Do sales tax holidays affect consumer behavior?

Do sales tax holidays affect consumer behavior?

Repost from Avalara

Savvy shoppers know the value of everyday commodities, from the food they eat to the clothing they need and other essentials. They’ve comparison shopped enough to know the reasonable cost of products, and price point is always top of mind. Not everyone approaches shopping this way, but most people appreciate a bargain (does anyone not?). This is one of the main reasons sales exist.

Sales events typically occur at certain times of year for specific products. In the wake of holiday spending hangovers, January features sales of essentials like bed linens and towels. Winter clothing is often marked down when the mercury starts to rise in March. Consumers may not know why a retailer is having a sale, but you can bet the retailer does.

Sales tax holidays are different. State governments — not retailers — determine if and when a sales tax holiday will happen, as well as what will and won’t qualify for the exemption from tax. Instead of cutting into retailer profits, sales tax holidays take a bite out of state and local tax revenue.

So why do some states provide them?

A holiday from sales tax

There’s a lot of positive press surrounding sales tax holidays, and at first glance, there seems to be no downside for anyone: consumers save money, retailers see an influx of business, and lawmakers get to say they support a tax break.

But dig a little deeper and different data surfaces. Tax-free periods are so brief that many consumers can’t take advantage of them. They complicate sales tax compliance for retailers and may require additional employee training and staff. In addition, tax-free periods reduce sales tax revenue for state and local governments: the 2015 Massachusetts sales tax holiday cost the state approximately $25.5 million. Sales tax holidays may boost sales, but there are real costs associated with them (read more about whether or not sales tax holidays make good cents).

And do they in fact boost sales?

Boost or shift?

All states see a spike in sales of children’s apparel during summer sales tax holidays, but that’s part of the normal, nationwide seasonal pattern: “Mid-July is the kickoff for the back-to-school shopping season,” according to a senior editor at However, sales during the first 3 weeks of the back-to-school season are generally somewhat stronger in states with sales tax holidays than in states without them — 11 out of the 16 states that held a sales tax holiday for apparel in 2015 saw unusually large spikes in children’s apparel sales during the week of the holiday. This is in spite of the fact that there are generally greater discounts later in the season (a sales tax holiday typically saves consumers anywhere from 4% to 10%, while retailer sales can slash prices by 20% to 40% or even 50%).

Yet data from 2015 also suggests that back-to-school sales tax holidays shift rather than increase sales. According to the Tax Foundation, an independent tax policy research organization with a conservative bent, “Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of the purchases.” Back-to-school sales rev up quicker in most states with tax-free periods but give back the gain in the 4th week of the back-to-school shopping period. There isn’t a significant overall increase in sales for the season.

State specific data is perhaps more telling.

State statistics – children’s apparel

In 2015, states without a sales tax holiday saw a 51% increase in sales of children’s apparel during the first week of August. However, the following states with a tax holiday that week had a noticeable sales tax holiday bump in addition to that 51%:

  • New Mexico: 24%
  • Oklahoma: 20%
  • Tennessee: almost 19%

Connecticut, which has a week-long tax-free period towards the end of August, had a tax holiday bump of more than 33%.

On the other hand, the following states with a sales tax holiday saw weaker gains than states without a tax holiday — a slump rather than a bump during their 2015 tax-free periods:

  • Florida: -2%
  • Texas: -5%
  • Virginia: almost -4%

The numbers suggests that sales tax holidays are more effective at boosting sales in some states than in others, or at least that people in different states respond to sales tax holidays in different ways. In some states, the tax holiday seems to make a big difference; in others, not so much.

Why? Perhaps New Mexico had such a big bump because the holiday is well advertised. Connecticut’s could be so big because the sales tax holiday lasts one full week, allowing more people more time to shop. Residents of Florida, Texas and Virginia could be more tuned in to the fact that there are greater savings later in the back-to-school season than those offered during the holiday. It’s impossible to say with certainty based on the data at hand. However, sales tax holidays do appear to affect consumer behavior in most states that implement them.

