How the changing sales tax laws impact your small business | QuickBooks Connect 2020

How the changing sales tax laws impact your small business | QuickBooks Connect 2020

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[Music] [Music] hello and welcome i'm matt hammond and i'm talking about the impact of new sales tax laws so our agenda for today we're going to do a deep dive high level sales tax overview to make sure we cover kind of sales tax 101 201 we will discuss the south dakota wayfarer ruling and how that impacts your business we are also going to do a deep dive into economic nexus one of the new things that has changed drastically over the last couple years we'll spend a few minutes talking about how you can automate sales tax compliance we're going to dive into exemption certificates if you are not collecting tax or you have exempt customers how do best to handle that we'll then also dive into streamlined sales tax consumer use tax and then also cross-border solutions for any of those companies out there that are expanding and working to sell to international customers so this is going to be our agenda for the agenda for the day today and a little bit of background about avalera we've been in business over 15 years a couple cool stats here we have over 30 000 customers worldwide one of the things i really like to point out is we processed over 2 million sales tax returns last year we have over 700 different technology integrations uh direct uh connections where we can calculate uh sales tax uh in given platforms and then almost uh 18 billion transactions processed through our tax calculation service annually now sales tax is very complicated we're going to get into the nitty gritty here shortly but some of the things that are really important there are 152 million mailing addresses across the us over twelve thousand taxing jurisdictions millions of product and service exemptions and then hundreds and thousands of buyer and seller exemptions and this is really why sales tax is very complicated and we're going to dive into that throughout the webinar today so the first thing we're going to do is we're going to talk about sales tax we'll get into the sales tax 101 and 201 and really just make sure you have a firm understanding of what you need to know the basics so you can be versed as you head into 2021 now everything starts with nexus nexus is an industry term that means you've established some sort of physical presence or a tie to a taxing authority now we're going to talk about a couple different ways that you can create nexus but sales tax nexus gives you an obligation to have to collect file and remit sales taxes in a given state and what i like to say is think about all of the things you see on the right side of the screen here on the map and ask yourself if you have any of those outside of the states you're located in so if i'm located in north carolina and i go to trade shows in texas if i have multiple locations across the u.s in washington arizona and california if i have inventory or board members or employees outside of my home state those are states you should be collecting remitting sales tax in so these are real property affiliates and again number five we'll dive into economic nexus but the big thing is look at the state you're located where you have your home office and then ask yourself if you have any of these things outside of that state and if you do then you potentially need to be getting registered for sales tax purposes in those particular states now the south dakota wayfarer ruling is one of the things that came up just recently and what i like to say is the entire sales tax world got flipped on its head a little over two years ago and really what happened was south dakota went to the supreme court and they wanted them to change a rule that's been in place for a long time and their argument was that the way people buy and sell products has drastically changed and they wanted the supreme court to change the rule and on june 21st of 2018 the supreme court actually ruled in favor of south dakota and allowed them to impose sales tax collections for remote sellers as we like to call them or out of state sellers so the biggest thing that really you need to it needs to resonate today is that as a seller you no longer control what states you collect from its sales tax in and what i mean by that is now if you sell enough of your products to a given state you're going to have to get registered in there for sales tax purposes and south dakota was just the beginning and their thresholds were if you do in annual uh sales over a hundred thousand dollars or or being the key word for south dakota you do 200 individual transactions you're now going to have to get registered to collect from its sales tax and it doesn't take anything away of traditional nexus traditional physical presence nexus as we'll call it but economic nexus is kind of the new lay of the land if you will in the sales tax base and it's it's it's it's made it very difficult for companies to scale and also have to get registered in new states and sales tax compliance is very challenging it's typically been done manually and what we're seeing now is uh the tides are really turning and companies are looking to automate this because now they're having to get registered in a lot more states so this happened over the past two years and again a lot has changed but um it's really come to coming to fruition now and what we do is we look back at the past couple years so prior to the wafer south dakota ruling uh there were about six to seven states that already had economic nexus laws in place at the local level now when you fast forward to june 21st 46 excuse me 44 of the 46 