For any company doing business internationally, the challenges and the fear of the unknown are overwhelming. For CRUSH 2016, Avalara’s national tax compliance conference, May 9-11 in New Orleans, we sat down with one of the conference speakers, Amy Morgan, senior product specialist of Avalara LandedCost, to learn more about her session, the many challenges and opportunities of cross-border shipping, and what she is most looking forward to at the conference.
Avalara: The title for your session at CRUSH 2016 is “Customs, Duties & Landed Cost for Global Sellers.” What are three concepts you hope conference attendees take from your session?
Amy Morgan: I want attendees to understand what landed cost is, how calculating an estimated landed cost can benefit their cross-border business, and to know that Avalara is uniquely positioned to support their global selling activities.
Avalara: What are some of the most challenging elements of cross-border shipments?
AM: Making the decision to “go global” is tricky for a lot of companies. On one hand, they want to sell to the world. On the other, there are a lot of unknown variables. Small businesses don’t know what they don’t know and, even if they did, they usually don’t have the resources to hire a global compliance pro to help them navigate the landmines.
One of the biggest challenges is not knowing if customs duty and import tax will apply to their transactions. Every country maintains its own import duty rates and regulations, and it’s not clear if the shipment will be subject. For example, customs duty de minimis is a hot topic right now. De minimis is the minimum shipment value where no import duties/taxes apply. This value is dictated by the customs authorities of each country and varies wildly. Take the United States versus Canada, for example. The de minimis in the United States was recently raised to $800 US, but in Canada, the de minimis is $20 CAD, one of the lowest in the world. Therefore, a retail shipment from France valued at $500 and shipped to an end customer in the states would not be subject to import duty/tax. In Canada, it would be.
Avalara: That’s very interesting; can you give us more examples?
AM: Sure. Let’s say import duty/tax is required. Figuring out the estimated import duties/taxes is a ‘hairball’ because the duty rate is dictated by the Harmonized Tariff Code assigned to each product in the shipment. Yet, getting to the accurate tariff code is tricky because it’s not clear what information is needed to assign it. To further complicate things, getting the code right is necessary to make sure the correct duty rate is applied. In addition, other country-specific import taxes, such as value added taxes (VAT), are typically applied to the cost of the shipment, not to mention the customs duty. Tricky, right?
There’s also a lot of bad information out there. I’ve talked with many customers recently, read a lot of retailer website FAQs specific to customs duty and tax, and have surfed blogs and online forums where people are giving advice on how to evade customs by intentionally misreporting shipments as “gifts” or “samples,” or undervaluing their shipments to get around tax obligations. This stuff keeps me up at night worrying! Not only is misreporting and undervaluing illegal, but there are also good companies seeking real help (and not finding it). I hate to think of anyone getting in trouble trying to do the right thing for their customers.
Avalara: You’re a Senior Product Manager for Avalara LandedCost. What are some of the biggest benefits of LandedCost for selling goods internationally?
AM: There’s a great quote: “Goods will only travel as fast as the information that controls them.” These are the words of Tom Butterly, the United Nations Head of Trade Facilitation. The act of calculating a landed cost for cross-border shipments forces the seller to collect and share better item-level information. I truly believe that we can move shipments with the power of information, without physically touching boxes. With better information, shipments move faster because the buyers/sellers won’t be scrambling for answers when the shipment arrives in the destination country.
Better information certainly makes for a better customer experience, but so does simply communicating the estimated import duty/taxes before ordering at the point of sale. This makes the customer aware of what his or her financial obligation may be when the shipment arrives in the destination country, eliminating the frustration of unexpected costs. Sharing these estimated costs in the shopping cart can also reduce the volume of rejected shipments.
Finally, all companies should determine the landed cost to make sure they’re not eroding their margins. So, while many companies want to make every sale, they may unknowingly end up holding the tax bag, which will eat into their profit. I’ve seen this in companies big and small.
Avalara: How has technology impacted international selling?
AM: In almost every way! We’re living in this moment where we’ve got 21st Century e-commerce platforms, marketplaces, sophisticated international payment solutions and advanced ship methods, enabling more sellers of all sizes to sell globally than ever before. But, after the point of sale, we’re operating under archaic and unrealistic 20th Century customs and procedures, where we have to physically move shipments across borders.
Until now, “going global” was regarded as a big company game. However, with new technologies enabling more small business traders, there’s an increasing volume of global B2B and B2C shipments, highlighting just how fragmented existing cross-border protocols are.
Analysts forecast that global e-commerce sales are expected to surpass $3.5 trillion within five years. It’s only a matter of time before governments realize they’re not collecting the same duty revenue from the large traditional traders and start scrutinizing the small business supply chain. Governments have recognized the shift and their struggle to implement small business activity into their processes so that they can monitor for homeland security and enforce financial compliance, while also facilitating legitimate trade. Therefore, many governments are investing in automated systems and “single window” platforms to ease the burden of traditional customs clearance. This paves the way for companies like Avalara to further solve the last frontier of the modern commercial environment: to provide streamlined, low-cost trade compliance solutions so that small businesses are in a better position to comply with complicated trade regulations.
I firmly believe that the status quo just isn’t good enough. Since I started my career in “big trade,” I’ve been trying to automate myself out of a job. Now, I get to come to work everyday and do that very thing!
Avalara: What are you looking forward to most at CRUSH?
AM: This will be my first CRUSH, so I’m looking forward to hearing directly from Avalara customers about their cross-border issues. I want to know what keeps them up at night. Frankly, it’s exciting to have these conversations and think about how we can support our customers’ cross-border activity beyond the tax calculation, leveraging data elements already collected. I also look forward to evangelizing global trade, sharing my “trade nerdiness” and how Avalara is well-positioned to support customers in a way no one else is.
Join Amy Morgan for her session, “Customs, Duties & Landed Cost for Global Sellers,” on May 10. For more information on CRUSH 2016, visit our website that includes all conference sessions, speaker bios and location information. In addition, read a recent article in MultiChannel Merchant by Avalara’s Marshal Kushniruk.