Compliance burden

Whether they boost sales or shift them, the compliance burden of tax holidays is irrefutable. This is particularly true for small retailers without large accounting departments and for retailers doing business in more than one state. State product taxability rules differ from state to state during sales tax holidays, as do rules regarding layaway sales, delivery charges, two-for-one bargains, etc. For example:

  • Delivery charges are exempt in Texas during sales tax holidays but taxable during Virginia’s tax holiday
  • Helmets are exempt during Georgia’s summer tax-free period but taxable during Tennessee’s
  • Tennessee exempts computers and certain computer-related products costing $1,500 or less, while these products must cost $1,000 or less to qualify for the exemption in Georgia

These subtle differences might seem nitpicky, but they are not to be overlooked. The Texas tax-free period exempts qualifying clothing costing less than $100, and by less than, the state means less than. The Texas Comptroller makes it very clear that a $99.99 shirt is exempt during the holiday and a shirt costing $100 is taxable.

Perhaps most confounding, the exemption doesn’t always apply to the total rate of tax. Alabama doesn’t require local governments to participate, meaning that although the state portion of sales tax must be exempt during tax-free periods, the local portion — or only a portion of the local tax — may still apply. Louisiana exempts only the state portion of tax  during its August tax-free period but exempts both state and local taxes during its Second Amendment holiday (due to budget changes, Louisiana’s 2016-2018 sales tax holiday reduces the state portion by 2% rather than offering a full exemption).

It’s no wonder the Tax Foundation says tax-free periods “create complexities for tax code compliance, efficient labor allocation, and inventory management.”

So are they worth it?

Every state gets to decide for itself, and 17 states (and the Territory of Puerto Rico) have clearly come to the conclusion that they are. Overall, this means less than 40% of states with sales tax opt for a tax-free period. And in Massachusetts, where legislators must decide every year whether to provide for one or not, it’s looking like there won’t be one in 2016 due to budget concerns.

Retailers must comply with sales tax holidays — it’s required by law. Twelve states have sales tax holidays the weekend of August 5 – 7, 2016: Alabama, Arkansas, Florida, Iowa, Louisiana, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Texas, and Virginia. Is your business prepared?

Why not give yourself a break from sales tax and let Avalara management it for you. Avalara’s AvaTax software-as-a-service helps businesses of all sizes comply with sales and use tax, facilitating compliance during sales tax holidays, holiday shopping season and year-round. It’s never too early to plan ahead!  Get your free copy of the Tax Compliance for the Holiday Season Guide and Readiness Checklist.


Hit the books! Back-to-school starts NOW for retailers.

Repost from Avalara


The sprint to the end of the school year is underway. Students are working to finish assignments and prepare for exams while keeping one eye glued to the calendar: three weeks left; then one; summer! Most kids will be happy to close the books and not think about the upcoming school year for two months. But for retailers, now is the time to prepare for the back-to-school retail rush.

Back-to-school spending is second only to winter holiday spending. According to the National Retail Federation (NRF), total combined spending for back-to-school and college reached approximately $68 billion in 2015. Although some consumers start earlier, most do their back-to-school shopping during July and August. Retailers have no time to lose.

To have a successful back-to-school season in 2016, retailers need to account for three factors: internet sales, mobile shopping, and back-to-school sales tax holidays.

Internet sales

In 2015, 90 percent of NRF survey respondents said they planned to shop online for back-to-school supplies (including clothing and electronics) due to convenience, free shipping, and the option to pick up their purchases in-store. Online back-to-school shopping increased by nearly 12 percent last year, and that growth is expected to continue this year. Already during Q1 2016, internet sales grew by 15.1 percent and accounted for 11.1 percent of retail sales (factoring out items normally not purchased online).

Online shopping saves time, facilitates comparison-shopping, and enables consumers to avoid crowds. To capture a corner of the back-to-school market (worth roughly $650 per student), ecommerce retailers need to stand out. Strategies include:

  • Free delivery
  • In-store pick up
  • Seamless online shopping experience

Properly handling sales tax is an essential component to successful ecommerce. Consumers expect to encounter no surprises at check out. Ensure that your point-of-sale systems correctly calculate sales tax on deliveries and in-store pick up. Does the method or location of delivery affect the rate? Do you use drop shipping? Sales tax software like Avalara AvaTax ensures the right rules and rates are applied to each transaction, every time.