tax collecting states have adopted economic nexus they put their own individual thresholds in place and there's a handful of states on here that are worth pointing out so there's five states that do not impose sales tax collections and those are the nomad states which are new hampshire oregon montana alaska and delaware so those states don't do sales tax and we're just waiting on missouri and florida to put their thresholds in place and at that point in time all 45 states plus washington dc will have adopted economic nexus and what's really going to be important for your your business and or your clients if you're a quickbooks pro advisor or a bookkeeper is the days of collecting and remitting sales tax in one or two states are long gone they're a thing of the past we're now seeing companies have to get registered in three four five 20 30 heck even 45 states for sales tax purposes and for the longest time you rely on your bookkeeper or your accountant and they would do sales tax but it's not their bread and butter right you got to think about it like this if they were a cpa or a bookkeeper in florida they probably have a handle on florida sales tax decently well but now when you add 20 other states into the mix and i live in north carolina i don't have the foggiest idea about the sales tax in california as a business owner i wouldn't want to learn it right i would probably leverage a partner or leverage someone like avalero where we can help automate that for you so again a lot has changed over the past two years and we'll dive into why that's really important and this is a couple some really cool stats here so um how many states has your business triggered nexus in um historically you know we had a lot of folks that were only in one but again you can see here a high percentage are now having to get registered in 21 plus states and if we do simple math i usually ask most the companies we talk to what's your annual revenue now if most states have a threshold of a hundred thousand dollars or 200 individual transactions if you're a three to five million dollar company odds are you're gonna have to get registered in some additional states and it's so in totality it's going to be based on you need to be thinking the states you have the highest amount of sales in so if you sell a product that's very geographically based like say big furry winter parker coats and you sell them to the northeast you'd want to primarily look at those states and see if you've hit a threshold in those particular states but now it's going to require businesses of all sizes to have to monitor their economic nexus thresholds and see if they've hit any thresholds and or if they need to get registered and again each state has its own tax rules product and service taxability can vary from state to state filing requirements are different and again managing it just it gets very cumbersome and it takes up a lot of time and i'm a firm believer and do what you do best and outsource all the rest and sales tax is no different right so we'll walk through this today on the uh while you're with us on how we can help you and really what you need to be thinking about now we talked we touched on economic nexus and i don't like often to read the slides but this is a good one so economic nexus is a tax collection obligation imposed on sellers based on their level of economic activity within a state and unlike traditional physical presence nexus it's based entirely on sales revenue transaction volume and again some states it's and in some states it's a war every state is different but the goal was to effectively level the playing field between non-collecting out-of-state sellers and those folks that had just a brick-and-mortar business and i'll give you a bunch of examples here shortly of you know specific companies or businesses business models that are out there that are going to be impacted by this so what does it mean for me that's what i get all the time matt well what does this mean for my business well number one you're going to have to get registered in some additional states now getting a tax id so you can legally collect or emit sales tax in those particular states that's something you can do on your own you simply go to the department of revenue website or you can leverage a company like avalera where we can do the registrations and get those tax ids for you number two you're going to have to file additional sales tax returns and that's one of the number one things i can't stress enough that people want to automate they don't want to file sales tax returns it takes humans it takes hours at the end of every month or every quarter it's one of the number one things people mess up and compliance is now more than ever states are really trying to to make sure they get their money as um in lieu of what's happened in the last 10 months and then again all sorts of business activities and industries are going to be impacted so drop shipping exempt customers exempt sellers marketplace facilitators every type of business is now facing a new challenge as it relates to sales tax use tax compliance as a whole and we're definitely here to help so we'll walk through this these are what we consider the the five steps to managing sales tax and i'm just gonna go ahead and put these four up here real quick so number one understand where your business must be collecting remitting sales tax we have a free nexus assessment on our website at avalira.com where it will just ask you a bunch of kind of general questions about your business and then tell you which states you should collect tax in or we have a paid service which is a nexus study that covers the whole country and it's a lot more granular a lot more detailed