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Hello, everyone, and welcome to another one of Avalara’s Sales Tax Compliance webinars. We are so excited to have you here today. We have a really great webinar lined up for you. My name is Courtney Drake. I'll be your moderator for today's session. And today we are diving into sales tax 1 to 1 A Beginner's Guide to Compliance. So the goal of today's webinar is to help you gain a basic understanding of sales tax and what your business must do to stay compliant, especially in today's fast paced, ever changing world. Sales tax is one of those things that no matter what the economy is doing, sales tax obligations are always going to be around. So this is always a hot topic, but there's a lot that goes into it. So we're going to help you understand it today. introducing our wonderful speaker today, our tax expert, Hans Olson. So Hans is a senior sales executive at Avalara. He's been with us for 13 years. Sorry, he's been with us since 2013, so just over ten years. And he has helped over 450 companies identify gaps in their sales and use tax processes as helping them to identify the right solutions for tax compliance and what's going to be right for them. So, Hans, we are so excited to have you here today. Appreciate you taking the time to join us. And I'm going to let you dive in and take it away from here. Thanks, Courtney. Appreciate it. As Courtney was saying, I've been at Avalara for just about ten years and help companies of all sizes. So mom and pop shops all the way to Fortune 100 companies help automate processes around sales use and transactional tax. So today we're going to review sales tax 101 basic agenda. First thing is why do sales tax matter? Then we're going to go into some of the basics. So where to collect the wheres the whys, the when. And regarding the whens, we're going to go into Nexis. So what are the requirements to register, collect and remit sales tax? We're also going to discuss the main steps. So what are the five steps to managing sales tax compliance, as well as tips to streamlining the sales tax management? So how to calculate how to report, how to file appropriately? Okay. So first thing first, why a sales tax matters sales tax as well as use tax If you're growing, it is a significant source of revenue for states and you have property taxes, you have income tax, you also have sales tax. States obviously spend a lot of money on this really in the last few years as well as they become under budget, they rely on these sources of income to keep things going and sales taxes a significant amount of that. This graph is a good representation of how states look at this and how much the state actually relies on the revenues generated from sales tax. I the orange are the most reliant yellow Washington, Texas all the way to those states that don't have sales tax such as Montana or Oregon. So sales tax is a state by state tax. It's not federal. And that's what adds to a lot of the complications for this. The states determine their own rates, their own rules that are associated, and it's important to maintain that as long as you're as well as your requirements to registering in those states. you know, one of the things that are important when you're dealing with your own compliance is really determining what your products and services are. As I was saying before, states make their own rules. So depending on what you're doing and for example, I saw a question someone was asking about installation of cable, and the answer is it depends. So some states will tax it, some won't. It all depends on the legislation behind that state and you need to maintain that appropriately. This slide will show broadly tax services. You'll see Connecticut, Hawaii, New Mexico, South Dakota, West Virginia. I mean, those that narrowly sell most services wouldn't be taxable, but something when we talk about this, there's three main categories. There's the where. So where do I have the requirement to register, collect and remit the who? Who are my customers? Are they taxable or do they have an exemption or resale certificate on file? And then also the what very similar to what I was saying about services determining what your products are, what services you're offering, and how that state dictates it. The other is the rates. So it does vary. There are a couple of states, as you see, Montana, New Hampshire, Oregon, they don't have sales tax. They rely on property income taxes for their revenue and others have a variable rate. So 6%. Washington I'm here in Seattle. It's about 10.25%. In the U.S. alone, there's about 13,000 different tax jurisdictions. So state counties, cities, special jurisdictions, all of which need to be equated for if you have the requirement to register and collect. Okay. So a common issue with sales tax is it is pure compliance doesn't add to your bottom line. It's a non-revenue generating activity. And if you do it wrong, all it does is bring risk. So it is really important to stay up to date with changes in the regulations behind what you're doing in the states that you're doing business in. So first thing first is Nexus. So when we talk about sales and use tax, Nexus is essentially just a fancy word for if you've done something or you've sold enough of a product to create a requirement to register in the state. Historically, in this change, about four years ago, with the passing of the Wayfair ruling, historically your requirement to register was created by physical presence. So people place property, unsold inventory, some kind of physical link or tie to a state. It could be remote sales reps. That creates immediate requirement for registration and collection. Where Wayfair came in was that is the requirement to collect and register. If you surpass the