Merchant Cards 101 Office of the State Controller December 2009.
Sales Tax 101 for the Internet Merchant - Amazon Web...
Transcript of Sales Tax 101 for the Internet Merchant - Amazon Web...
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© Avalara
Sales Tax 101 for the Internet Merchant
Presented by Scott Newell, MBA
October 9, 2014
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Making sales tax less taxing
Learning Objectives
Upon completing this webinar, you will be able to: • Determine appropriate Nexus – and Nexus triggering events
• Understand the current tax landscape and how special taxing
jurisdictions, including state tax holidays affect tax compliance
• Explain the steps your business needs to have in place to properly
collect and remit sales tax
• Identify whether or not your state is an SST State and how it affects
sales tax compliance
• Compare the different automation solutions available and how they
help with sales tax compliance
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Making sales tax less taxing
Agenda
1. The new state of commerce
2. Sales tax compliance landscape
3. Redefining nexus
4. Audit protection
5. Automation or not?
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The New State of Commerce
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Making sales tax less taxing
Polling Question 1
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Making sales tax less taxing
The New State of Commerce
• According to a report by Forrester, more than 60% of
retail sales will involve the Internet by 2017.
• In 2013, 31 states projected budget deficits totaling $55
billion.
• NRF estimates $24 billion in sales taxes goes
uncollected on the Internet.
Therefore:
• As tax-collecting agents of the state(s), they are looking
to your business to find more money.
• This increased focus creates compliance risk for you.
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Making sales tax less taxing
The New State of Commerce
When general
sales tax and
selective sales tax
are combined,
sales tax makes
up 47% of total
state revenue.
Other taxes 4%
Corporation net income
taxes 5% Total license
taxes 7%
Total selective sales taxes
17%
General sales and gross
receipts taxes 30%
Property taxes 2%
Individual income taxes
35%
Total State Government Tax Collection by Category
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Making sales tax less taxing
The New State of Commerce
• States are finding more sales tax revenue by hiring
more auditors:
– California announces hiring 100 auditors over the next three
years
– Idaho hires 48 auditors that stay on as full-time staff
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Sales Tax Compliance Landscape
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Making sales tax less taxing
Understanding the Basics: Sales Tax vs. Use Tax • Sales tax: imposed on the gross receipts from retail sale of tangible
property in state
• Use tax: imposed on the consumption or use of tangible property in
state
– Purchases of equipment and supplies from out-of-state for use in
business
– Withdrawals of inventory for taxable use such as R&D, promotional
materials, warranty repairs, etc.
• The difference:
– Sales tax: imposed on activities of a seller within or on transactions
originating and ending in a state
– Use tax: imposed on transactions or on purchases originating outside a
state
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Making sales tax less taxing
Sales Tax Compliance Considerations
• 11,000+ taxing jurisdictions
• Thousands of changes to tax laws, including:
– Jurisdictional rate changes
– Tax holidays
– Jurisdictions that levy new taxes or eliminate taxes
– Jurisdictions that expand geographic boundaries
• Accuracy is everything
– For customers, auditors, and for your business
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Making sales tax less taxing
E-tailers Struggle with:
• Do I have to collect (and, if so, from whom)?
• For what do I have to collect?
• How do I know what to charge (and is that rate current)?
• How do I register, report, and remit?
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Making sales tax less taxing
E-tailers Tell Us:
• Accurate sales tax calculations are critical
• Sub-second performance is vital for good customer
experience
• Managing sales tax rates and rules is a painful process
• Embedded reporting capability and real-time data access
is necessary to streamline the compliance process
• Reduction of risk associated with audits is vital
• Outsourcing sales tax compliance is strategic
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Making sales tax less taxing
Polling Question 2
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Redefining Nexus and Jurisdictions
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Making sales tax less taxing
• 150+ million mailing addresses
• 11,000+ jurisdictional rules
• 35,000+ sales / use / rental tax rates
• ~ 30 M product / service exemptions
• 750,000+ buyer / seller exemptions
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Making sales tax less taxing
Redefining Nexus and Jurisdictions
Knowing where you are required to collect is becoming
more difficult.
• Nexus means a “connection.”
• Every state has the right to define who has to collect
sales tax, what those taxes are, and any exemptions that
may be allowed.
• Ecommerce merchants must have a connection to a
state in which a customer resides for the merchant to be
liable for sales tax.
• States define nexus in different ways, and this makes it
confusing.
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Making sales tax less taxing
How Do You Know if You Have Nexus?
• Do you have traveling salespeople in the state?
• Do you utilize contract labor in the state?
• Do you have company representatives in the state?
• Do you own or lease any real or personal property in the
state?
