How agentic AI helps retailers reduce audit risk

Retailers expanding their footprint are facing heightened scrutiny from tax authorities. As physical and digital sales channels, marketplace models, and cross-border commerce drive growth, tax compliance becomes more complex.

Each new channel, geography, and transaction type introduces additional tax rules, documentation requirements, and reporting obligations. That complexity often translates into longer and more intensive audits. In fact, a recent survey found 53% of ecommerce and procurement executives cite lengthy audits as one of the biggest tax compliance challenges, highlighting how retail operational intricacy can quickly elevate audit exposure.

At the same time, the audit process is evolving. Driven by data analytics and AI-powered technology, tax authorities can review significantly more data for consistent, system-driven compliance.

To meet these challenges, retailers are turning to agentic AI to help continuously monitor risk, adapt to changing rules, and maintain audit readiness as operations scale.

Key takeaways

Retail expansion increases audit exposure. As states expand tax rules and enforcement, selling across more channels, jurisdictions, and fulfillment models makes consistency harder to maintain.

Manual compliance does not scale. Spreadsheets, disconnected systems, and periodic reviews add to the struggle to keep pace with high transaction volumes, high return rates, and evolving requirements.

Agentic AI helps manage audit risk. Coordinated, system-driven workflows support more reliable tax calculation, documentation, and reporting as operations change.

Why retailers face higher audit risk

Audit pressure continues to rise as retail operations expand and regulatory requirements tighten. U.S. states are broadening their sales tax bases and introducing new obligations, fees, and reporting mandates, while retailers operate across more channels and business models than ever before.

Together, this regulatory and operational complexity raises the risk of inconsistencies surfacing during audits.

Complicated indirect tax environments

Retailers are required to calculate tax across up to 12,000+ U.S. sales and use tax jurisdictions, each with its own rates, rules, exemptions, and local tax laws. As rules update frequently, maintaining consistent tax treatment across products and locations becomes harder. Small inconsistencies can quickly turn into audit exposure when applied across high transaction volumes.

Exemption certificate management gaps

Exempt sales remain one of the trickiest areas of tax compliance management. Yet, according to 2023 survey results, 54% of U.S. businesses manage sales tax exemption certificates manually. Manual tracking increases the risk of missing, expired, or invalid certificates and makes it harder to retrieve documentation when auditors request it.

Use tax accrual challenges

Use tax exposure often occurs when purchases such as supplies or services are not taxed at the time of sale and must be self-assessed. When these transactions fall outside standard procurement processes, retailers may under-accrue use tax. Auditors routinely review these areas, particularly when accrual practices vary across locations or vendors.

High transaction volumes and high return rates

Large volumes of transactions, often combined with high return rates, create additional reconciliation challenges. Returns, credits, post-filing adjustments, and peak periods such as sales tax holidays add complexity, particularly when activity occurs after returns have already been filed. Without proper handling, these adjustments can contribute to the risk of overpayments or assessments.

Omnichannel sales complexity

Selling across ecommerce, POS, marketplaces, and dropshipping models introduces uncertainty around tax responsibility. Marketplace facilitator rules vary by jurisdiction, and dropshipping transactions often involve multiple parties. Inconsistent treatment across channels can lead to undercollection, overcollection, or duplicate taxation, all of which draw auditor attention.

Retail delivery fees and local surcharges

States and local jurisdictions are introducing retail delivery fees based on location, delivery method, or transaction value. These charges add another layer of calculation and reporting requirements. Missing or misapplying delivery fees is becoming a common source of noncompliance, particularly for high-volume retailers.

Cross-border complexity

International sales introduce additional risk through HS code classification, duties, and VAT or GST treatment. Classification errors can lead to penalties and audits. From a customer perspective, unexpected duties or taxes charged at delivery often result in cart abandonment, refused shipments, and a poor overall experience that compounds both compliance and lost revenue.

E-invoicing and digital reporting mandates

Governments are intensifying digital enforcement worldwide. More than 60 countries have announced, or already require, e-invoicing, with additional mandates emerging. These regimes give tax authorities greater visibility into transaction data and leave little room for inaccurate reporting.

As audits increasingly emphasize real-time data access, consistency, and control, retailers need compliance systems that can scale and adapt without adding manual effort.

How agentic AI helps retailers reduce audit risk

Spreadsheets, disconnected systems, and periodic reviews do not scale with modern retail tax compliance. As transaction volumes grow and tax rules expand, these approaches create weaknesses that often surface during audits. Even traditional automation, when implemented in silos, can limit visibility and make it harder to manage risk effectively across the business.

Agentic AI helps shift compliance from manual, reactive work to more coordinated, system-driven execution. Avalara model context protocol (MCP) servers enable AI assistants and agents within a business's applications to interact directly with Avalara products and services, making it possible to automate complex tax and compliance workflows. This helps teams apply tax rules, validate documentation, and complete compliance tasks more uniformly, with less manual effort and fewer handoffs.

With Avalara Agentic Tax and Compliance™, you gain:

• Consistency across channels and transactions.
  Tax calculation logic is applied more uniformly across ecommerce, POS, marketplaces, and dropshipping models, reducing discrepancies as volume and complexity grow.

• Support for Streamlined Sales Tax (SST) compliance.
  As an SST Certified Service Provider (CSP), Avalara helps support more reliable compliance across participating states.

• Stronger control over exemption documentation.
  Exemption certificates are digitized and monitored so gaps are identified earlier and supporting documentation is easier to access when needed.

• More reliable use tax accrual.
  Improved visibility into purchasing activity helps ensure use tax is applied more accurately across vendors, locations, and transaction types.

• Clearer handling of returns and adjustments.
  Credits, reversals, and post-filing adjustments are handled in a more structured way, helping reduce errors and reconciliation effort.

• Faster adaptation to regulatory change.
  New requirements such as retail delivery fees and e-invoicing mandates can be addressed with fewer manual updates as rules evolve.

By coordinating these capabilities across the transaction lifecycle, Avalara helps retailers monitor nexus thresholds, maintain clearer audit trails, and keep calculation, filing, and remittance data aligned as activity changes. The result is a more manageable approach to ongoing compliance.

Reduce manual effort and manage audit risk with system-driven compliance from Avalara.

FAQ

What are retail delivery fees, and why do they matter?

Retail delivery fees are separate charges applied to certain delivered transactions based on state or local rules. Because they follow different requirements than sales tax, they add calculation and reporting complexity as more jurisdictions adopt them.

How do e-invoicing mandates affect businesses operating globally?

E-invoicing mandates require transaction data to be reported digitally, often in near real time, using government-approved formats. These requirements amplify compliance obligations and reduce tolerance for errors or delays.

Why does omnichannel selling increase tax complexity?

Different systems and fulfillment paths can apply tax differently across ecommerce, POS, and other channels. Without a unified approach, inconsistencies become harder to detect as volumes grow.

Why are marketplace tax rules confusing?

Marketplace facilitator laws vary by jurisdiction and determine who is responsible for tax collection. When selling across multiple marketplaces and fulfillment models, responsibility can shift, increasing the risk of misapplication.

How does Avalara Agentic Tax and Compliance™ support tax governance?

Avalara Agentic Tax and Compliance™ helps standardize how tax rules and compliance workflows are applied across systems. This supports more reliable oversight as regulations and operations change. It also helps reduce dependence on manual decision-making by embedding governance directly into day-to-day compliance processes.