Taxes, a universal constant, is an ever-present element of doing business. Regardless of whether you run a small bakery, a tech startup, or a large corporation, navigating the tax laws is a fundamental part of the journey.Sales taxes in the USA present a complex and dynamic landscape. With thousands of taxing jurisdictions - each one having its unique sales tax laws and exemptions- staying compliant is not a walk in the park, to say the least.
In our previous blog post, we delved into the intricacies of nexus laws and how the complexities arise from the differences between jurisdictions and ever-changing rules and regulations. But there's another layer of complexity, and that's the matter of sales tax exemptions.
Let’s talk exemptions
Sales tax rates change from one state to another as do tax exemptions. Exemptions are granted for certain sales based on various criteria. These certificates vary from state to state, and some states may have as many as 30 different exemption certificates.
Exemptions depend on parameters such as the product or service a business is selling, who is purchasing it and for what purpose, and where the product or service is being purchased. All these factors need to be considered to determine whether tax exemption applies to a particular sale.
Certain products are exempt from tax, some organizations or companies might qualify for tax exemption, and sometimes the criterion for an exemption depends on the use of the product. All these parameters change according to the laws in a specific location. It is the seller's responsibility to collect, verify, and store the customer’s correct tax exemption certificates. Businesses that fail to comply may face significant penalties or could even be required to pay back taxes that were not collected.
This is a laborious and time-consuming task, especially for businesses operating in multiple states or selling to a variety of customers. Businesses must understand all the ins and outs of exemption laws, calculate the correct amount of sales tax and exemptions, collect the relevant certificates and verify them, as well as store and report them, and, of course, remit the tax in time.
Avalara has created a cloud-based infrastructure which is based on its expertise and extensive knowledge of all tax laws and regulations. Its vast database is continuously updated to reflect changes in the law, thus, bridging the gap between businesses and the regulatory authorities, and ensuring they remain tax compliant. The software integrates with ERP and accounting systems so businesses can streamline tax management within an existing workflow.
Avalara help you
- Reduce the risk of manual errors
- Automatically apply exemptions to eligible transactions
- Validate exemption certificates and keep track of expiration dates
- Mitigate the risk of non-compliance penalties
Another benefit to Avalara is it can calculate sales tax in real-time, minimizing the risk of overcharging or undercharging customers and improving customer experience. Once the software validates an exemption certificate, it files the documents so that a company can create reports and prepare remittance as well as an audit, which is easily track and can be retrieved when required. The entire process becomes automated, documents are stored, tracked, and accessible from the cloud.
For example, if you have a business selling products or services and a customer provides you with their tax exemption certificate, Avalara software can identify whether the entire sale should be exempt of tax, or just part of it, or none of it. This eliminates the guessing game; you can guarantee you are charging your customer the correct amount, and you know every transaction is accounted for and compliant.
Gain crucial exemption usage visibility
In the world of business, success hinges on expertise, innovation, and service excellence. It's about baking that perfect croissant, delivering top-notch tech solutions, or simply improving your customers' lives. However, the intricacies of tax exemptions and compliance can often divert attention and resources away from these core competencies. This is where automation plays a pivotal role in allowing companies to do what they do best.
Avalara helps businesses by automating document management and seamlessly organizing, storing, and tracking all tax exemption certificates and related documents in the cloud.Whether you're preparing a tax audit, verifying exemptions, or simply seeking historical records, a software that manages this accurately ensures that these documents are at your fingertip.
Thus, while taxes remain an integral part of every business, Avalara's software provides a practical solution that empowers businesses to prioritize their expertise over the complexities of tax management, while keeping them confident that their tax exemption management is in capable hands.