Questions frequently asked about sales tax issues and AvaTax™ for NetSuite:
AvaTax for NetSuite is a sales tax automation service which works in the background of your NetSuite ERP, via a secure internet connection. AvaTax provides sales tax calculation and secure data storage for tax filing, reporting, sales tax returns preparation and remittance. AvaTax is the easiest, most economical; most accurate sales tax automation solution available.
Avalara establishes an integration bridge between the AvaTax service and NetSuite. This bridge ties the AvaTax server and tax calculation directly to sales modules of your NetSuite. To activate AvaTax service within your NetSuite ERP, simply purchase AvaTax subscription, install the AvaTax bundle from within NetSuite enter the credentials in the AvaTax control panel within your NetSuite ERP. Setup inside NetSuite involves setting up Tax Agency, Tax Control Accounts, Tax Codes and Tax Groups to use AvaTax as default. Once AvaTax is selected as a default Tax Code/Group, AvaTax correctly calculates sales and use tax calculations invisibly in the background and storing all transaction information for tax filing and reporting. AvaTax eliminates many hours of manual work of setting up tax regions and tax codes.
A web service provides integrated software functionality as a “plugin object” that works in combination with NetSuite as if it were part of your ERP. The Avalara service adds significant value, not only by enhancing the functionality of your ERP with automated sales and use tax calculation, but additional cost-saving features like dynamic reporting and automatic tax table updates.
No matter the size of your business, AvaTax is affordable. With AvaTax’s service-based pricing you pay a monthly fee based on an estimated transaction volume for the first year. If the transactions estimate is exceeded, you have the option of upgrading to the next level of service or continue by paying a small per-transaction fee. Our pricing method allows medium-sized and small business to affordably take advantage of AvaTax’s power. Large companies will find AvaTax provides more thorough capabilities than competing solutions which cost several times more. A transaction is a completed shopping cart transaction. You are only charged once per completed shopping cart transaction, even though the shopping cart may have multiple items per shopping cart.
Avalara has a focused team of state and local tax experts who constantly research the changing rates in all jurisdictions throughout the United States and Canada. To confirm accuracy, we run our own internal audits as well as contract independent audit agencies to review our calculations and check our compliance. Last year, with over 1000 rate changes occurring throughout 12,500 tax regions in North America, independent auditors found our calculations to be 100% correct.
Updates for the most current taxation statutes and tax rates, jurisdictions and address changes in the U.S. and Canada are provided from our database automatically so you never are required to update tax tables in your own system. The Avalara tax expert staff updates these central tables on a daily basis before changes take effect.
AvaTax enables you to accurately calculate use tax, by selecting a product and invoicing it based on the receiving address. In the case of a direct pay permit, AvaTax will calculate the required sales tax instead of the use tax. This methodology is in step with forthcoming Streamlined Sales Tax standards.
AvaTax has a built in product taxability matrix which defines product exceptions, product types and categories. The majority of products are taxed under the standard rate for the applicable state and local tax district. As the manager of the system, you define what is and is not taxable for your business using these tools.
AvaTax calculates the sales tax due on a line item basis, while also tracking the total value of the invoice and any cumulative tax changes that result from accumulated values on the invoice. AvaTax utilizes the point of sale defined by NetSuite to determine the applicable address. In the case of a pickup, the pickup location is used. In the case of a delivery, the delivery address is used.
Rest assured, an Internet failure at Avalara is nearly impossible. Avalara’s datacenter has direct connections to 7 discrete major backbone providers. If one of them goes down, there are six more backup connections to keep service active. This level of redundancy is extremely unusual, and ensures a constant connection.
AvaTax is integrated with NetSuite as a third party add-on product, which needs to be installed within NetSuite once you have completed the purchasing process with Avalara. Once you purchase the subscription for AvaTax from Avalara, you will receive a username and a temporary password. You will use the username and password to log into the Avalara User Center. Once you are logged in, you will be able to change your password. Last, go to the Avalara Administrative Console (secure website) to setup your nexus and taxability specifications. AvaTax will now accurately calculate all sales and use taxes transparently in the background each time a sales transaction is posted from the ERP.
Security is maintained by encapsulating the entire "conversation" (client to web service) using Secure Socket Layer (SSL) encryption, and establishing "best-practice" standards in username/password combinations. Account keys are generated through a 4 step process that includes using "one-way hash" and SHA encryption, creating a "public/private" key setup that ensures that your client is uniquely identified and is the only software that can access your account and data. Once your data is on our systems we ensure its security using multiple layers of firewalls, IDS (intrusion detection systems), active traffic monitors, redundant storage systems and a thorough backup and disaster recovery process.
