DTC Podcast Summary: Bonus Episode on Sales Tax Compliance with Avalara's Meg Higgins

Release Date: November 20, 2024

In this bonus episode of the DTC Podcast, hosted by the DTC Newsletter and Podcast team, Meg Higgins, Senior Vice President at Avalara, delves deep into the complexities of sales tax compliance for direct-to-consumer (DTC) ecommerce brands. The discussion navigates through the challenges of cross-border tax compliance, the intricacies of U.S. state-level taxes, and how Avalara's solutions can simplify these processes for growing businesses.

1. Introduction to Cross-Border Tax Compliance

Key Points: Meg Higgins begins by highlighting the widening scope of online businesses, emphasizing that operating globally brings forth a myriad of tax compliance challenges. As businesses grow and diversify across multiple channels post-COVID, manual tax management becomes untenable, increasing the risk of non-compliance.

Notable Quote:

“If your business is growing and if you're trying to expand globally, make sure you're thinking about any compliance triggers. It's way easier to solve it upfront before you trigger any audit issues than it is having to retroactively solve for that.”
— Meg Higgins [00:00]

2. Meg Higgins' Journey to Avalara

Key Points: Meg shares her extensive background in technology and ecommerce, particularly in cross-border operations. Her expertise in handling tax complexities in international markets made Avalara a perfect fit as the company sought to deepen its cross-border capabilities.

Notable Quote:

“We really crossed paths because Avalara was looking to go deeper into Cross Border. There's so much overlap and the solution that whether you're transacting digitally or trying your physical business overseas, you need a lot of the same capabilities.”
— Meg Higgins [01:54]

3. The Headache of Cross-Border Tax Compliance

Key Points: Meg elaborates on the multifaceted challenges of cross-border ecommerce, including:

• Global Accessibility: Online businesses are inherently open to a global audience, necessitating the capability to manage international orders.
• Product Classification: Accurate product composition details are essential for HS codes, which determine duties and taxes.
• Fully Landed Cost: Transparency in total costs (including taxes and duties) is crucial to avoid customer dissatisfaction.
• Currency and Payment Methods: Adapting to various currencies and payment systems is vital for seamless transactions.
• Logistics and Delivery: Efficient and traceable shipping solutions are necessary to meet modern consumer expectations for swift delivery times.

Notable Quote:

“There's been so much more demand online and you can't just operate on a single channel, you have to be in multiple channels. It's almost absurd to think that you could do that manually and not have some tax problem.”
— Meg Higgins [03:27]

4. Navigating U.S. Sales Tax Compliance

Key Points: Transitioning focus to U.S. domestic tax compliance, Meg discusses:

• Economic Nexus: Post-Wayfair decision, states enforce tax obligations based on sales thresholds, not just physical presence.
• Multi-Platform Sales: Managing tax obligations across various sales platforms, including personal websites and marketplaces like Amazon and eBay.
• Catalog Management: Ensuring accurate tax codes and classifications for ever-evolving product catalogs.
• Manual vs. Automated Processes: Highlighting the risks of manual tax management, including inaccuracies and inefficiencies.

Notable Quote:

“The bigger that merchants get, the more sophisticated their businesses get... you can't just operate on a single channel, you have to be in multiple channels.”
— Meg Higgins [07:30]

5. Risks of Non-Compliance

Key Points: Meg outlines the severe consequences of overlooking sales tax compliance:

• Audit Risks: Potential for audits increases, leading to hefty tax bills and penalties.
• Inability to Collect Retroactive Taxes: Unlike system automation, manual errors limit the ability to recover unpaid taxes from past transactions.
• Operational Inefficiencies: Time and resources spent on addressing compliance issues could divert focus from business growth.

Notable Quote:

“The consequences of that is, depending upon the duration that you've been doing it incorrectly... it equates to potentially a pretty heavy tax bill.”
— Meg Higgins [12:26]

6. Surprising Tax Nuances

Key Points: Meg shares intriguing examples of tax regulations that can catch businesses off guard:

• New York: An unsliced bagel is non-taxable, but a sliced and toasted one is taxable.
• California: Fruit sold in vending machines is taxable, whereas it's exempt in grocery stores.
• Product Ingredients: Reese's Peanut Butter Cups are taxed differently than Twix bars based on ingredient criteria like the presence of flour.