state's defined threshold, which we're going to get into a little bit more here in a couple slides later. So in all, there's about five different types of Nexus. We talked about physical. Next would be economic. Economic is applied if you don't have physical presence and physical work created pretty much from day one. There's also click through Nexus. Commonly, this could be on, let's say you're doing marketing through someone who has an Instagram account and they have a link tied in there. Those clicks can created it on where that person is located. Affiliates Are you giving commissions or referrals to people promoting your business as well as marketplace. That's a common one that we see, especially with things like fulfillment by Amazon who stores unsold inventory in their warehouses. Property is considered the same as people in a lot of states. So if they are storing your unsold inventory, it does create the requirement to register while the marketplaces collect on your behalf because they fall under marketplace facilitated rules. You still have a requirement to collect if you've created Nexis on other sales channels, such as e-commerce sites that you direct. Here's a few others. I'm trade shows. A lot of these fall under what we call affiliate nexus. I'm or attributional nexus apologies. This is where the rules really do vary from state to state. There are states like Nevada where trade shows are it's a hub for it doesn't create nexus either, states like Arizona. There's a certain time period behind it. So it's important to recognize what you're doing in the States. What are your activities? What are your sales, and track that appropriately. Okay. So I brought up the wayfair ruling. As I was saying, pre Wayfair either requirement was mainly based off that physical link or tied to the state. That physical presence created the requirement. What was happening, though, especially with the emergence of e-commerce sales, So a lot of states were having business conducted items shipped to those states and they weren't receiving any revenue from it because the end users weren't occurring taxes, they weren't charged sales tax. The Supreme Court ruled against Wayfair in favor of South Dakota, and what that gave was states the right to enforce economic nexus. It can be a dollar amount. It can be a quantity of transactions. Each state defines it a little bit different, but what it entails is if you reach a dollar amount or sell a certain amount, certain amount of invoice is typically within a trailing 12 months. You have the requirement at that point to register, collect and remit this chart’s a good one. It shows the dollar and transactional thresholds. So I know there was a question I saw regarding California. They do have a dollar amount, but it does include exempt sales as well. So 500,000, if you've never been to California, once you surpassed that, you'd have the requirement that goes anywhere from 100 to 500000 from a dollar amount perspective. A lot of states do count exempt sales. Show you that here in a second. The other thing to consider, though, are the transactions. So states have anywhere from 100 to 200 transaction thresholds regardless of dollar amount. If you surpass that, that creates the requirement to register. I mean, specifically if you have customers where let's say you build a monthly, it is quantity of transactions, not quantity of customers. And so monthly billing 12 a year, you can hit that 100 or 200 pretty quickly. This slide here, this is going to show a map on when Wayfair, the Wayfair ruling was first passed, a lot of states did not count exempt sales towards the transaction thresholds. They did count marketplace sales. This has evolved over the last four years. A lot of states now, specifically those in orange, do count exempt sales towards those thresholds. So if you're a manufacturer, you sell through resellers a lot of the states would say you have a requirement to register and collect the exemption certificates, $0 returns. Some still do exclude them once in the blue, and then others have a split or hybrid. So exempt services would be excluded, but the products would not be. Hey, Hans, before we jump into the next section, so a question that came in that I thought was applicable while we're on nexus for businesses that are not located into the U.S., that are e-commerce sellers and they're selling into the U.S., do they also have to comply to these economic nexus guidelines that we're talking about? Yes, that that is correct. So regardless of where your business is located, if you surpass the threshold, you may if you've never been in the United States, you have a requirement to register in that state. Okay. And then one other question along. What is the I guess, the the expectation of the state? So once you meet that economic nexus threshold, you're required to collect sales tax in that state. When are you required to start doing so? Is it on the next transaction or do they give you kind of a grace period? Really good question. It depends. And I hate given that answer, but it really does. This is a state by state decision. States like California will say the transaction after 500,000, you need to collect tax, which means you have to be proactive about it and start the registration process before you hit that threshold as the dollar after you have the required. Others will say the next month there's will say the next quarter. Others will say the next annual year. Each state's a little bit different. Okay. Thank you. Yeah. Okay. You go back. Five main steps to Managing Compliance. The first one we talked about, it's understanding your requirements to where you have to register and collect. Once you're registered, that state will put you on a filing calendar. Could be annual, could be quarterly. It