue only once their sales into South Dakota exceed $100,000 in sales or 200 transactions in the state in the current or previous calendar year (the economic nexus threshold).

With the exception of Kansas, every state’s economic nexus law provides a small-seller exception. However, no two economic nexus thresholds are exactly alike. Details about each state’s economic nexus threshold are available in this state-by-state guide to economic nexus.

For a state with a population of less than 7 million, Tennessee’s original threshold of $500,000 was quite high. The only other states with a $500,000 sales threshold are California (population 39.5 million), New York (population 19.45 million), and Texas (population 29 million). The Tennessee Department of Revenue expects the lower threshold to affect approximately 3,000 remote businesses

When determining whether economic nexus has been established in Tennessee, a remote seller should include exempt sales and exempt services, but not sales for resale. Remote sellers shouldn’t count sales made through an online marketplace as of October 1, 2020. 

The lower threshold also applies to marketplaces. Marketplaces that make or facilitate more than $100,000 in sales to Tennessee customers in the previous 12-month period must collect and remit sales tax on sales made by marketplace sellers starting October 1, 2020. See Sales Tax Collection by Marketplace Facilitators for more details.

The economic nexus threshold change is expected to increase annual sales tax collections by almost $43 million ($31.2 million in state sales tax and $11.7 million in local sales taxes). This money will help Tennessee weather a significant budget shortfall caused largely by COVID-19.

Think you may have economic nexus in Tennessee or another state? Avalara’s free sales tax risk assessment can help you find out.