Mobile shopping

More than 30 percent of back-to-school and college-bound shoppers in 2015 told the NRF they planned to use mobile devices while shopping. They followed through: in August 2015, back-to-school sales made from mobile devices grew 42 percent year over year. For the first time ever, sales made from smartphones and tablets nearly matched sales completed from desktops. Retailing Today says that, this year, “Retailers should be ready to support shoppers across channels by the end of June.”

To capture consumer spend by the mobile savvy, retailers need to provide a seamless experience. Shoppers will research products and deals on their phones and tablets while walking through the aisles. Problems to avoid:

  • No mobile site: site hard to view/use on mobile device
  • Price glitches: prices on mobile sites are wrong
  • Slow load times

Another killer: check out surprises. As with internet shopping on desktops and laptops, getting sales tax wrong can kill a sale.

The Fine Art of Sales Tax- and Vice Versa

Repost from Avalara

In 2015, fine art sales amounted to a whopping $63.8 billion.  While this is nearly 5 billion dollars less than the art market’s all-time high in 2014, visual art is still a big business.

Art sales pose interesting problems for sales taxation.  Some of those problems boil down to that most eternal of questions: what, precisely, is art?  Is it just a painting? Or is it an investment?

In the United States, sales tax is only charged to the end user of a product, not wholesalers or retailers.  If you buy a Picasso to hang on your wall for all to see, the artwork is clearly tangible personal property, and you’re the end user — that means you’re on the hook for sales tax on the total purchase price.

But what about if you bought the artwork as an investment, planning to sell it again?  The answer depends on how soon you want to sell it and what you do with it in the meantime.  If you purchase the art for immediate resale and put it on the market very soon after your purchase, you can avoid sales tax, as you are not the end user.  In order to do this, you’ll have to obtain a reseller certificate and show it to the seller to avoid paying the tax.

Avalara_Vertical_Tag-WEBHowever, let’s say you have every intent of reselling your brand new painting — when the market looks better.  In the meantime, you plan to hang it up.  What happens, then?  The answer is that you still have to pay sales tax: any personal use of a work of art, even if accompanied by a later resale, qualifies as taxable.

Don’t just take our word for it: the state of New York has been cracking down recently on phony “resellers” who don’t really qualify for sales tax exempt purchases.  New York Attorney General Eric Schneiderman, announcing settlements totaling $7.2 million pertaining to art sales and use tax violations, says: “Art buyers may not avoid sales or use tax simply by claiming that artwork they enjoy at home is intended for resale. That rule is clear, and my office is committed to ensuring the art industry follows it.”

Big ticket prices make buyers want to call themselves “resellers,” but they also attract the attention of the tax authorities.  According to the state of New York, you need evidence that you’re a bona fide reseller or investor: records of frequent sales, maintaining a separate place of business, or advertising your gallery could all be used to show that a tax-free purchase was not an abuse of tax law.

The basic rule? The only way art purchases qualify for reseller exemptions is when they’re exclusively intended for resale, not display.

If the state finds out you’re using an exemption certificate illegally, you’ll be on the hook for the amount of the tax liability — and double the amount, plus a punishing 14.5% interest rate, if the state considers the tax avoidance to be deliberate fraud.

Art may be subjective, but sales tax is not. There’s real value in knowing the rules. For compliance tips, check out Avalara’s Sales Tax Survival Guide.


What’s the deal with “sometimes taxable”?

Repost from Avalara

Just when you thought you had a handle on the rules for taxing goods and services, you come face to face with the new compliance bully on the block: “sometimes taxable.” Businesses must correctly deal with these sometimes exempt and sometimes subject to sales tax products and services or suffer the consequences. Knowing when tax applies to “sometimes taxable” goods and services is essential to successful tax compliance – but it’s not always so easy to discern.

Most tangible personal property is taxable in the 45 states (plus the District of Columbia) that levy sales tax. Services, once insulated from transaction tax pain, are increasingly subject to it as states respond to the growing service-based economy. If expanding sales tax to numerous services allows states to capture more revenue, it also makes sales tax compliance more complex for businesses.