could be monthly, could be monthly prepayments with a quarterly return. Once you have that, that means you need to collect tax and remit it back to the state piece of that filing calendar. The process in there is one you have to collect, calculate and collect the appropriate amount of tax. So not only based off the locations or what we call sourcing rules, but also the taxability of these services or products that you're offering. You also have to track the exemption or resell documents. So any time you're selling something in a state where you're registered and that product is typically taxable or the services taxable, that maybe the customer isn't. So maybe a government agency school district could be a religious institution or someone reselling the product or part of their manufacturing process. There's a document that they have behind the scenes, or it could be an affidavit, and you need to collect that because that's your proof. In the case of an audit why you didn’t charge sales tax. So you're calculating, you're collecting. You then remit that back based on that unique filing calendar that you have a range with each state. Okay. So we talked a little bit, know where your business must collect and remit sales tax. That's based off the rules on nexus registration we were dictating before. Once you create nexus, you register, they give you a sales tax I.D. number, that filing calendar. It's your responsibility then to collect and remit that back based that unique filing calendar arrangement right now calculations. So I've seen a lot of questions so far on services products. Is this taxable or is it not? Again, it depends. Depends on the state. So there are about 12 to 13000 different tax jurisdictions in the U.S. alone. Jurisdictional lines, those lines do change. So keep that in mind. And each jurisdiction has their own rates. Usually the state dictates the rules. There are a couple of states, though, where states and local and self-administered cities create their own rules as well. Like Colorado, Louisiana, Alabama, all states where those can differ regarding products and services. This just kind of shows some of the variability out there. You know, bottled water in Connecticut, if you buy it in a grocery store, it's tax or it's exempt. Convenience store, it would be taxable. You know, toothbrushes, dental floss. In New York, it's taxable. Pennsylvania, it's not powdered drinks. Kool aid is taxable. Tang is not in New York that's associated with astronauts. Back in the day, there was an association of Tang and they may be exempt in certain locations I take out in Colorado. So straws, taxable cups and lids are not that. This is a good example of how the same product very different taxability from state to state. This one too, comes up a lot, at least in the slide decks for ice cream. Everyone thinks it's Ben and Jerry's because it's usually associated with specific state. It's actually because of the size 16 ounce container. Some states consider that more larger than a single portion, and so it'd be exempt in some locations versus 14 ounces in another. Okay. So calculating the right amount like we were talking about, determine your products. The other is the rate. So when we look at rates, a lot of companies, you know, the number one thing that most companies are doing is they're doing it in-house, usually by maintaining a rate table. Usually rate tables are based on zip codes. Could be five digit, could be zip plus or the problem with zip codes. They're pretty good, but they don't always correlate with the right tax jurisdiction. So, you know, you're going to have two customers right across the street from one another, same exact zip code or zip plus for completely different tax rate because of how those lines are drawn. So it's important to know where your customer lies and what jurisdiction that customer falls in. The other side is sourcing rules. So the vast majority of time taxes do based off the destination where the title is transferred. Where is the product delivered to or the service conducted? Any time you do an interstate transaction, so I ship from ship to different state, it will be destination. There are certain states where it can be origin based. Illinois is one of these. California. Texas has this as well. It can also be hybrid. So it pulls from both ship, from ship to you. It all depends on what you're doing and what that state dictates behind those products and services. Right. So you got to know who's your customer, the where, the what regarding those customers, as we were talking before, if they are exempt, you have the requirement to prove why you didn't charge sales tax. You cannot assume that an auditor would think, see ABC manufacturing company is using it for manufacturing. You need to have the documentation on file for that. So usually it's the form of a certificate. If it's a resale certificate, it it can be commonly known or shown as more of an affidavit. But it is important to have those. Some certificates have expiration dates, so like Florida resell certificates expire annually. It's important to have those documents associate with the date of the sale just because you have one. Now does not mean it's valid or compliant in the future sale as well. So we talked about the tracking. You know, you got to have the ability to requested a lot of companies and gaps come up where they do it after the fact. So, you know, customer call up and say, Hey, we need X product, we are exempt. Okay, we'll exempt. You will get the document later. It's always more difficult to get it after the sale and you're responsible for it, not them. So just make sure you're collecting the appropriate documentation and not a driver's license, the proper certificate from that state. So you can prove in the case