The AvaTax databases (residing on our servers) are updated continually (invisible to you) ensuring that you’re using the most current information possible every time you create an invoice. You don’t have to worry about monthly data CD updates to install or downloads to coordinate. Although complex in the background, the AvaTax service is transparent and seamless to your normal work flow.
AvaTax presents a report that provides all the information you need to complete and file required tax returns. We have an optional service of automatically filling out your tax returns. And we do not believe in holding your data hostage — you may download it into Microsoft Excel any time you like. In addition Avalara offers Managed Returns Service (MRS) that will process your returns and remittances for you. By subscribing to Avalara’s MRS, your tax returns filing and remittances can be automated.
Sales tax is a levy placed by states on goods or services purchased from a business that has a physical presence in the same state as the consumer. Use tax is a compensating tax owed when retail sales tax was due, but was not paid at the time of sale. This can occur when items are purchased by mail or over the Internet and the out-of state business is not registered to collect sales tax. Use tax may also be owed by businesses that use items from inventory and do not pay the sales tax. Use tax is the customer’s responsibility to pay, but is increasingly being collected by vendors on their behalf.
Nexus is a legal term which means connection to the state. Different state and federal courts have inconsistent definitions of what it means to have sufficient connection to the state to be subject to tax. Nexus is typically defined by physical presence, but may also be defined by business activity, affiliation or other kind of presence, such as sales people calling on customers in the state. Businesses may owe sales or use tax based on nexus. For additional information on Nexus please refer to a whitepaper written by Avalara available at
www.avalara.com/netsuite.
Sale means any transfer of title to tangible personal property for consideration. It includes exchange and barter. The sale occurs at the time title passes. Unless otherwise explicitly agreed, title passes to the buyer at the time and place at which the seller delivers the goods, even though a document of title is to be delivered at a different time or place.
The Streamlined Sales Tax (SST) is an effort created by 43 of the 45 state governments who collect sales tax, with input from local governments and the private sector, to simplify and modernize sales and use tax collection and administration. The Project’s proposals include tax law simplifications, more efficient administrative procedures, and emerging technologies to substantially reduce the burden of tax collection. The Project’s proposals are focused on improving sales and use tax administration systems for both Main
Street and remote sellers for all types of commerce. Once SST is adopted, the burden of collecting sales and use taxes, particularly for e-commerce, will be much simpler for companies who utilize the services of a SST-Certified vendor such as Avalara.
When items are purchased on the Internet and they are shipped to customer in their state, the items purchased are likely subject to sales tax. Some retailers who do not have a presence (nexus) in a state are not required to collect sales tax in locations where they do not have nexus. Some of these rules are changing as the Streamlined Sales Tax is taking effect. If the customers are not charged "sales tax" on the purchases, the customers likely owe "use tax."
Nearly half of state revenues come from sales and use taxes. Some states rely even more heavily on sales and use tax income.
Typically all retail sales, leases, rentals, and services are taxable. Specific taxable items vary by state, such as food and prescription drugs. In other cases clothing may be taxed at a lower rate.
This varies by state. Shipping and handling charges may or may not be taxable depending on whether the charges are part of the selling price of the tangible personal property being sold. If the seller and the buyer contract for the shipping and handling charges separately from the selling price of tangible personal property and the charges reflect the actual costs of such shipping and handling, then the charges may not be taxable.
A resale certificate is a standard business form that is used by registered businesses making purchases of goods and certain services which they intend to resell in the normal course of business without intervening use. The use of a resale certificate allows for purchases without paying sales tax. A resale certificate is usually required for all wholesale sales. Otherwise, sales tax must be charged. The specific rules for use of resale certificates vary by state.
Most states require any person or business who holds a seller’s permit to file sales and use taxes. These taxes must be filed and paid in accordance with the state’s regulations. Many states also require individuals to report use tax on their state income tax return. Specific requirements vary by state.
It varies by state, but typically sales and use tax returns must be filed and paid monthly, usually by the 20th of the month. When taxable receipts are less than a certain defined amount per quarter, then the vendor is only required to file and pay the taxes quarterly. These quarterly/monthly thresholds are defined by each individual state.
Since sales and use taxes are such a large piece of state revenue, states are getting more aggressive and have started increasing audit activity. States use several sources in selecting businesses for an audit, including Internal Revenue Service information; information sharing programs with other states or other intra-state agencies; computer based random selection; state department of revenue database information; and business publications, periodicals, journals and directories. The average company faces an audit every seven years, based on studies of state audits.
Again, this varies by state. Most states charge penalties and interest for late payments, underpayments or not filing. States can also revoke the business license, shut down the business, and issue tax warrants for the business owner’s arrest.
Most religious, charitable and nonprofit organizations are required to pay sales tax on the purchase of goods they buy for their own use and collect tax when they make taxable sales. Laws may vary from state to state.