and we will ask you a bunch of specific questions state by state about your prior 12 months of business activities and then we'll give you a very definitive uh finite report that walks through which states you should be collecting emitting tax in number two get registered to collect or emit sales tax avalara works with a partner businesslicenses.com we typically get the registrations uh they come through on our our side and then within two to three business days we actually get those tax ids back so it happens very quick and it's one of those things where you can do it on the department website dor website yourself or you could leverage avalera and our partner to get those done very quickly number three i have a lara ab attack so make sure you're calculating the proper amount of sales tax i'll dive pretty deep into avitax here in a couple moments and then number four track and manage exempt sales now a lot of companies we talk to they're like hey guys i don't have a sales tax problem i have 5 000 customers i have 4 000 certificates that's a huge piece to the compliance puzzle and it's one of the number one reasons people fail a sales tax audit number one their use tax was out of whack they weren't even charging use tax for things that they were purchasing for their business or they have orders transactions or sales in a state they're registered in with zero sales tax and they can't provide proper documentation for why they didn't charge a customer sales tax and as the seller it is your responsibility to be able to provide documentation for why you didn't charge sales tax so exempt customers and i'll talk to the certificate piece here in a few minutes and then number five file and remit the sales tax returns again that's the thing that the number one thing that takes a lot of time and again it's really what our automation is meant to do and as you're having to get registered in additional states you're going to be filing more and more sales tax returns so now's the time to put some automation in place um as you as you're going to have to get register in additional states so let's walk through how you can automate sales tax compliance that's one of the big things is what does it mean and how does it work so avitax is our core product and we have over 750 direct integrations and we have what we call these connectors now our connector is a piece of software that will allow your quickbooks online your quickbooks desktop your netsuite your oracle to talk to our tax engine and so how that works is you would download our connector once you go put in an invoice and it's in a state you're shipping a product to a state that you are registered in when you go to save that invoice and it can be done on an estimate sales order quote or an invoice when you go save it and it's in a state you want you told us to collect your mid sales tax in it will reach out to our tax engine represented by that a in the cloud and then in real time we will properly assign the rates properly assign the rules and put a tax determination back into the under the invoice and under two tenths of a second now there's a lot of things that happen in real time and i'll show those on the next slide but you need to be thinking about what does avalara and what does avitax do so we are going to determine the proper amount of sales tax so city state county any special taxes that are applicable we do rooftop level calculations which is very important and then we can also file the sales tax returns and remit the payments on your behalf you'll see on the very bottom of the screen here avitax doesn't support cash-based accounting we do require companies to be on an accrual basis for sales tax purposes in order to leverage our end-to-end automated solution and in that real-time calculation we're going to validate the address we're actually going to look at any sourcing rules we'll take into account whether it's not the customer or product is exempt we'll take into account if it's taxable or not and then we look at any back-to-school holidays ironically kids are going back to school here shortly for if you're selling things that have exempt or partially taxable partially taxable goods so you need to be thinking about you know clothing and apparel software as a service maintenance contracts installation labor freight those all of those things are going to have varying taxability and we will take into account each individual line item on the invoice and determine if it's taxable or not across all 45 states plus dc that do charge sales tax now this happens in real time inside of qbo and qbd and then also if you had a web store and you were using woocommerce or 3d card or big commerce or shopify we have direct integrations there to calculate tax when somebody is checking out on the web store as well now one of the questions we get a lot is well how am i going to know when i need to get registered in additional states and it's a great question if you're not using avalera or using a third party to handle sales tax compliance for your business this is where we are going to be a very value a huge value add so when you're using avitax our calculation engine we will actually be monitoring and alerting you if you've hit a threshold so for example uh georgia you can see here it has gone over 354 of the sale so in the threshold so that state would be highlighted in a darker orange uh if you hit 80 of a threshold it will be highlighted in yellow and when you log into your avitax account it will notate that you do need to get registered in that additional state so keeping track of sales tax rates rules boundaries if you've hit a threshold in a given state it's just not something that can be done manually it's going to take