Surprise, Surprise
I have good news and I have bad news:
First, the good news, Avalara is right when it comes to sales tax on a sales tax invoice. * Based on the information provided to Avalara about the order.
The bad news…you may want to sit down for this, Avalara is ALWAYS right (I’m going to narrow this once again to sales tax on a sales invoice based on the information provided)
If you send Avalara an address and it comes back with a tax rate that rate is most likely correct for the information provided.
Why is this bad news? If you we’re happily living in a world where you didn’t apply HI excise tax, or had very black and white Taxable or NonTaxable or worse you’re in a special sourcing state - these are all now 100% coming into play.
Origin Tax
Let’s talk about origin tax. I feel this one strikes the hardest as I don’t think many people know about this. There are several states, notable OH and AZ that if you ship within the state charge tax at the shippers address. If your warehouse is in Florence, AZ at a whopping 11.6% sales tax rate, and ship to any place else in AZ including those lucky ones at 5.6% rate - they will be charged at your 11.6%. Or at least should be.
Commonly, I see when firms setup any ERP system or PSA system such as Business Central or ConnectWise they use the destination rates. Don’t forget that the people who most likely setup your ERP or PSA system are experts at a system, they are not sales tax expert. Now, this is not to say application consultants aren’t people who understand businesses and/or best practices, but a SALT expert I don’t think you’ll find as a common skill set. Setting up a sales tax table doesn’t make you a sales tax expert. Making Origin tax probably very much overlooked; even by people who live/work in those states. Meaning, most people probably have been or currently are living in a world where they weren’t compliant.
Which origin states are great for BC setups, it’s one rate for the whole state! It only will become destination if you ship out of the state.
However, this isn’t great if this is the first time you’re hearing this. More so if you are live with a system not using origin when you should or you’re going on Avalara in an origin state and about to go into shock.
You can find out more here.
Taxable Products
Chances are you’ve been living in a world where a product is taxable or not taxable based on something you might have heard. Using Avalara you get introduced to tax codes. Tax codes could define a license or saas software or IT Monitoring. Welcome to the world of sometimes taxable. What you might find is, you should have or shouldn’t have been taxing a product or service and not finding out that’s incorrect. Which can be a bit of a shock to the system. Each state and even some cities handle products differently. One key advantage of having a software like Avalara is so that sometimes taxable or is this or is this not taxable product is treated correctly. In Business Central I normally just see TPP = TAXABLE, Services/software = Nontaxable. It changes the game, but should put your company at less risk to use a correct code.
Mitigation
Tax laws are complex, the change often or sometimes haven’t been changed in years. Some software tax laws were written before the internet was invented.
The best thing to do is test.
Any software implementation is going to come with new processes, so that’s the first thing you’re looking for.
The second thing you’re looking for is if the results match your expectations. If not why? Do you have wrong expectations? Or is something setup incorrectly. If setups are correct, be open to the idea of why your expectations may be incorrect, more so when you’re dealing with sales tax. You purchased a sales tax software so you would be compliant, let it be your guide.
Third, it’s okay for it to be different. If you learned something new about sales tax, or if you have processes that are incompatible and now need revisited, that’s ok. Just because you did it this way, doesn’t mean you need to continue to do it that way in the future. Adapt.