Avalara AvaTax for Accounts Payable brings new consumer use tax compliance capabilities

While managing use tax is something most businesses have to do, it can be particularly challenging for small and midsize businesses. Some might overlook or mismanage their use tax obligations because of a lack of awareness and/or not having dedicated finance personnel dedicated to it. 

For example, a manufacturer failing to understand the tax regulation complexities around their purchasing and exemptions can find themselves with years of exposure. This can consist of back taxes owed as well as interest and penalties that can increase liability to two times or more of the original tax owed. In addition, that manufacturer could experience frequent audits from multiple states moving forward.

Major enterprises face multifaceted challenges related to use tax that can significantly impact various aspects of their procure-to-pay processes. For example, a company with a complex global supply chain sources components and raw materials from multiple countries, each with its own set of tax regulations. Ensuring compliance across diverse jurisdictions requires intricate logistics and operational coordination. From a tax perspective, the enterprise must contend with the challenge of determining the appropriate tax rates and rules for each jurisdiction where it operates as well as where and how their purchases were ultimately used and consumed. 

Without the right systems and processes in place, underpayments and overpayments are inevitable, and both have financial implications and inherent risk. This scenario is just one of many examples of how complicated managing use tax can be and it highlights the importance of leveraging technology built to address the complexity. 

On the technical front, an enterprise dealing with global operations faces the challenge of integrating tax compliance into its many system platforms, including its enterprise resource planning (ERP) systems. Ensuring these systems can accurately calculate and track use tax liabilities for transactions occurring in different countries requires sophisticated technology solutions. 

The enterprise may need to invest in specialized software and tools capable of handling the intricacies of international tax regulations. Additionally, maintaining the agility of these systems to adapt to changes in tax laws is crucial and requires continuous updates and monitoring.

AvaTax for Accounts Payable empowers businesses to use prebuilt integrations or APIs for real-time management of use tax on their purchases, ensuring compliance with use tax regulations. The following is a brief overview of what the solution provides.

Seamless integration with ERP systems: AvaTax for Accounts Payable is designed to address the technological complexities in procure-to-pay systems by providing direct integrations into many popular ERP and procurement systems through prebuilt integrations or APIs. Through these integrations, the solution can take transaction information from a company’s accounts payable system and provide real-time use tax calculations, thereby reducing the time it takes for businesses to fulfill their use tax obligations. 

Centralized compliance and control: Businesses can manage their compliance for sales and use tax all in one platform with AvaTax. Through a centralized system, businesses can be audit ready with a history of every decision across sales and purchases. All tax rules, configurations, and determinations are managed on the AvaTax platform. There’s no need to rely on complicated or customized integrations for use tax determinations. 

Capture overpayments and underpayments from vendors: With AvaTax for Accounts Payable, businesses are given the tools to identify and take action on overpayments and underpayments of tax from vendors. In addition, they can use AvaTax for Accounts Payable to manage their vendors and assign rules to automate the use tax review process. Users of Avalara Vendor Exemption Management get the added bonus of being able to provide vendors with their exemption certificates.

By leveraging prebuilt integrations or APIs, businesses can connect to their procurement or accounts payable system. Alternatively, batch uploads of purchase transactions is also an option. Businesses can use our standard templates or create and manage their own templates. 

Once integrated, AvaTax for Accounts Payable makes several determinations based on the use tax configurations managed on AvaTax. This includes ignoring transactions that fall below predetermined thresholds, accepting certain variances, and applying rules based on vendors, cost centers, products, and multiple point-of-use allocations. Use tax is calculated and auto-accrual is completed.

The next step is to review transactions that are not auto-accrued or ignored and make determinations to confirm variances or edit and allocate the correct tax. 

Underpayments work just the same as with sales tax; the calculated amount can be added to the return and submitted to the state. Overpayments can be tracked and reported leaving businesses with the option of pursuing credits directly with their vendors. Integrated systems provide reconciliation back to the general ledger.

Learn more about the solution here.

Learn more about how to partner with us here or contact us directly at partnerwithus@avalara.com to discuss how we can help solve this compliance burden for your customers.