• Do you promote your products or services in the state?
• Do you participate in trade shows or exhibits in the state?
• And every year this list continues to grow.
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Making sales tax less taxing
ZIP Codes: the Wrong Tool for the Job
• Taxing jurisdictions don’t always follow ZIP codes.
• Individual counties and municipalities levy sales taxes in
addition to state rates.
• Tax rates can vary significantly within a ZIP code.
• ZIP codes:
– Are a blunt instrument for determining sales tax rates and
boundaries.
– Will almost certainly lead to calculation mistakes.
– Can lull you into a false sense of security.
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Making sales tax less taxing
Taking Care of Business
Crossing your t’s and dotting your i’s:
Once you’ve figured out where your business has nexus,
you need to ensure that you are properly set up to collect
and remit sales tax within applicable states.
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Making sales tax less taxing
Accuracy is Everything
• Sales tax is calculated based on specific laws, regulations and rates defined for state, city, county – and in some cases special taxing jurisdictions and Regional Transit Districts.
• These jurisdictions DO NOT line up with ZIP codes.
• In 2012, the number of changes in these rates, rules and boundaries equaled or topped seven thousand across 46 states.
• It is extremely important for ecommerce businesses to ensure accuracy in rates and taxability.
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Making sales tax less taxing
Polling Question 3
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Making sales tax less taxing
7.85%
4.35%
4.35%
6.85%
7.72%
7.35%
5.10%
80111 Taxes Represented:
2.9% Colorado State
.25% Arapahoe County
1.0% Douglas County
3.5% Englewood City
3.0% Greenwood Village City
2.5% Centennial City
1.0% Regional Transport District
.10% Football District
.10% Science and Cultural
District
Determining sales tax
rates by
ZIP codes is
inaccurate and risky.
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Making sales tax less taxing
7450 Leyden Street
Total Sales Tax: 0.0925
COLORADO: 0.0290
ADAMS: 0.0075
COMMERCE CITY: 0.0450
SCIENTIFIC & CULTURAL: 0.0010
DENVER AREA TR: 0.0100
7495 Locust Street
Total Sales Tax: 0.0475
COLORADO: 0.0290
ADAMS: 0.0075
SCIENTIFIC & CULTURAL: 0.0010
DENVER AREA TR: 0.0100
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Making sales tax less taxing
Streamlined Sales Tax States
24 and Growing:
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Making sales tax less taxing
Polling Question 4
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Audit Protection
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Making sales tax less taxing
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.
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Making sales tax less taxing
Key Areas of Risk for E-tailers
• Incorrect tax rates due (often based on ZIP codes).
• Proper documentation for sales tax exemption.
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Making sales tax less taxing
Tips to Reduce Audit Risk
You should:
• Do a nexus study
• Stay up-to-date with rate,
rule, and boundary
changes
• Report consumers’ use tax
• Be compliant from day
one, especially new
businesses
• Automate with technology
Make sure you have:
• An understanding of your
filing requirements
• Calculations that are
rooftop accurate
• Product taxability coverage
• Detailed sales records
• A process for managing
exemption certificates
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Making sales tax less taxing
Avoid These Common Mistakes
• Failing to file a return
• Failing to report sales
• Taking excessive credits or exclusions on a return
• Filing returns with errors
• Return information that doesn’t match other records
• Mistakes found in previous audit
• Previous finding of exemption certificate misuse
• Not reporting use tax
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Automation or Not?
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Making sales tax less taxing
Automation or Not?
• Periods of high growth, or upgrades or changes to your ecommerce site, provide good opportunities to explore how automating sales tax can help your business.
• Many ecommerce businesses find that automation:
– Saves time
– Increases accuracy
– Mitigates risk
– Improves efficiency
– Increases profitability
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Making sales tax less taxing
How Does it Work?
34
Tax Rates
Tax Boundaries
Taxability Rules
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Making sales tax less taxing
Benefits of Automation
Just like outsourcing payroll, companies that outsource
sales tax benefit by:
• Achieving compliance
• Cutting costs
• Increasing efficiencies
• Focusing on growth
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Making sales tax less taxing
Polling Question 5
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Making sales tax less taxing
About Avalara
We’re a team of developers, accountants,
support specialists, marketers, salespeople,
researchers, and technologists who know
we’re on to something big.
We know we are part of a team that is
revolutionizing what is a huge drain for
businesses of all sizes: managing the
compliance of transactional taxes, from
sales and use tax to 1099s and more.
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Making sales tax less taxing
Questions?
Contact:
Scott Newell, MBA
National Sales Manager
Avalara
(206) 826-4900 x1355
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