With tax rules changing every year and varying across state lines, retailers face tremendous headaches trying to keep up. The entire process takes a lot of time and manpower, but if retailers fail to comply, they will face tremendous scrutiny — even legal penalties.
Both Chinese Laundry and digital retail agency NetRush sought to simplify, and even automate, their own sales tax management processes by implementing tax automation software provider Avalara.
With the solution, both companies have been able to:
Reduce the time spent managing sales and use tax;
Avoid overpaying sales tax; and
Pass tax audits without penalty.
Selling across numerous third-party retailers and through its own e-Commerce site, Chinese Laundry implemented Avalara to take the pressure off its internal accounting team. The retailer recently expanded its “nexus” — tax lingo for a “substantial physical presence” in a state jurisdiction — to three states, obligating the business to calculate, collect, report, and remit tax in those areas.
Scott Cohn, VP of E-Commerce at Chinese Laundry, said the brand wanted to “take our energy so that we can focus on selling more shoes and creating the brand connection rather than spending a lot of time dealing with taxes.”
While Cohn admits that managing taxes “isn’t the best use of our time,” and the team has less expertise in it, it’s something that “has to get done.” After all, shoe taxes can vary from model to model, depending on whether the footwear is made for “fashion” or “function.” Avalara, however, helps the Chinese Laundry ensure they’re making the correct tax decisions, and even automatically recognizes convoluted circumstances such as tax holidays and tax rule changes so the team doesn’t have to monitor the situation intently.
“We won’t have a customer say, ‘I just bought a $100 item on your web site and the tax was x, and I bought a $100 item on a different web site and the tax was y,” Cohn said in an interview with Retail TouchPoints. “We know that we’re going to be collecting the right tax for the right item each time regardless of those changes. From a customer-facing point-of-view, it’s ensuring that accuracy; and from the back office point-of-view, we’re not worrying about manually changing the web site to deal with tax holidays and managing the dates around events like that.”
NetRush Gains A Competitive Advantage
As a retail business that actively manages third-party brands on the Amazon marketplace platform, NetRush gains a unique benefit from Avalara. NetRush can free up time to manage these brand partnerships, all while monitoring its own sales tax.
“Avalara has given us a competitive advantage,” said Chris Marantette, President at NetRush. “We’re in a marketplace where there are more than two million sellers and there’s a small percentage that actually collects sales tax. From the brands we work with, NetRush is sustainable from a tax standpoint because we’re not worried about getting called out for an audit that we’re going to owe five years back taxes on.”
NetRush initially had nexus in two states, California and Washington, but accelerated its presence to 12 states within a six-month span. With a lean accounting department of only three team members, the brand implemented the Avalara solution. The agency is now registered in 20 states.
“We file ownership and corporate income taxes in every one of those states,” Marantette said in an interview with Retail TouchPoints. “We’re filing almost 300 tax returns if you include the sales tax. You can imagine the burden that is being lifted off of our team. We take the data, make sure it’s normalized and Avalara takes it from there.”