Common triggers

Goods and services are “sometimes taxable” for a variety of reasons, including but not limited to:

  • Method of delivery
  • Sales tax holidays
  • Type of transaction: B2B or B2C

Sales tax rules always vary by state. With “sometimes taxable” goods and services, the key to determining taxability is often the interplay between the product/service and the trigger. And determining taxability is the first step towards sales and use tax compliance.

Common products and services

While in theory any good or service could be “sometimes taxable,” some are more likely to fall into this category than others. Common “sometimes taxable” items include:

  • Apparel and footwear
  • Books
  • Electronics
  • Food
  • Sporting Goods
  • Music and video

Apparel and footwear

Clothing is subject to sales tax in the majority of states that have it, although the laws can be capricious. For example, New York state sales tax does not apply to clothing and footwear sold for less than $110 per item or pair, and local tax may or may not apply. That’s “sometimes taxable” with a twist.

In addition, 18 states provided tax-free periods for qualifying apparel and footwear in 2015. 14 states are providing them in 2016, and several more have sales tax holidays under consideration. Each state has its own list of qualifying items and conditions for exemption. Whether they last a day, a weekend, or a week, sales tax holidays can create a sales tax compliance nightmare for businesses that sell into multiple taxing jurisdictions.


Food is often exempt when unprepared but taxable when prepared, or exempt if a business doesn’t provide seating and taxable if it does. In New York, for example, a bagel sold by quantity is exempt whether whole or sliced, but a bagel that is sliced, toasted and served with cream cheese or butter is taxable.

The method of payment may also impact food taxability. Candy, sandwiches and soft drinks are generally taxable in New York but are exempt when purchased with food stamps.

Convenience stores, those special blends of cafeteria, fast food, and grocery store, are particularly susceptible to the tax pain of “sometimes taxable” food.

Music and video

Determining the taxability of music and videos consumed at home used to be relatively straightforward: products that could be held in consumers’ hands, like vinyl, VHS cassettes and DVDs, were tangible personal property and subject to sales tax. Easy peasy.

Not so, today. These days we’re consuming an increasing number of books, movies and music electronically. Due to the method of delivery, taxability has become as complicated as our remotes. And changing technology triggers changes in taxes.

Confusion starts with state laws and grows with each new regulation and exception. An increasing number of states including Washington specifically tax digital goods and services. However many, like Texas, rely on existing laws and define digital goods as taxable tangible personal property.

Kentucky sales and use tax applies to digital audio works and books sold to an end user with rights for permanent use, but digital audio visual works sold to an end user (with rights for permanent use) are exempt, as are digital audio visual works sold to users other than the end user or with rights of use that are less than permanent.

Electronically delivered amusements like Netflix became subject to Chicago’s amusement tax on July 1, 2015 but litigation is underway and the fate of the tax is uncertain.

The sales tax pain point for sellers of digital goods and services is likely to grow. Approximately half of the states currently apply sales tax to digital books, downloaded music and ringtones. If Kentucky is any indication (and it is), clarifying laws just add to the confusion.

Always prepared

When it comes to sales and use tax, businesses dealing in “sometimes taxable” goods and services must always be prepared especially if you sell via multiple channels or in multiple states. A need for sales and use tax revenue is motivating states to broaden sales tax laws in numerous ways, from expanding them to services to capturing revenue from remote sellers to tapping into new digital markets. This, in turn, could change or add to your tax obligations.

Trying to manage this process manually or with built-in basic tax functionality is risky. This is where having tax automation software can be beneficial. Avalara AvaTax helps businesses of all sizes deal with “sometimes taxable” goods and services. AvaTax works in your existing business systems to transfer tax data for each jurisdiction instantly and apply the right rates, rules and exemptions to every transaction. So you’ll never have to worry about being only sometimes right about sometimes taxable.

Gain even more clarity around compliance with Avalara’s Definitive Guide to Sales and Use Tax.


Written for WAC Solution Partners by Avalara.