Notable Quote:

“There's 14,000 sales tax jurisdictions in the US alone that are all independently operating and at times setting their own rules. So that's bananas.”
— Meg Higgins [15:03]

7. Avalara’s Solutions for Simplifying Tax Compliance

Key Points: Meg outlines how Avalara addresses these challenges through:

• Tailored Tools: Offering solutions for businesses at various growth stages, from startups to multinational enterprises.
• Nexus Assessment: Tools to determine where businesses have tax obligations.
• Catalog Management: Utilizing AI to keep product classifications accurate in real-time.
• Integrations: Seamless integrations with ecommerce platforms (e.g., Shopify, WooCommerce), POS systems, CRM, and ERP applications.
• Global Capabilities: Handling international tax requirements, including e-invoicing mandates in countries like France and Germany.

Notable Quote:

“Avalara has a global platform that does back calculations... all of that capability is resident within Avalara.”
— Meg Higgins [25:28]

8. Case Studies and Common Mistakes

Key Points: Meg shares real-world examples highlighting common mistakes:

• Undercharging or Not Charging Sales Tax: Some merchants either neglect to charge sales tax or use inaccurate flat-rate tables, leading to compliance issues.
• Assuming Manual Processes Suffice: Relying on manual tax calculations is error-prone and unsustainable as businesses scale.

Notable Quote:

“Assuming that you can do it either manually or assuming that you don't have an obligation, I think is absolutely probably the most prominent issue we see.”
— Meg Higgins [19:26]

9. The Future of Tax Compliance and Industry Changes

Key Points: Meg touches on potential future developments impacting tax compliance:

• Political Influences: Upcoming elections and policy changes could introduce new tax regulations and tariffs, especially concerning cross-border imports.
• Local Manufacturing: A possible shift towards sourcing and manufacturing locally to mitigate rising import taxes.
• E-Invoicing: Increased mandates for real-time electronic invoicing in various countries, necessitating advanced tax management systems.

Notable Quote:

“Crossing Borders imports... some of those folks ran on that as a campaign theme and I think that’s absolutely something that’s going to happen.”
— Meg Higgins [20:59]

10. Onboarding with Avalara

Key Points: Meg explains the onboarding process with Avalara, using Shopify as an example:

• Integration: Avalara integrates seamlessly within the Shopify admin console.
• Dedicated Support: Businesses are guided by Avalara’s sales and solution teams to configure the right solutions.
• Scalability: The integration process is flexible and scalable, catering to both simple and complex business needs.

Notable Quote:

“The integration is built in such a way that it doesn't take months to do. It really could be done in days.”
— Meg Higgins [22:43]

11. Final Advice for DTC Brands

Key Points: Meg advises DTC brands to proactively address tax compliance as they scale:

• Early Action: Address compliance triggers before triggering audits.
• Utilize Tools: Leverage Avalara’s resources like risk calculators and downloadable guides.
• Stay Informed: Keep abreast of changing tax laws and integrate automated solutions to manage them effectively.

Notable Quote:

“If you aren't already thinking about what you're going to have to do if your business is growing and if you're trying to expand globally, make sure you're thinking about any compliance triggers.”
— Meg Higgins [24:51]

12. Closing Remarks and Resources

Meg encourages listeners to visit Avalara’s website for tools and resources, follow her on LinkedIn, and engage with Avalara’s partner integrations to streamline their sales tax compliance processes.

Notable Quote:

“If you are interested in working with Avalara...”
— Meg Higgins [26:27]

Conclusion

This insightful episode underscores the critical importance of meticulous sales tax compliance for DTC ecommerce brands operating both domestically and internationally. Meg Higgins provides valuable perspectives on navigating the intricate tax landscape, emphasizing proactive management and leveraging automated solutions like those offered by Avalara to ensure sustainable and compliant business growth.

For further information and resources mentioned in this episode, listeners are encouraged to visit Avalara's Website and connect with Meg Higgins on LinkedIn.