Is e-fulfillment’s need for speed creating a drag on your business?

Racing to deliver the goods could put you on the fast track to sales tax nexus

Repost from Avalara.comerp-implemetation

The Internet has vastly changed the way products move from buyer to seller. One-click ordering. Get it now. Two-day free delivery. The speed and ease of ecommerce and mobile commerce covers a lot of ground in terms of getting products into customers’ hands quickly. But it’s also rattling the supply chain; putting pressure on merchants, manufacturers and distributors to deliver the goods, so to speak. OHL, one of the nation’s largest third-party logistics firm, reports that e-fulfillment now represents a third of the company’s business.

To keep up, manufacturers, distributors and ecommerce sellers need more efficient ways to interact and communicate with each other from multiple locations. A recent Epicor survey found that 65% of ERP users rate the ability for remote workers to access order information as vitally important.  To achieve this, warehouses and distribution centers are outfitting their staff with handheld devices and mobile apps connected to their ERP, ecommerce or billing system to help them manage inventory, fulfill orders, track shipments and prepare invoices.

In the race to fulfill orders faster, businesses are also shortening the path to delivery by dispersing inventory across more warehouses, outsourcing fulfillment or using drop shippers. What they often fail to realize is that these activities could also be creating additional sales tax requirements.

Getting sales tax right is important for two reasons: first, customers can be unforgiving when their order is wrong. This includes not only getting the right item at the right time, but also being billed the right amount. If sales tax isn’t accurately applied instantly to an order, buyers balk and the sale is lost.  Second, it can cause undue risk on your business if you are not accurately calculating and remitting the correct amount of sales tax to the states where you have an obligation to collect.

Integrating a cloud solution like Avalara AvaTax with your ERP, ecommerce or billing systems allows you to automatically track where you have a sales tax obligation and instantly calculate and apply sales tax rates and rules to the transaction at the point of sale.

View the How Faster Ecommerce Deliveries Trigger New Tax Requirements video to get a better feel for the drag that tax risk can place on business. It’s just three minutes of your time. Because, we know, you’re in a hurry.

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3 Sales and Use Tax Concerns Facing Manufacturers and Distributor

The following three areas can pose sales and use tax challenges for manufacturers and distributors. Without aid of the right tools, even the most well-intentioned company can suffer from transactional tax errors. This blog discusses three areas of concerns and what can be done to address them.

  1.  Input item taxability, use tax and Direct Pay permits
  2. Drop shipping on behalf of a distributor or retailer by a manufacturer
  3. Installation, repairs and nexus 
  1. Input Items Taxability, Use Tax and Direct Pay Permits

The accurate and early identification of sales and use tax liabilities, properly exempted items and properly taxed items is a special challenge for manufacturers. Product taxability affects items you purchase to use in your manufacturing process, items related to shipping or even a part in a final product. Based on the state, some products are not taxable if used to build manufacturing equipment but the same product might be taxable when used to repair the manufacturing equipment. Another struggle manufacturer’s face is when they make bulk purchases that are then shared among multiple internal plants or facilities. Depending on which location uses the item for what purpose, the product may or may not be taxable.

Many states allow manufacturers to use “Direct Pay Permits.” The Direct Pay Permit allows a manufacturer to make purchases without paying sales tax. When a part purchased using a Direct Pay Permit is pulled from inventory, the part must be tracked for how it is used and tax accrued if it is used in a taxable manner, or usage tracked if used in an exempt manner.

  1. Drop Shipping on Behalf of a Distributor or Retailer by a Manufacturer

 A distributor or wholesaler will sometimes request the manufacturer to drop ship their product to either their location or sometimes to their customer’s location. If an item is being shipped directly to the distributor, and the product is considered tax-exempt for resale, then no tax is required—only resale documentation. However, if shipping is done on behalf of the customer, the transaction may be taxable. Knowing what documentation you need to maintain for which states becomes a major challenge—especially as ship-to destinations may vary widely if your customer, the distributor, has you ship to their customers in numerous states.

  1. Installation, Repairs and Nexus

Installation of finished items or servicing working models can create nexus in states where your manufacturing or distribution center is not located. To complicate the matter further, if you use a third party vendor to handle the repairs or installation of your products, you may have created a condition that constitutes nexus as well.

Which portion of the services and how they are taxed, varies from state to state. Knowing whether installation services and repairs constitute nexus and under what circumstances is critical when complying with any potential liability to collect and remit sales and use tax. When entering new states with any type of business activity, it is always wise to include a sales tax nexus study to assure whether or not you will be creating a sales tax responsibility by your activities in that state.

Want to know what else to watch out for? Use this handy audit checklist to make sure you’re prepared if the Auditor comes knocking.

CHECK IT OUT

Reposted from Avalara.com

Tax rate tables + ZIP codes = disaster. Here’s why.