The tax you probably owe, but aren’t paying

The tax you probably owe, but aren’t paying: A closer look at consumer use tax compliance

Repost from Avalara

Use tax, the lesser known counterpart of sales tax, suffers from a basic lack of PR. Buyers and sellers alike pay it no mind. Despite 27 states having a dedicated line item in tax returns for reporting use tax owed, only 2% of taxpayers actually report it. This has left the states with a $23 billion deficit annually in uncollected use tax.

It’s much harder to enforce use tax compliance on individuals, so states look to businesses to close this gap. The propensity for companies to overlook use tax makes it an easy target for auditors. In fact, state auditors say it’s the number one audit risk for businesses. Don’t get caught with your compliance down. This quick rundown of the basics will get you up to speed and on task.

What’s in a name?

There are two types of use tax: sellers use tax and consumer use tax. As a best practice, you should familiarize with both, however, of the two, consumer use tax typically causes businesses the most trouble. Blame it on the name. The trick with consumer use tax is that the consumer isn’t always an individual; sometimes it’s a business or even the seller that owes the tax. Consumer use tax is owed on any taxable purchase where sales tax wasn’t collected at the time of the transaction. If you didn’t pay sales tax (or you paid a lower sales tax rate than your state charges) for taxable products or services you used in your business, you are obligated to pay consumer use tax.

A tale of two rates

All 45 U.S. states that have sales tax also have use tax. The two rates are often the same, but not always. Despite a federal law that says use tax rates can’t exceed sales tax rates, some jurisdictions still impose higher use tax rates on certain transactions, for example in Alabama. Even if you know the sales tax rates in the jurisdictions where you collect and remit sales tax, you should also confirm the correct use tax rates to ensure compliance.

Owe or no?

Like sales tax, certain exemptions also apply to use tax. One of the most common is manufacturing equipment.  Typically, use tax is not due on equipment used to manufacture other goods. But the distinction can be very specific and varies by state. So it’s important to look at these exemptions carefully before applying them. Keeping track of these exemptions – and any changes to them – can be difficult, however, especially if you do business in multiple states or jurisdictions.

Getting buy in

Certain states require remote vendors to notify customers of use tax obligations. Oklahoma and South Carolina, for example, require use tax notices on websites, catalogs, and invoices. North Dakota extends this to purchase orders and packing slips. Colorado requires remote retailers to submit a detailed report annually to the Department of Revenue of all in-state customers and sale, an unfavorable compliance burden that led to a lawsuit.

As a business, your obligations around consumer use tax can be difficult to manage. Get perspective by reading What’s the Use of Use Tax? Five Tips for Consumer Use Tax Compliance. This paper provides best practices for compliance including sound rationale for automation – something that can easily be done in your ERP, accounting or ecommerce system with software like Avalara AvaTax.


2016 Sales Tax Changes: What to Expect in the New Year

Repost from Avalara

Like every New Year, 2016 will bring many sales tax changes. Rates will decrease or increase, there’ll be new product taxability rules, exemptions will expire or take effect, and there will be reporting changes. The only thing certain when it comes to sales tax is that change happens. And if often happens without much warning.

The coming of a New Year is a time to reflect on the past — what went well and what you wish you’d done differently. It’s a time for resolutions. This new year, have no regrets when it comes to sales tax.  Resolve to streamline your sales tax compliance. You’ll find that it’s easier than losing weight.

Resolution: Streamline sales tax compliance.

Rates. Nearly a dozen states, including Illinois and Maine and Minnesota, have announced local sales tax rate changes for 2016. More will come as January 1 approaches. In addition, there is talk of increasing the state sales tax rate in both Oklahoma and Florida.  State departments of revenue often — but don’t always — announce rate changes in time for businesses to account for them. However, in tricky home rule states like Colorado and Louisiana, local governments may not notify state revenue departments of such changes in a timely manner, or at all.

 Resolution: Be sure you have a reliable system in place to manage sales tax rate changes.

Product taxability. Businesses also need to account for changes in product taxability. Sales tax can be expanded to services or slapped onto previously exempt tangible personal property. States generally announce changes in time for sellers to account for them; yet unfortunately, that’s not always the case. For example, on June 30, 2015, Governor Jay Inslee of Washington signed legislation reforming the regulation and taxation of the marijuana market. It took effect the following day.