too much time and if i'm a business owner or a crowler or controller or a cfo i'm looking for things that i can automate now right after having to lay off workforce having everybody work from home now's the time to look and find things that you can automate as you go to scale and and get through the pandemic so let's talk for a couple minutes about taxability this is again one of the number one things people have a have a very difficult time with there's some really cool examples i'm not going to read all of them but on the on the map over here that just give you an example of whether something's taxable in one state or exempt the bagels in new york is is quite quite ironic because a taxable bail if you slice a bagel in new york there's a service involved so it becomes taxable if you order it whole it's actually exempt from sales tax so just some funky little uh sales tax uh taxability definitions right here in front of you and then you know you got to think every state's different you have states like colorado louisiana alabama they actually have local jurisdictions and potentially local varying taxability so that's one of the things you're going to have to keep in mind as you're getting registered in additional states and if you're selling candy or food items like a snickers or a kick at the reason the varying taxability is there depends on the flower content whether it's considered a candy or a snack or a food or grocery item so very very difficult and states are looking for ways to get additional revenues and sales tax is definitely one of them we have a really cool chart that we can send everybody after the after the thing today if you want to take a look at it but it's really cool it goes state by state now i mentioned earlier avalara is going to do rooftop level calculations the majority of the folks out there leveraging qbo qbd they're just updating rates and and putting a file in for for the for the tax rates and tax uh every month now avatax our tax engine is actually going to do rooftop level calculations and this is a great example and i think i mentioned a few minutes ago colorado is one of the most challenging states out there however avitax is going to do a rooftop level calculation so this is the same zip code in the same neighborhood in commerce city colorado and all the houses in purple have a combined or a composite tax rate if you will of 4.75 percent all the houses in green have a combined tax rate of nine point two five percent that's almost a five percent delta from one side of the street to the next this is why we say zip codes aren't the right tool for the job they're not a hundred percent accurate and why we would stress roof top level calculations and again not every state's different that difficult but colorado louisiana alabama illinois texas and california those are some very very difficult states for sales tax and it definitely would be a smart move to at least have a conversation and walk through how we can help to ensure accuracy you have to start with calculating the proper amount of sales tax before you can even then go file and remit it after um so really really key key stats here for to stress rooftop level calculations as opposed to zip codes and if you're just using zip codes that's not going to determine any taxability as well so we're kind of a view avalera as a one-stop shop a global solution for all business sizes of businesses across the u.s as well as globally as

well now we're going to talk about exemption certificates and again i talk to a handful of folks every week where you know their what they're dealing with is not necessarily sales tax so you may be in manufacturing distributing or you may sell to a lot of folks that aren't end users they're reselling your products so what are um solutions that are tax exempt right reselling a product universities government entities um there's there's a lot of different reasons out there and again you as the seller are responsible for providing documentation for whether or not for when your customer tells you they are exempt from sales tax that's something that you have to do as a seller and again one of the number one reasons why people will fail a sales tax audit is because they can't provide that documentation and if you've never gotten a certificate reach out it's okay don't panic but reach out to your customer base now tell them you're updating your books for 2021 or q4 and get that most recent exemption certificate on file because that is one thing you're definitely going to have to do moving forward you always want to have that documentation now what i what i hear from most folks is well we have 150 certificates okay great can you tell me which ones are set to expire in the next 30 60 or 90 days states like florida and washington the certificates expire every year and our tool uh avalera cert capture will actually charge sales tax the minute that certificate expires now granted your customer is going to go hey we we're not you don't need to tax us we're exempt then you're just going to let them know that you would need an upside certificate or their certificate has expired and most folks are handling the sales tax certificates in a drawer on a server and again the majority of the folks we talked to are couldn't tell me which ones are going to expire but it's hard to find them they're not trained to validate them the retrieval is very time consuming and again if it's one of your largest customers and you don't have a certificate that could be very uh very problematic heaven forbid you go through a sales tax audit so the certificates is very very important need to make sure you have uh the documentation for those and again if you've never got them from your customers