of an audit, why you didn’t charge tax. Okay, I'm talking about the calculations. You know, the where the what you're selling your customers, if they're exempt when you're remitting this back, it's commonly on the sales tax return. Each state's return is a little bit different. They're going to put you on a unique filing calendar. Could be again, monthly, quarterly, could be annually, could be pre maintenance, monthly. I mean, just depends on what the state is doing at that point. That does adjust over time as well depending on your sales. It can be a paper remittance, it could be an online. Most are moving to online. The difficulty for companies when they're usually filing returns, it's not so much the form, it's the information that's being requested on the form. A lot of states, California is a prime example of this. They require a break out of the full jurisdiction type for everything that you collected. So all the state tax, all the county, the city, the special tax, transportation taxes. It's important to know that a sales tax rate is actually a composite rate. There's multiple taxes in that. And you have to be able to separate them out appropriately for most returns. the last portion here is tips to give streamlining the tax compliance. As I was saying before, most companies, if you're doing this manually, you're maintaining a rate table and they're charging tax on everything or maintaining your tax ability matrices. There are way easier ways to do this and actually are more compliant as well. So a provider like us, Avalara, we help automate the processes around this versus giving you guys just content updates. We connect directly into systems through the quote to cash process. So e-commerce, ERP systems, we maintain all the updated rates and rules on our side. That way, when it calls out, we're calculating based on that date specific legislation. But there are some the main benefits, the names behind this one is the accuracy getting real time calculations so you don't have to keep things updated and you get it correctly every time. Efficiency, reducing costs and time spent. Sales in use tax is a high turnover position for any company. Nobody likes doing that. There's too much too many variables. You're finding that those who are good at it are either moving up or moving out. A lot of the time because again, it's not a job that a lot of people like to do. The other side of this is customer satisfaction. Being able to present the full and it cost to your customer and doing it correctly has a lot of value, especially if you're selling large dollar items. You know, it's important to be accurate on that. So your customers are paying the appropriate amount it. I have seen occasions where if companies are doing this wrong, they're doing a disservice. Their competitors have a competitive advantage because of it. So risk management, this is a non-revenue generating activity. It's important to be compliant at the end of the day is your responsibility business and that's what they'll look at during an audit to make sure it is accurate and then growth and nobody wants to be hit with the tax bill at some point, especially in high growth scenarios. So doing this early versus later is always better. Wait, on that way you're mitigating the risk and you can scale with these as well. A few metrics. I'm going to go into each one, but some of the top benefits of implementing a tax automation software, so that ability to automate the calculations, the reporting, the filing, the certificate management as well as the filing reporting requirements. Okay. This is a visual representation of an issue all of at once. Here at Avalara and how we do what we do. So for some of our customers, they utilize us just as a tax research tool. We have a tool called ATR: Avalara Tax Research. Think of it kind of as the the Wikipedia sales and use tax. You can pull up matrices, rate tables, content, legislation for any products and services out there. Most of our customers are utilizing us though, for the automation tools. We have a tool called AvaTax, in which we have about 1300 different pre-built integrations QuickBooks, Microsoft, Netsuite, and for Oracle, Ecommerce sites, point of sale systems, pretty much all the major accounting point of sale and e-commerce sites. What it does is automates the calculations rather than you maintaining it on your side. It API calls to us. We pinpoint the location of the rate. We know the products, the service supply, the taxability based off that location and bring a subtotal back that we can collected from the customer. I can almost guarantee you everybody on this call today has used us before, but didn’t know it, if you buy anything online, you go to the checkout page to see the sales tax amount. That's us tens of billions of times every year. We're just the brains behind that calculation. We also consolidate all this information, so we provide you full reporting, which is updated at most every 30 minutes. That reporting is broken out by the requirements of each state. So state, county, city, special transportation taxes. You can take that report. You could file on your own. Most of our customers have us do the filing. So that's where we summarize it. You guys approve it, and then we actually fill out the returns file and remain on your behalf to the state you're registered in. Based on that unique filing arrangement. A good question there. Someone just asked, What's the difference between AvaTax and Avalara? Avalara is the company, AvaTax is our sales tax calculation solution. It's just the name of the solution. The other side of this is exemption management so customers that are not taxable. This is embedded into our calculation tool. It helps store track, validate as well as give you the ability to request