Product taxability coming in 2016 include the following:

  • Martial arts classes and many other physical fitness services will become subject to sales tax in Washington State
  • North Carolina will extend sales tax to installation, maintenance and repair services
  • Retail sales of prepaid wireless communications access will become subject to retail sales tax in Wyoming
  • The list of foods considered to be prepared food (and taxable) will be expanded in Homer, Alaska

Resolution: Successfully process changes in product taxability and do it quickly.

Exemptions. Changing sales tax exemptions are also a bear, whether at the state or local level. While many, like the exemption for gun safety devices recently approved by the Michigan Senate, make headlines, many others slip into law virtually unnoticed.

Some exemption changes under consideration or set to take effect in 2016 include the following:

  • California’s partial tax exemptions will decrease
  • Florida’s exemption for college textbooks is set to expire but its manufacturing exemption may be extended
  • Iowa’s machinery and equipment sales tax exemption may be expanded
  • North Carolina will provide a sales tax exemption for electricity used in qualifying datacenters
  • Senior sales tax exemptions will be scaled back in Juneau, Alaska

Resolution: Have a fail-safe solution to managing sales tax exemptions and exemption and reseller certificates.

Reporting. Last to be considered here (but certainly not the last issue sellers will confront) are changes to the way sales tax is reported. Some of the changes planned for 2016 include:

  • New reporting requirements for exempt entities in Alabama (this is a big deal)
  • New reporting requirements for sales of consumable vapor products in Alabama
  • Colorado will stop mailing sales and use tax forms to businesses

Resolution: Get reporting and filing right.

Be ready

Sales tax changes are coming in 2016. There will be new rates, product taxability rules, exemptions and filing requirements, and the onus is on you — the seller — to comply with those changes. Failure to do so can lead to negative audit findings, penalties, interest, and a whole lot of hassle. So what’s your plan?

Resolution: Make sales tax less taxing with Avalara AvaTax.

For more details, including a state by state analysis of what’s changing in the coming year, download Avalara’s 2016 Sales Tax Changes guide.


Is Shipping Subject to Sales Taxes in Illinois?

The state of Illinois states their position in a general information letter published in 2010.  The following is pulled from that letter:

“As noted in subsection (d) of Section 130.415 of the Department’s regulations, if the seller and the buyer agree upon the transportation or delivery charges separately from the selling price of the tangible personal property which is sold, then the cost of the transportation or delivery service is not a part of the “selling price” of the tangible personal property personal property which is sold, but instead is a service charge, separately contracted for, and need not be included in the figure upon which the seller computes his or her tax liability. A separate listing on an invoice of such charges is not sufficient to demonstrate a separate agreement.

The best evidence that transportation or delivery charges were agreed to separately and apart from the selling price is a separate and distinct contract for transportation or delivery. However, documentation which demonstrates that the purchaser had the option of taking delivery of the property, at the seller’s location, for the agreed purchase price, or having delivery made by the seller for the agreed purchase price, plus an ascertained or ascertainable delivery charge, will suffice.”

In practical terms if you allow your customer to pick-up the item at your location, then you do not have to charge sales tax.  If you do not, you most likely will have to charge the tax on your shipping and handling charges.

If you have any questions, please consult with your local certified public accountant.

Written by Michael Ericksen

WAC Solution Partners- Midwest

What will be the big reveal for retail this holiday season?

30 sweet statistics on consumer spend trends for December

Repost from Avalara

“It’s the most wonderful time of the year.”

This popular holiday tune could be the theme song for retailers this holiday season. November and December are by far the biggest money-making months for retailers, accounting for as much as 30% of sales for the year. And if it goes the way some pundits predict, it’ll be music to sellers’ ears. Holiday sales could reach $631 billion this year, according to the National Retail Federation (NRF); close to 10% of this will be online spend.

