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Sales Tax and theInternet MerchantPresented By:Jordan LangAvalaramail:P.O. Box 509 Eau Claire, WI 54702-0509 telephone: 866-352-9539 fax: 715-833-3953customerservice@lorman.com website: www.lorman.com seminar id: 394564email:This manual was created for online viewing. State specific information in this manual is used for illustration and is an example only.
Sales Tax and theInternet MerchantPrepared By:Jordan LangAvalara 2014 Lorman Education Services. All Rights Reserved.All Rights Reserved. Lorman programs are copyrighted and may not be recorded or transcribed in whole or part without its express prior written permission. Yourattendance at a Lorman seminar constitutes your agreement not to record or transcribe all or any part of it.Full terms and conditions available at www.lorman.com/terms.php.This publication is designed to provide general information on the topic presented. It is sold with the understanding that the publisher is not engaged in rendering anylegal or professional services. The opinions or viewpoints expressed by faculty members do not necessarily reflect those of Lorman Education Services. These materials wereprepared by the faculty who are solely responsible for the correctness and appropriateness of the content. Although this manual is prepared by professionals, the contentand information provided should not be used as a substitute for professional services, and such content and information does not constitute legal or other professionaladvice. If legal or other professional advice is required, the services of a professional should be sought. Lorman Education Services is in no way responsible or liable for anyadvice or information provided by the faculty.This disclosure may be required by the Circular 230 regulations of the U.S. Treasury and the Internal Revenue Service. We inform you that any federal tax advice containedin this written communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding federal tax penalties imposed bythe federal government or (ii) promoting, marketing or recommending to another party any tax related matters addressed herein.mail:P.O. Box 509 Eau Claire, WI 54702-0509 telephone: 866-352-9539 fax: 715-833-3953customerservice@lorman.com website: www.lorman.com seminar id: 394564email:
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Sales Tax & the Internet MerchantPresented by Jordan Lang Avalara1
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Learning ObjectivesUpon completing this webinar, you will be able to: Determine appropriate Nexus – and Nexus triggering events Understand the current tax landscape and how special taxingjurisdictions, including state tax holidays affect tax compliance Explain the steps your business needs to have in place to properlycollect and remit sales tax Identify whether or not your state is an SST State and how it affectssales tax compliance Compare the different automation solutions available and how theyhelp with sales tax complianceMaking sales tax less taxingAgenda1.2.3.4.5.The new state of commerceSales tax compliance landscapeRedefining nexusAudit protectionAutomation or not?3Making sales tax less taxing3
The New State of Commerce4 AvalaraThe New State of Commerce According to a report by Forrester, more than 60% ofretail sales will involve the Internet by 2017. In 2013, 31 states projected budget deficits totaling 55billion. NRF estimates 24 billion in sales taxes goesuncollected on the Internet.Therefore: As tax-collecting agents of the state(s), they are lookingto your business to find more money. This increased focus creates compliance risk for you.Making sales tax less taxing4
The New State of CommerceTotal State Government Tax Collection byCategoryOther taxesCorporationnet income4%taxes5%Total licensetaxes7%Individualincome taxes35%Property taxes2%Total selectivesales taxes17%When generalsales tax andselective sales taxare combined,sales tax makesup 47% of totalstate revenue.General salesand grossreceipts taxes30%Making sales tax less taxingThe New State of Commerce States are finding more sales tax revenue by hiringmore auditors:– California announces hiring 100 auditors over the next threeyears– Idaho hires 48 auditors that stay on as full-time staffMaking sales tax less taxing5
Sales Tax Compliance Landscape8 AvalaraUnderstanding the Basics:Sales Tax vs. Use Tax Sales tax: imposed on the gross receipts from retail sale of tangibleproperty in state Use tax: imposed on the consumption or use of tangible property instate– Purchases of equipment and supplies from out-of-state for use inbusiness– Withdrawals of inventory for taxable use such as R&D, promotionalmaterials, warranty repairs, etc. The difference:– Sales tax: imposed on activities of a seller within or on transactionsoriginating and ending in a state– Use tax: imposed on transactions or on purchases originating outside astateMaking sales tax less taxing6
Sales Tax Compliance Considerations 11,000 taxing jurisdictions Thousands of changes to tax laws, including:––––Jurisdictional rate changesTax holidaysJurisdictions that levy new taxes or eliminate taxesJurisdictions that expand geographic boundaries Accuracy is everything– For customers, auditors, and for your businessMaking sales tax less taxingE-tailers Struggle with: Do I have to collect (and, if so, from whom)?For what do I have to collect?How do I know what to charge (and is that rate current)?How do I register, report, and remit?Making sales tax less taxing7
E-tailers Tell Us: Accurate sales tax calculations are critical Sub-second performance is vital for good customerexperience Managing sales tax rates and rules is a painful process Embedded reporting capability and real-time data accessis necessary to streamline the compliance process Reduction of risk associated with audits is vital Outsourcing sales tax compliance is strategicMaking sales tax less taxingPolling Question 1Which of the following items are nexus-triggeringevents?A.B.C.D.Trade show attendanceTrainingAffiliatesAll of the aboveMaking sales tax less taxing8
Polling Question 1 Results (Placeholder)Making sales tax less taxingRedefining Nexus and Jurisdictions15 Avalara9