before you know they've probably gone through a sales tax audit they've probably also had other people ask for them the thing i'll say with before we dive into the streamlined sales tax is a high percentage of the companies out there are now having to get registered in additional states they're having to collect more exemption certificates they're having to file more returns they're having to get registered in additional states so it's it's man hours are increasing uh cost if you will for for that compliance component is definitely going up and you don't want to hire and put bodies on this sales tax is not a revenue generating activity i'll be the first person to tell you that but the good news is avalera and again thank you for for the folks for putting this on for the quickbooks connect show is we're definitely here to help right and the thing that's going to be key is a lot of folk a lot of people ask well how much does it cost well the good news is the streamlined sales tax is a group of 24 member states that got together and was founded in 1999 and they wanted to put a simpler way to calculate collect file and remit sales and use tax and they put some tax definitions in they have a governing board that approves the rates as well as the item taxability a exemption administration and a uniform audit process and avalera is one of only a couple certified service providers so a csp that is involved in the sst and again we've been partnered with them for over 10 years so here's the best way i'll phrase it number one in the green the states in the green are the sst states and if you're having to get registered in additional states solely due to economic nexus meaning i never go to a state i i mean i never go to a state but i now am passing a threshold uh you want to keep this in mind there's only 45 states plus dc that collect tax so of the 46 states 24 of them so over half are involved in the streamlined sales tax and you can leverage avalara for some benefits at no cost and what that means is if you're solely having to get registered in the state due to economic nexus you can raise your hand and be a volunteer emitter and a volunteer remitter means the bullet points you'll see here below but you don't have a fixed place of business you have less than 50 000 worth of property less than 50 000 worth of payroll and less than 25 percent of total property in a member state so as long as you've never gone to the state you don't have inventory or employees you can get registered in that state with avalara for no cost we will actually so we'll save you 349 for a registration so we get you registered at no cost we will actually calculate tax in those states for you at no cost and we actually file the sales tax returns for you at no cost in those states so the sst is a no-brainer for companies that are having to solely get registered in states due to economic nexus it's very beneficial uh avalera has a great partnership we've been with them for over 10 years and we ensure that the sales tax that the states need to collect actually gets to the states the caveat is you need to use our tax calculation service so we need to be integrated into your qbo or your qbd file we'll calculate the tax we will file the returns on your behalf the typical go live for sst is about 60 days more or less it really just depends on you filling out the application and then um waiting on the states to turn those around we will actually assist you with uh onboarding for that purposes of the stream on sales tax program uh it's it's it's definitely something to take advantage of as we close out 2020 and head into 2021 and can definitely save some costs all right so the next topic is going to be consumer use tax and i hope everybody's still with me we have a few minutes left uh consumer use tax is a tax that is owed by the buyer when they're not taxed the full amount on a purchase or you're purchasing things that you're using internally for your company um and here's a couple examples out of state vendor didn't collect any tax uh purchase was originally put in inventory and was going to be resold but was used so think about if you're buying tangible goods and you're using them internally for your business one of the examples i gave the other day was if i had a business in north carolina and i had seven employees and i bought seven laptops from virginia and shipped under north carolina i would have to self assess consumer use tax to the state of north carolina for those purchases and here's a couple examples so free giveaways internal service distribution movement of fixed assets consumer use tax is also one of the number one reasons why people will have issues in a sales tax audit for what it's worth and again if you're in some of these common industries you can see on the left banking insurance distribution hospitality manufacturing those are some of the most common industries that have use tax obligations it's difficult to calculate it's difficult to file and manage and determine and avalera has a consumer use tax module where we can actually automate all this for you so it's definitely worth a conversation and here's some really cool statistics so let me get these all up on the screen here so 80 i always go to the last one 80 was the amount of audit assessment dollars due to consumer use tax so just by not doing it all that makes up 80 of an audit right 19 states charge consumer use tax on sales tax excuse me charge consumer use tax on software as a service 763 million estimated uncollected consumer use tax in california in one year and that was just 2011. so these are some really important things as it relates to being compliant number one getting compliance staying compliant and having