Attracting buyers won’t be as easy a sell this year. Consumers appear more cautious that previous years, with a closer eye on their budgets. Retailers will need to work harder in 2015 to loosen their purse strings. The good news is that the spend trend is expected to continue upwards, albeit at a slower pace. Consumers celebrating Christmas, Hanukkah and Kwanzaa are expected to spend an average of $805 this holiday season – the highest it’s been in the 14 years the NRF has conducted its Consumer Holiday Spending Survey.

A longer season is likely the catalyst. Over the past few years, more consumers are starting their holiday shopping earlier. The majority of consumers (57%) will start shopping in early November. Last year, Google reported that 40% started before Halloween and Deloitte data shows that close to half (48%) complete most of their gift buying before Cyber Monday.

The biggest change in 2015 could be how sellers plan to compete for consumers’ attention. Many retailers say they’ll focus more on service and differentiation over discounts this year. Better inventory management and stocking on-trend products also top of the list. Considering that 87% of consumers say price will still be the tipping point in the decision to buy this holiday season, according to PricewaterhouseCoopers, will that prove to be the best move? That’s still to be seen.

But we don’t want to divulge all the good stuff. Anticipation is half the fun of the holidays – like the daily reveal of an Advent calendar. Who doesn’t love the thrill of opening up a little numbered door each day in December to discover a new treat? In the spirit of the season, Avalara put together a Holiday Ava-vent Calendar chock full of fun (and useful) facts. Check back daily as a new tidbit is revealed. It’s not chocolate or toys, but we think there’s some sweet information here that could make it a happier holiday for you and your customers.


Written by Kerry Alexander, Avalara

The art of understanding sales tax nexus: a guide for crafty sellers

Repost from Avalara

There’s nary a nip in the air, but the holiday crescendo is building. We’re still eating some of our Thanksgiving  leftovers. We’re making our lists of naughty and nice.

For the really nice, many shoppers will seek unique, hand-crafted items. Those of us with adequate time and patience will take to local holiday bazaars and craft fairs, where there is usually at least one treasure worth the hunt. Those of us with less time and a strong Internet connection will shop for unique, one-of-a-kind products on Etsy and its new rival, Handmade at Amazon.

The months ahead are essential for retailers. Before the last of the Thanksgiving leftovers have been devoured (in some cases, before the first turkey is even carved), gift shopping begins in earnest. This is the time when retailers of all sizes — even new and small sellers — can make bank.

Success brings responsibility. In particular, it can trigger nexus, the connection between a taxing jurisdiction and a business that can lead to sales and use tax reporting and remittance. And if you have to charge your customers sales tax, you have to charge them the proper amount of sales tax.

To sell your craft, you have to make it and keep it somewhere. You have to advertise so people will find you (your mothers’ friends don’t count). You have to get your hand-crafted products into the hands of your customers. Read on for a snapshot of how storing, advertising, and delivering your product can create nexus.

 Store. If you sell through Etsy, chances are you store your product where you live or work. While this arrangement may at times feel cramped, it has at least one perk: You are unlikely to trigger a sales tax obligation in another state.

If you sell through Handmade at Amazon and participate in the Fulfillment by Amazon program, your products are unlikely to be underfoot. In fact, you may not know where they are. FBA sellers store products at Amazon facilities, located in more than a dozen states nationwide, and leave order fulfillment to the giant. It’s convenient, but it has a downside. At minimum, nexus is created in a state when a business has a physical presence there. If you don’t know where your product is located, you don’t know where you have a physical presence and you don’t know where you have nexus.

 Advertise. Whether you sell through Handmade at Amazon or Etsy, you likely advertise. And unless your advertising efforts begin and end with neighbor kids stuffing flyers in mailboxes, you probably advertise online. You may even attend a trade show or two (which can trigger nexus).

If you advertise online, you may inadvertently trigger nexus in another state. Numerous states have enacted affiliate nexus or click-through nexus legislation, which require out-of-state businesses to register and collect sales tax. More than a dozen states have affiliate or click-through nexus policies in place, including Arkansas, California, Connecticut, Georgia, Kansas, Maine, Minnesota, Missouri, North Carolina, New York, Pennsylvania, and Rhode Island.

