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TaxCloud, David Campbell and the Marketplace Fairness Act

TaxCloud is a sales tax calculation software made by the for-profit company FedTax. If the Marketplace Fairness Act passes, tens of thousands of small businesses will be forced to use either FedTax’s TaxCloud software or software provided by one of the other five certified software providers (all of them for-profit businesses).

FedTax would likely profit handsomely if the Marketplace Fairness Act (MFA) were to pass. In Fact, collectively, certified software providers could make hundreds of millions of dollars at the expense of taxpayers and small businesses.  One of the other certified software providers, Avalara, has already raised around $49 million in Venture Capital funds from Benaroya, Pioneer Venture Partners, and Sageview Capital.  One venture investor said that the VCs believe the MFA could be  “a big driver and a catalyst for the industry.”  David Campbell, FedTax CEO, appears to be pursuing big investment dollars, too.

“We are building contacts with institutional investors,” – David Campbell, CEO of FedTax.

David Campbell and his company FedTax will benefit if the MFA passes, so we can understand his enthusiasm for the controversial legislation. But in our opinion Campbell is more than merely enthusiastic. Continue Reading →

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Avalara and the Marketplace Fairness Act

Avalara is a venture-funded, leading provider of sales tax and compliance automation services.  A director for the company recently spoke at an event held by proponents of the Marketplace Fairness Act (MFA) and Fortune magazine recently featured them as a big “winner” if the MFA passes.  Yet, Avalara has publicly expressed  how burdensome and crushing sales tax compliance is for remote sellers.  This does not change if the MFA passes, hence the need for their software, or software like it, in order to help alleviate some of this enormous burden.  The quotes below (clearly marked with quotation marks and with a gray background) are from their publicly available white papers, with a large portion of the quotes found in their publicly published Sales Tax Survival Guide 2013.  Avalara aims to alleviate some of the burdens and risks foisted on small businesses via the Marketplace Fairness Act and they will be compensated handsomely for it.  But small businesses have repeatedly pointed out (hereherehere and in a  joint letter to congress and even in person to Congressional Reps) that software (even when subsidized by taxpayers) is not sufficient. Not even close.

In fact the American Association of Attorney Certified Public Accountants (AAA-CPAs) strongly opposes the Marketplace Fairness Act because software can’t protect small businesses from the costs and audits. In an open letter they say “Proponents of the proposed legislation would like you to believe that free or low cost software can so simplify the collection process for remote sellers that the time and effort to comply will be minimal. This misconception could not be farther from the truth.”

Now let’s look at Avalara’s quotes.

Note: Remote sales tax collection and remittance requirements introduce a crushing compliance burden on small businesses. 

“Considering the already impenetrable maze of sales tax collection rules, businesses face an uphill battle this year. Sales tax compliance in 2013 requires more resources and expertise than most small to midsized businesses possess.[i]

“Current state and federal proposals to change sales tax collection requirements on remote sellers such as online retailers add to an already difficult compliance environment for businesses.” [ii]

On average, sales tax compliance costs small and mid-sized businesses three to 15 cents per sales tax dollar collected. According to the U.S. Census Bureau, failure to account for that expense is one of the principal causes of small and mid-sized business failure in the United States. Why? The components of this compliance expense are difficult to pinpoint and often overlooked. The costs are hidden in staffing, compliance, accounting systems, information technology, and other business infrastructure.  In addition, sales tax compliance is a passthrough activity that adds no value to the bottom line. Sales tax collection requires you to act as an agent of each state in which you have nexus and collect and remit sales tax accurately. And if you don’t do it correctly, accurately and on time, your business can face heavy fines and penalties.[iii]

Continue Reading →

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Is Avalara Rooting Against Small Businesses?

NOTE: This is an open letter to Avalara from one of our members. Many of us are disappointed with their actions.

Dear Avalara,

Many of us do not appreciate Avalara’s continuous efforts to understate the complexity and all those who read articles written by someone affiliated with Avalara need to be aware that Avalara will be one of the greatest financial winners should this bill become law. (See Fortune.com).

#1 – Software only automates things if given the right inputs. The black box will take an input and give an output. The inputs need to be a) what the item is in a very detailed way that each state defines differently, b) the shipping location. No software is going to be a mind reader to know what the item is. Many of us sell unique items for which there are no UPC codes. Our very business models depend on uniqueness and constant supply of fresh unique products. The biggest risk of audit won’t come from using a 6.25% rate rather than 6.35% (and certainly software will get that right) but from misclassification of the item because a silk scarf is a taxable accessory in one state and a non-taxable apparel item in another, and in another taxable but only if it is machine painted but not if it is hand painted.

#2 – Many customers calculate their own tax and pay by check. There is no software which can automate that. How do we help someone who isn’t online, doesn’t have a computer, doesn’t want to learn to have a computer continue to shop remotely?

#3 – The software integration efforts are enormous. Avalara cannot offer anything that “plugs and plays” with our many home grown systems, all of which must have the same rules and must also know the specific classification of the products. We have our backend ERP system, our front end web systems, our WHS which charges the credit cards and ships the orders, and our returns system. Anyone on a custom system will need to figure out how to do, test, and maintain custom coding to talk to the “free” software.

#4 – Speaking of that free software, as the MFA is currently written, that’s 26 different pieces of free software (one for the SSUTA states and 1 for each of the others), not all of which will work in the same way. Of course, that creates the need for very non-free software from a company like Avalara because no one could possibly integrate the 26 freebies, so we pay dearly for a piece of middleware, right?

#5 – And what about shipping and handling? Taxable or not? Well… that depends on the state. Some states, it is always yes. Some it is always no. Some it depends on whether the item is taxable. Okay.. for those of us with $ based shipping tables… say a consumer owes $19.95 in shipping and in their state 2 of the 4 items are taxable and 2 are not. Do we charge sales tax on half the shipping and handling? Do we weight the taxable amount of shipping and handling based on the dollar value? What happens when someone returns an item for which some of the shipping and handling sales tax was taxable. If we don’t refund the shipping and handling, do we refund the portion of the sales tax on the shipping and handling that was due to that item. Good luck getting the same answer twice from any state. Given that every company’s shipping and handling logic is different based on its business model, pricing strategy, dominant channels etc … we need a whole new level of integration between our shipping calculations and all this “free software.”

So please, stop saying it is easy, when it isn’t. And, if this becomes the law of the land and everyone figures out how to get it done (presuming they can do so and even stay in business), Avalara will come in and try to be the savior… for a price!

Terri S Alpert
Founder and CEO
Uno Alla Volta and The Artisan Table