exemption certificates from your customers. That way you can show why in the case of an audit you didn’t charge tax. Those are some of our core products, what we're historically known for. This slide here is one of my favorites. It's our family of products. So before we went public and we took in hundreds of millions of dollars and a lot of that was buying content and additional companies. This here is a visual representation of what we can do. So everything from licensing, insights, document management calculations, returns and reporting as well as fiscal representation. We are not just U.S., we do calculations around the globe. So Canada, any VAT region. We also setting anything with sales and use tax for transactional tax. We most likely do it. So not all of this will be relevant for you probably today. The reason I bring this up is when we get a new customer, the goal is to be a lifelong customer with them. And so it's important for us to have current products as well as bring in new products that are appropriate for the changes in evolution, sales tax, transactional tax throughout the globe. I saw one question. I'm guessing there's probably been a few on it though. But our solution can in certain scenarios, be free in a lot of states. So there's an organization called the Streamline Sales Tax Organization. It's 24 states that are bound together to simplify sales tax. If you qualify for it, the calculations, the registrations and the filings are covered at no cost within those states. The main conditions for that, though, is you can't have physical presence in there. This organization was set up for voluntary remittance. If it's just economic thresholds, you still qualify. So that's good. But physical presence would disqualify you from the free service, right? What this means and why we're able to offer this is we are one of the only certified providers. We go through stringent test to become a certified provider. And because of that, the states essentially pay us directly for it. They want companies to register and collect appropriately, and they're willing to pay for that. So Hans, we've had a ton of great questions. I don't know anywhere specific that you want to dive in based on what you've seen or I can. I do want to. Yeah, I want to jump in. Sorry to interrupt, but I see there's a Sarah. Right. A question and I want to make sure it's clarified. It was so we don't have to file on sales tax for the states and we know that is not true. Your requirement to register is based off where you have nexus. Those states that were in white are just states that are under the streamlined sales tax organization. And that is where if you qualify, there's free in those. So your requirement to register is based on your where you've created Nexus. So keep that in mind. Yeah. And someone also asked on the topic of SST, what qualifies a business for free sales tax services, I think there are a few a few guidelines that they have to meet before they would qualify for the free. Is that correct? Are you? Yeah. Yeah, that is true. So best way to answer this is give you a context behind the SST. A streamlined sales tax organization when it was originally created. A lot of this was driven because of e-commerce sales before Wayfair. If you weren't charged sales tax, you were supposed to accrue use tax on yourself. So when you think when Amazon first started, they were shipping product throughout the US in that presence in a lot of states so they weren't charging tax it was like want a competitive advantage over local businesses but to the end user was not accruing it. So states were missing out on a lot of revenue. The streamlined sales tax organization bound together to offer that free service so that companies can be compliant in those state. Those states safeguarded against an audit on and they still recoup the revenue. So it's mainly for the remote sellers where you would qualify for it if you have $50,000 property or payroll within that state, it disqualifies you from a voluntary status, which is the free aspect of it. You can still use the SST, you can still use this for it, safeguard you in the case of an audit. But at that point it's no longer a free service. And we do. Yeah, we do have a page on our website too. If you go to avalara.com/sst for streamlined sales tax. So it's just avalara.com/sst that will go through what those requirements are for you to qualify for SST in each state. And it also has the full list of which states do and don't offer it or which states do and don't have a relationship with the SST program. So thanks for going through that, Hans. Yeah, and there is another question regarding SS T, so if you're already registered in an SST state and it's not under the SST you can convert that over to an SST registration. That's not a problem. But keep in mind it goes back to the the criteria. Do you have physical presence, a certain amount of payroll or property? If you do in that state, it disqualifies you from the free service. So yeah, perfect. All right. Well, your sales, it's a very advantageous program and there's no risk to it. It allows you to be compliant. We safeguard in the case of an audit, we actually respond on your behalf during it. We have to. That's why we're certified provider. So remote seller specifically. And there's a lot of questions on thresholds. Thresholds typically only apply in remote sales where you're shipping product, not physical presence. So perfect. All right. Well, I have a list of questions that we can dive into. And if you see any of that come through your hands, you're more than welcome to to get us sidetracked and dive into those. I saw a few questions that came in on local jurisdictions. And do they have their own nexus rules? Do they have their own sales tax rules? So what are