 Deliver. Once customers have found you, you need to deliver the goods. If you sell through Etsy, you probably package and ship your product yourself. So long as you ship by common carrier, you are unlikely to trigger a sales tax obligation through delivery. Use another delivery method and all bets are off: You could establish nexus and the need to collect and remit sales tax.

Handmade at Amazon sellers who use Fulfillment by Amazon shouldn’t be held liable for sales tax based on Amazon’s usual delivery systems (USPS, UPS, and FedEx). Yet Amazon is ever the innovator. The enormous etailer has launched Amazon Flex, an Uber-like model whereby regular Joes deliver packages the way regular Joes drive cars full of people. Currently available in a limited number of cities, it will likely grow and it could have tax implications.

Amazon ships a mind-boggling average of 3.5 million packages each day. With that kind of volume, the company is forced to consider multiple viable delivery options. Thus the futuristic delivery-by-drone option that Amazon is developing. (What happens if a drone flies over or crash lands in another tax jurisdiction?) The company is also quietly testing letting vendors ship directly to Prime members.

 Monitor nexus-creating activities

The nexus landscape is organic, ever-changing. In 2013 alone, seven states added laws creating new sales tax obligations for out-of-state retailers. More have been created since then, most recently in Nevada and Washington. Vermont is standing at the ready. The simple truth is, sales tax states want and need sales tax revenue.

As your business grows, your sales tax needs will, too. Read How Sales Tax Nexus Confusion Affects Your Business. You can deal with sales tax yourself, with tax rate tables and patience. Or you can save yourself the time and hassle and automate.


Let’s be direct: If you sell to consumers, sales tax is an issue

Repost from Avalara

Getting closer to the customer is no longer a retail-centric sales strategy. More manufacturers, suppliers and wholesalers are starting to sell direct to consumers (D2C).  Motivations vary: brand awareness, customer loyalty, even product innovation. But for the most part, B2B sellers are simply looking to give consumers what they want — the ability to buy products directly from the source. Many are already doing it. A June 2015 PricewaterhouseCoopers survey found that 70% of U.S. consumers already purchase directly from manufacturers.

Adding a D2C sales channel can help you grow and expand your business, but it’s a vastly different buying experience for the customer. Before diving in, you should ask yourself: is the company operationally ready to handle direct to consumer transactions? Is your web store mobile-friendly? Can you manage high-volume inventory and order management? Have you ramped up customer support? How are you handling transactional tax? That’s right. As soon as you supply items to the end user, you’re on the hook to collect sales and use tax.

While many B2B transactions involving goods are tax-exempt, the opposite is true of D2C sales. The sales of most goods (and some services) are taxable in 45 states in the U.S.  There are more than 12,000 different taxing jurisdictions, most with different tax rates and rules. Add product taxability on top of that and things get tricky. Depending on where your new customers are located and where you have a business presence (inventory, warehouses, employees), you could be on the line to collect sales tax in multiple states.

Bottom line: whatever you’re doing now to manage orders isn’t going to be robust enough to handle the volume of transactions that will flow through your business once you sell direct to consumers. You’ll likely need to add capabilities to your ERP or accounting system to help you do this efficiently. For example, ecommerce or shopping cart software to handle online sales transactions and business systems integrations to optimize inventory, orders, distribution and other key process functions. And, of course, sales tax compliance.

What was once the somewhat simple task of exchanging exemption certificates is now a time-intensive process. You’ll need to determine which sales are taxable and which are exempt, apply the right tax rates and rules to each taxable transaction, and ensure the right amount of sales tax is remitted in a timely manner to every state taxing authority in which you have an obligation to collect and report sales tax. Whew! It’s exhausting just listing those steps, never mind complying with them.

The easiest way to manage sales tax for D2C sales is through automation. SaaS solutions like Avalara AvaTax integrate into your ERP or ecommerce system to manage all your transactional tax needs. In addition to tax rate calculation, Avalara has expertise and solutions that can help streamline exemption certificate management and returns filing. Having a whole-business tax compliance solution to handle D2C sales as well as B2B transactions ensures you can focus on your new channel and new customers and not on tax compliance.

The tax implications of direct to consumer is covered in more depth in Sales Tax Quality Process and the Manufacturer/Distributor