Payments

‘It’s a giant nuisance for every business’: What 6 billion yearly sales tax transactions say about the future of ecommerce

  • New rules put more of the sales tax burden on merchants.
  • Avalara offers sales tax automation for businesses doing global business.

If death and taxes are inevitable, 2017 is the year governments become the grim reaper of both.

With the backdrop of a massive earnings season from Amazon, governments are getting serious about extracting their share from the ecommece firm that now accounts for 43 percent of all total online sales. More states are poised to go live with so-called Amazon taxes. India is ready to enact sweeping legislation with its Goods and Services Tax (GST) that will for the first time bring a cohesive tax regime to the home of Flipkart and Snapdeal. Two countries, India and Brazil, will require merchants to file their sales taxes in real time.

“When you sell something, a government somewhere wants its piece. Just in the U.S., there are 11,000 tax jurisdictions, each with different requirements for the frequency and forms needed to file. It’s complex and confusing,” said Peter Horadan, CTO of Avalara, a software firm that provides tax automation. “It’s a giant nuisance for every business.”

Small merchants typically hire an individual and larger firms employ a team of people to handle their sales tax payments and filing operations. The Seattle-based company replaces the mainly paper-based process with software automation that sends an order through the cloud to Avalara’s servers. Within 70 milliseconds, the firm calculates how much sales tax a merchant should charge a customer and which tax geography is responsible. This can be a very complex calculation because certain states, like Louisiana, require merchants to file with every local parish, pushing the total number of returns a company could need to file into the hundreds or thousands just in the U.S. “It’s phenomenally complicated,” Horadan said.

With growing internationalization of trade, the sheer number of technology platforms companies use to enable commerce could be overwhelming. “We look at invoice systems — we think that’s just about 3500 ERP systems and shopping carts,” he said. “Our clients want to deal with us in the context of the systems they’re already using.”

Avalara integrates into these systems to handle client transactions. The 12-year old company also has 450 integrations with partners like QuickBooks and NetSuite, which means that clients can log into the marketplaces of these partners to turn Avalara on. After a few configuration questions, the sales tax automation can be up and running.

Avalara has 20,000 customers and processed 6 billion total tax transactions and filed 1 million tax returns in 2016. On Cyber Monday, Avalara handled 1500 requests every second throughout the day.

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