Automate international trade compliance with Avalara Tariff Code Classification and AvaTax Cross-Border

Cross-border selling is one of the fastest-growing areas within ecommerce. In 2024, the cross-border market is estimated to be over $1 trillion, presenting a huge opportunity for growth. 

The U.S. has one of the most open cross-border markets, evidenced by the generous $800 de minimis value, favorable trade terms, and the second-largest ecommerce market in the world. Yet, for many businesses outside the U.S., this market opportunity remains largely untapped. 

Recent findings show that 60% of U.K. business leaders are opting against venturing into new markets, specifically the U.S., due to the impact of navigating cross-border tax complexities. 

According to Digital Commerce 360, almost 50% of leading online U.S. retailers are ignoring international customers, and even going as far as to restrict online goods to buyers outside the U.S. The reason? Complicated regulatory and trade compliance rules in the cross-border market. It’s undeniable — selling and shipping cross-border can be complex and confusing, and compliance complexity continues to stifle international business growth.

When selecting a tax compliance solution to help with cross-border or international sales transactions, consider a solution like Avalara AvaTax Cross-Border and our suite of cross-border solutions that will help solve these business challenges.

Adapting to changing rules and regulations of international trade is challenging due to the complexity and variability of trade policies across different countries and regions. Frequent revisions to these regulations require businesses to invest significant time and resources into staying informed and adjusting their operations accordingly. 

The same is true for classification: the Harmonized System (HS) is intricate and nuanced, requiring a deep understanding of product characteristics and trade regulations. Frequent updates and revisions to HS codes also demand continual monitoring and adjustment – another resource-intensive and error-prone process. 

Whether you need to classify a handful of products or thousands of SKUs, Avalara offers the scalability and flexibility to support your business growth.

HS code classification is the cornerstone of any successful cross-border strategy. Automating HS code classification helps streamline the process by allowing businesses to quickly and more accurately classify products.

Replacing manual and error-prone methods of classification with automation (and human expertise) helps improve compliance and the accuracy of customs and trade documentation. In turn, improvements in trade documentation result in fewer delays in customs, reduce additional supply chain and delivery costs, and help improve customer satisfaction by meeting delivery expectations. 

Avalara’s Tariff Code Classification solutions allow businesses to quickly and efficiently classify their products.

Threadless, an online community of artists and an ecommerce marketplace, has grown significantly over the past two years, launching local delivery options in Australia, Canada, and the EU. Avalara AvaTax for both domestic and international tax calculations solves the company’s tax compliance requirements for sales tax collection, customs and duties, and the like. Threadless also uses Avalara Returns for automatic filing in all 50 U.S. states. For help with its international sales, Threadless uses Avalara Managed Tariff Code Classification to assign the right HS codes for the applicable country.

“I don’t ever lose sleep over it, it runs like clockwork — you don’t hear it, you don’t see it, but it’s always there keeping good time. I’d have to hire at least three people with tax experience to do the work that Avalara is doing for us.”

— Jason Macatangay
Chief Financial Officer, Threadless

Customer experience, loyalty, and repeat purchases serve as the lifeblood of an ecommerce business and have a significant impact on the sustained success and profitability of a business. In the competitive online landscape, providing a seamless and positive customer experience is paramount. 

Since international customers are increasingly looking for more transparency on costs when browsing goods online, the ability of ecommerce retailers to provide more accurate calculations of import duties and taxes at checkout is key. Adopting a Delivered Duty Paid (DDP) approach (vs Delivered at Place) allows the customer to see all charges, including product price, pre-calculation of taxes, delivery fees, and customs duties. With DDP, they know exactly how much they’ll have to pay to get the product delivered to their door.  

This transparency promotes trust, reduces online purchasing anxiety, improves the likelihood of conversion at checkout, and minimizes the shock of surprise fees and rejected shipments by the customer. 

Many businesses lack the time, resources, and in-house expertise to effectively manage the complexity of the HS code system, which demands almost continuous education and robust processes to ensure seamless and compliant cross-border transactions.

Achieving in-house expertise is costly and time consuming. Businesses need to either invest in the hiring of experienced professionals or develop existing staff by providing initial upfront and ongoing training, not to mention the costs of having to maintain trade and customs compliance systems and databases, and the consequences of wrongly classifying items.

Attempting to determine the correct classification manually (and without expertise) is a time-consuming task, even more so for businesses with a footprint in multiple countries that may have thousands, or even hundreds of thousands of SKUs. And classification is not a one-time process but rather ongoing and continuous. As product and service catalogs (and tax laws) change, this necessitates year-round attention, staffing, and resources.  

Automating the classification process can decrease the amount of time staff spend on researching and making decisions on classifications and the country-specific rules for entire product and service catalogs. Businesses can stay on top of their quickly growing and ever changing product and service catalogs without the need to dedicate or find additional resources and headcount to manage large volumes.

Unfortunately, many shipping carrier and customs broker partners see classification as a frustrating means to an end (e.g. monetizing their core shipping or customs brokerage services) and prefer that businesses do their own classifications.

If businesses cannot do their own classifications, the partner may charge higher fees to do this on the business’s behalf, and in some situations may refuse to share the output to protect future revenue streams, forcing the business to buy over and over again.

Businesses may also need to use multiple partners; for example, businesses that choose to use shipping carrier and customs broker partners for classification may also need to purchase separate duties calculation engines. 

Maintaining multiple partners and tax systems is time consuming, complex, and increases the risk of costly errors. 

When submitting customs declarations, importers and customs brokers are required to document the rationale behind the assignment of tariff codes, proving they have exercised reasonable care in the assignment of the tariff code (including pulling in General Rules of Interpretation (GRIs) and chapter notes). Manually documenting this rationale is challenging and time consuming, and if the documentation isn’t accurate, it can leave customs brokers and importers with fines and unwanted attention from customs agencies.

Founded by athletes with a focus on aggressive mountain biking footwear, the company faced tax challenges due to misclassifications of inbound shipments from China to the U.S. This led to disruptions in receiving goods and significant overcharging of duties and tariffs. The complex nature of duty calculations, varying standards between countries, and intricate rules within each country, particularly in the case of footwear, resulted in a duty rate increase from 5% to over 20%. 

To address these issues, recommended by its freight forwarding service, the company turned to Avalara for Managed Tariff Code Classification. Avalara invested time to understand the products and the manufacturing processes, providing HS codes not only for U.S. imports but also for exports to Canada. After a thorough review and confidence in the assigned codes, Avalara integrated them directly into the company’s ERP system.

With Avalara, your business can get ahead while staying compliant. From complying with state-specific sales tax rules, to providing platinum-level customer satisfaction, and growing your company, Avalara can help your business meet significant challenges and position itself for success.

Avalara Cross-Border connects all pieces of the global tax puzzle by automating tariff code classification and delivering real-time calculation of customs duties, import taxes, and sales and use taxes. It is the ideal tax solution for online sellers seeking to establish a modular, best-of-breed platform to power their cross-border needs. Unlike some of the black box solutions out there, Avalara Cross-Border is an open point solution designed to work in harmony with the rest of your ecommerce technology components, providing the freedom to choose other best-in-class partners.

Ready to connect? Talk to one of our cross-border experts to see how we can help support your international growth, or visit our product page to learn more and choose the best solution for your business.