A frightening number of businesses have rate tables in their ERP system with rates based on ZIP codes. This method can give you inaccurate rates, landing you in trouble with customers and taxing authorities. Here’s why:

The U.S. Postal Service developed Zone Improvement Plan (ZIP) codes in the 1960s, so mail could be delivered more efficiently. What many people don’t know is that these “zones” can not only overlap each other, they can be adjusted and, sometimes, they might not represent a geographic region at all. In any given year, the USPS makes numerous boundary changes to ZIP code areas, making them an unstable data source. Most importantly, tax jurisdictions do NOT correspond with ZIP code regions. That means basing sales tax rates on a ZIP code risks applying not only an incorrect sales tax rate, but remitting it to the incorrect jurisdiction.

Take Greenwood Village, Colorado for example: It has a single zip code, but four different sales tax rates. When a blunt instrument like ZIP codes is employed to determine sales tax rates and boundaries, calculation mistakes are almost guaranteed. Basing sales tax rates on a ZIP code risks applying not only an incorrect sales tax rate but remitting it to the incorrect jurisdiction. This can increase your company’s risk of audit and result in penalties, fines, and fees.

In the end, it’s bad for your customers, it’s bad for you and, if the state comes calling, they’re going to penalize you if they find out. Using geolocation technology to find the right sales tax rate, on the other hand, now that’s a different story.

Geo-location – the same technology that Google Maps uses to know exactly where you are – uses latitude and longitude to find exactly where a geographical location is. If you map that to tax rates you’re going to get the right rate every time.

ZIP codes aren’t the only thing you should be concerned about when it comes to tax compliance. With more than 9,000,000 rates, rules, and jurisdictions, tax compliance is a lot to keep track of.

Learn more by reading this free “Definitive Guide to Sales & Use Tax.” It covers everything from sales tax challenges to use tax statutes, provides a state by state look at sales tax rules and regulations.

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Thanks to Amiee Keenan for the great article.

Amiee Keenan | Channel Development Manager
Cell:  (401) 451-7223
amiee.keenan@avalara.com
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Are You Making Sales Tax Mistakes?

Somewhere, a CFO is lying face down on a desk. A number glows above her on the computer screen: $96,552. That’s how much it cost her company to manage a recent sales tax audit.

Could this happen to you?

For many companies, when the topic of sales tax comes up, the first response from most of the staff will be, “What’s the big deal? I just need a rate.” But when you ask a Controller or Finance person, their first response is usually, “They don’t understand. It’s so much more than a rate.”

Sales tax is more complex than ever and the rules of the game are constantly changing, making it increasingly difficult to maintain accuracy. Even the most seasoned tax professionals would have to be super human to be 100% on top of current rates, rules, jurisdictions, exemptions, and holidays.

Here’s why different responses in the same company is a problem: Over 70% of the time, the tax and accounting departments aren’t even responsible for managing tax compliance (charging sales tax, collecting exemption certificates, etc…). For many companies, it’s the credit department who carries that burden. This disconnect in how sales tax is managed and by whom, often results in tax rate, taxability, and jurisdiction errors.

What are the common misconceptions around sales tax compliance?

Misconception 1: Sales Tax is Easy

Downloading rate tables, visiting state websites, plugging numbers into invoicing systems, determining exempt sales and filling out complex tax return forms manually is unbelievably time consuming and fraught with error. That’s because sales tax is hard. There are countless things that go into ensuring sales tax is being done correctly and when you tie in the fact that there are more than 12,000 taxing jurisdictions, thousands of product taxability rules in the U.S., and the rules are subject to change, it’s not easy.

Misconception 2: My ERP Already Automates Sales Tax

Most ERP have built-in sales tax functionality, but it’s very basic. Not only does it require manual work to configure and update, you can’t be fully accurate as most sales tax functions provided by the ERP use zip-code based tax tables to drive the calculation. There is also usually limited support for handling specific sales tax rules tied to sourcing, product taxability or exemptions. In addition, the sales tax reporting available doesn’t expose the data in a format required to support the filing process and some “accounting gymnastics” are still required of the accounting team or CPA to try and pull it all together.

Misconception 3: Sales Tax Automation is only for Big Companies

“My company is too small” or “We only have to collect in one state” are common objections we hear. Companies of all sizes can benefit from sales tax automation as risk is risk whether you have it one state or all states. Also, any time spent on it is wasted time that could be focused on the business versus the pass through activity of sales tax. Factor in a sales tax platform that is delivered as a SaaS solution with pricing based on usage and you have ROI for small businesses all the way up to the enterprise.

The bottom line is, fast, accurate calculation of sales tax impacts customer satisfaction and improves sales. Complete reporting of taxable and exempt sales saves time and lowers audit risk.

Do your own audit of what you might be doing right (or wrong) by reading 8 Ways to Increase Your Company’s Audit Risk. It offers a side-by-side comparison of how tax is handled in the ERP system manually vs automated.

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Amiee Keenan | Channel Development Manager, Avalara

Cell:  (401) 451-7223
amiee.keenan@avalara.com