Sales tax compliance in the sub-second

Learn the vital components of sales tax compliance at the sub-second level.


Hi. Welcome to Will's Whiteboard. I'm Will. What can happen in less than a second? How about this? Did you catch it? I'll do it again. If you have anything to do with sales tax compliance, you tend to think of it, probably, on a scale of months, quarters, or even years. But actually sales tax compliance begins in a sub-second. What do I mean by that? That's the subject of today's Whiteboard. When a customer purchases a product or service from you, whether it's clicking the buy button on a website, or swiping a credit card at a cash register, there's a tax determination that has to be made. Often this needs to happen in the sub-second.

What are the components of this tax determination? Well, here's some major components. First you need to validate an address or a location.There are different tax rates associated with different places. That is key. You also need to source the sales tax rate. Should you use the rate from the seller's location or from the buyer's location? This will vary from state to state. You need determine if there are any additional tax types to apply. You've got general sales tax, but sometimes there are taxes like excise tax that need to be added.

You also need to determine product tax-ability. There are different tax rates for different products. You need to know if the customer is exempt or not. You should determine whether your operating at a time and place where there's a sales tax holiday, so that you waive the usual sales tax rates. And finally, once you've got all of this logic down, you have to apply the tax correctly to the transaction. This is complicated. There are over 12,000 taxing jurisdictions in North America. There are thousands of types of products. The rules and rates change all the time. How is your process, your sales tax process, able to handle all this?

Let's talk about this from two perspectives. How accurate are you right now? This is about compliance. If you're ever audited, you need to be able to prove that you're doing all of this correctly. Can you do that? Second question, how fast can you do this? This is about customer service. Your customers, they're waiting at a website or they're standing in line somewhere. If you keep them waiting for too long, maybe they'll go elsewhere the next time. How fast is your solution?

Avalara's AvaTax delivers an accurate sales tax determination, with all of these components, in the sub-second. It gets the transaction information and in a matter of milliseconds, makes an accurate tax determination and kicks the information back, so that your transactions stay running smoothly from a compliance perspective. Now, this is cornerstone of sales tax compliance for the monthly or quarterly sales cycle. We're going to talk about that in the next video. Thanks very much. I'll see ya next time.