150 million mailing addresses11,000 jurisdictional rules35,000 sales / use / rental tax rates 30 M product / service exemptions750,000 buyer / seller exemptionsMaking sales tax less taxingRedefining Nexus and JurisdictionsKnowing where you are required to collect is becomingmore difficult. Nexus means a “connection.” Every state has the right to define who has to collectsales tax, what those taxes are, and any exemptions thatmay be allowed. Ecommerce merchants must have a connection to astate in which a customer resides for the merchant to beliable for sales tax. States define nexus in different ways, and this makes itconfusing.Making sales tax less taxing10
How Do You Know if You Have Nexus? Do you have traveling salespeople in the state?Do you utilize contract labor in the state?Do you have company representatives in the state?Do you own or lease any real or personal property in thestate? Do you promote your products or services in the state? Do you participate in trade shows or exhibits in the state? And every year this list continues to grow.Making sales tax less taxingZIP Codes: the Wrong Tool for the Job Taxing jurisdictions don’t always follow ZIP codes. Individual counties and municipalities levy sales taxes inaddition to state rates. Tax rates can vary significantly within a ZIP code. ZIP codes:– Are a blunt instrument for determining sales tax rates andboundaries.– Will almost certainly lead to calculation mistakes.– Can lull you into a false sense of security.Making sales tax less taxing11
Taking Care of BusinessCrossing your t’s and dotting your i’s:Once you’ve figured out where your business has nexus,you need to ensure that you are properly set up to collectand remit sales tax within applicable states.Making sales tax less taxingAccuracy is Everything Sales tax is calculated based on specific laws,regulations and rates defined for state, city, county – andin some cases special taxing jurisdictions and RegionalTransit Districts. These jurisdictions DO NOT line up with ZIP codes. In 2012, the number of changes in these rates, rules andboundaries equaled or topped seven thousand across 46states. It is extremely important for ecommerce businesses toensure accuracy in rates and taxability.Making sales tax less taxing12
Polling Question 2Using Zip Codes is the most reliable way todetermine sales tax.A. TrueB. FalseMaking sales tax less taxingPolling Question 2 Results (Placeholder)Making sales tax less taxing13
Determining sales taxrates byZIP codes isinaccurate and risky.7.85% 80111 Taxes Represented:4.35%4.35%6.85%7.72%7.35%2.9% Colorado State.25% Arapahoe County1.0% Douglas County3.5% Englewood City3.0% Greenwood Village City2.5% Centennial City1.0% Regional Transport District.10% Football District.10% Science and CulturalDistrict5.10%Making sales tax less taxing7450 Leyden StreetTotal Sales Tax: 0.0925COLORADO: 0.0290ADAMS: 0.0075COMMERCE CITY: 0.0450SCIENTIFIC & CULTURAL: 0.0010DENVER AREA TR: 0.01007495 Locust StreetTotal Sales Tax: 0.0475COLORADO: 0.0290ADAMS: 0.0075SCIENTIFIC & CULTURAL: 0.0010DENVER AREA TR: 0.0100Making sales tax less taxing14
Streamlined Sales Tax States24 and Growing:Making sales tax less taxingPolling Question 3What is the threshold for collecting sales tax?A. 5,000B. 100,000C. 1,000,000Making sales tax less taxing15
Polling Question 3 Results (Placeholder)Making sales tax less taxingAudit Protection Avalara16
Audits Happen. Protect Yourself. Keep your sales tax collection records in perfect order.Know where you owe.Ensure you have accurate rates & taxability.Properly manage exemption certificates.Making sales tax less taxingKey Areas of Risk for E-tailers Incorrect tax rates due (often based on ZIP codes). Proper documentation for sales tax exemption.Making sales tax less taxing17
Tips to Reduce Audit RiskYou should:Make sure you have: Do a nexus study Stay up-to-date with rate,rule, and boundarychanges Report consumers’ use tax Be compliant from dayone, especially newbusinesses Automate with technology An understanding of yourfiling requirements Calculations that arerooftop accurate Product taxability coverage Detailed sales records A process for managingexemption certificatesMaking sales tax less taxingAvoid These Common Mistakes Failing to file a returnFailing to report salesTaking excessive credits or exclusions on a returnFiling returns with errorsReturn information that doesn’t match other recordsMistakes found in previous auditPrevious finding of exemption certificate misuseNot reporting use taxMaking sales tax less taxing18
Automation or Not? AvalaraAutomation or Not? Periods of high growth, or upgrades or changes to yourecommerce site, provide good opportunities to explorehow automating sales tax can help your business. Many ecommerce businesses find that automation:–––––Saves timeIncreases accuracyMitigates riskImproves efficiencyIncreases profitabilityMaking sales tax less taxing3519
How Does it Work?Tax RatesTax BoundariesTaxability RulesMaking sales tax less taxing36Benefits of AutomationJust like outsourcing payroll, companies that outsourcesales tax benefit by: Achieving compliance Cutting costs Increasing efficiencies Focusing on growthMaking sales tax less taxing2037
Polling Question 4How does your company currently handle salestax compliance?A.B.C.D.We have an automation platform within our ERPManually – we look up each transactionRate tablesNone of the aboveMaking sales tax less taxing38Polling Question 4 Results (Placeholder)Making sales tax less taxing3921
About AvalaraWe’re a team of developers, accountants,support specialists, marketers, salespeople,researchers, and technologists who knowwe’re on to something big.We know we are part of a team that isrevolutionizing what is a huge drain forbusinesses of all sizes: managing thecompliance of transactional taxes, fromsales and use tax to 1099s and more.Making sales tax less taxingQuestions?Contact:Jordan LangSenior National Director E-Commerce TeamAvalaraJordan.Lang@avalara.com(206) 826-4900 x1418Making sales tax less taxing22CONFIDENTIAL & PROPRIETARY 41
Notes
collect and remit sales tax Identify whether or not your state is an SST State and how it affects sales tax compliance Compare the different automation solutions available and how they help with sales tax compliance Making sales tax less taxing Agenda 1. The new state of commerce 2. Sales tax compliance landscape 3. Redefining nexus 4.