that plan of attack so you can scale your business as you have to get registered in additional states so another thing that's come up over the course of the past nine months as folks have either been thinking about different ways to go to market working from home removing some employees or cutting back is how to go to market and sell a different way well if here's the best way to phrase it if you're shipping products internationally odds are you're going to have to worry about duties tariffs import taxes and cross border is another one of our products in our suite where you can leverage where we can do real-time calculations of the custom duties and or input import taxes in your shopping cart or in your accounting software and then we can also classify the items so as a customer or excuse me as a seller shipping if you're selling direct to consumer you're selling tangible goods and that you're shipping it out of your country you're going to have to have an hs code for all of those individual skus or individual products that you're selling and hs codes are harmonized system codes tariff codes used to identify numbers applied based on the product characteristics now you have to have this you have to have it accurate and it's also going to be key for the buyer experience because what you don't want to do you don't want to do is make a sale and then you ship it all the way over to their country and then they get hit with you know 250 dollars to actually accept it so we'll talk about that here in a second but um there's custom duties and there's also an import tax so uh we can get the the hs codes for you and we can also make the tax calculation for those custom duties and again we've seen a lot of companies that are broadening their uh product offering as well as how they go to market and are selling on multiple channels now you know i hope we've done a good job as far as walking through kind of why you should automate number one you have to make sure the calculations are accurate because somebody goes on your website and they buy a product and then the sale is complete you want to make sure you have real-time calculations that get it done right at the time of the sale number two you have to make sure you're approaching this to to be more efficient right you don't want to have multiple people humans managing sales tax filing sales tax returns for you you want to reduce cost and you don't want to spend time on sales tax compliance trust me i talk about sales tax every day uh even six days a week and there's a lot of components to it but it's it's it takes a lot of time and then risk management so with accurate results you'll decrease your company's risk you you want to be thinking about things that you outsource for your business like whether you outsource payroll or something like that with a very similar concept right calculating the tax remitting the sales tax returns and again a lot of folks on the uh watching this today have probably uh leveraged a cpa or a bookkeeper to file their sales tax returns and they would have done it in the past but now you're having to get registered in a lot more states you got to keep that in mind just to make sure you're reducing your risks and again customer satisfaction so make sure they're getting the right tax calculated make sure they're able to check out on the site or they see the proper amount of sales tax on an invoice so i don't have anything in question and then again uh think about your business growth so where is your company going over the course of the next couple years because that's what we want to talk about for how i can automate it now as i'm scaling and you have companies that are going to be on you know using quickbooks online or quickbooks desktop the big thing for avalara is you can never outgrow avalera so i mentioned earlier we have integrations into 700 plus i think it's almost 800 plus now different integrations so you go from qbo to a netsuite or acumatica or sage intact any of those we have pre-built integrations into those platforms already and you just have to swap out the where you're pointing our tax engine to and it's business as usual moving forward so you can never outgrow avalera and again our services are a la carte we can help you as much or as little as you need but it really starts with a conversation and how it's going to work from that perspective is you'll have an introductory conversation with a sales executive here at avalara they're going to spend about a 30 minutes 30 minutes talking about what states you traditionally have nexus obligations in they're then going to dive into which states you may have covered economic access and then we're going to see if it makes sense to automate tax compliance i talked with a gentleman last week he sold pens taxable pens in massachusetts that was his only state massachusetts has a flat rate of six and a quarter percent he didn't need to buy avalera but we had a conversation at least walk through what it would be like if you did and then again here's a couple cool statistics so our avalara customers spend 58 percent less time on sales tax compliance so the pre-built integrations the real-time calculations and then the filing and the remaining of the sales tax returns i've never met anybody that likes filing sales tax returns we have i think over 100 people in our compliance team alone here at avalara and that's all they do is file tax returns they're really good at it so again do what you do best outsource all the rest we're here to help you uh it starts with a conversation and appreciate your time today and that's it for me thank you so much for watching take care you

2020-12-21 05:47

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