some some of the big highlights that businesses need to know there? Yeah. So there's really two flavors of states in the US. There are the normal ones where it's you collect a full composite rate every time you make a sale and you're registered in there, you collect the full rate, you remit it back to the state. There are a few states out there though, where it's different and think of it almost as states inside states. So it requires a separate registration. They also have their own rules behind what creates nexus. Colorado, Louisiana, Alabama. These are just a few of them. We have this information on our website as well. And if you type in on home rule states Avalara, like in a Google search, you'll find it pretty quickly. But it does require a separate registration. There can be difference in rules. So I'll give you an example. Our solution AvaTax is a software as a service. The state of Colorado doesn't tax our product but Commerce City used to. And so when we would apply tax to customers there, we wouldn't apply the 2.9 state. We would have to apply the Commerce City rate. So for those states specific, it's important to know your requirements not only at the state level, but also those local self-administered jurisdictions and then the rates and roles associated. We automate all that easily with our tool. So and then what about Nexus? Sorry, if you if you touched on that, do local jurisdictions follow the state's economic nexus threshold? I that No. So the individual self-administered localities are starting to enforce their own requirements. So physical presence again will do it from day one, but then they are putting their own thresholds in there. It hasn't been widely enforced yet, but I imagine it's going to be more and more going into the future. Yeah, for sure. Okay, let's see. So this is another one that came through quite a lot. Where do businesses go? So if they're not an Avalara customer, where do businesses go to find out about taxability rules, especially when it comes to product tax ability? I saw several questions saying, Hey, this is my business. Am I required to pay sales tax? And part of it goes back to is your product or service taxable? So where where would what would be the resources that you would suggest businesses go to to figure that out? I mean, you could scour the state's websites. Most states have online database, but it's your responsibility to find it. That's half the bet because there's not a centralized location. And unless you use a provider like Avalara, which takes us a lot of people to consolidate all that, every state is different. They have their own website and their own processes. So if there's some ambiguity on what you're doing, you can always get a ruling, but then it's kind of the same issue is you got to call up the state, you got to get the rule, you get to get the right person. It's a very manual process to get that updated. Yeah, definitely. I did want to call out Avalara Tax Research, which I know you touched on earlier, but I think that that can be a really great resource even for people that aren't necessarily looking to automate yet automate their tax operations, but they're just interested in getting some of that manual tax rates tax abilities, rules, information. So I liken it to the Google and sales tax, but I know you've referenced it as, the kind of having a tax provider up your sleeve, so to speak. So is there anything else that you would call out about that now? That's a great point. Instead of doing the manual work and having to research all this, we do have a centralized database of Avalara Tax Research for all products and services. We have the taxability matrices, we update it. It shows you once you start clicking on the links, it'll show you the actual legislation with the documentation. I had one the other day was up in Manitoba, Canada, where for software service they had an updated the rules 2001, but we had in their very rare scenario where they only charge tax at the servers located in Manitoba, which you never know whether servers there or not. But it gets to that detail. The other main benefit of this too, is it gives you a direct contact to our tax research team in our tax efforts. So if you have questions about what you're doing, you know how to state define this or you know he really any questions of sales and use tax there's that question form directly in there and we respond to every single one. It's how we also help expand the database is we see what questions are being asked. Most we've answered before, but there are some good ones that come up. And then once we get new ones, we expand on the database from there. Awesome. We have another question that came in around zip codes, and this one was specifically asking about our rates tables, but it brought up an interesting point on zip codes and why, like their association with sales tax, I think you talked a little bit about why sales are why zip codes are not necessarily a good way to determine sales tax. But can you into that a little bit more? Yeah, there's a couple questions in there. So first, the zip codes themselves, ZIP codes were made for shipping purposes. They were not made for sales tax purposes. They do an okay job of correlating with tax jurisdiction lines, but they aren't perfect. So you can't have customers with same zip codes right across the street, totally different jurisdiction lines and those changed. So keep that in mind. The the only way to truly be accurate is latlong which is rooftop. And we're one of the only providers that does this. So in our solution, we bring over the ship from ship to address addresses. During that 60 millisecond calculation, we validate them. So we're scrubbing, I guess the US Postal Service database. Yes, it's a nice value add, but the reason we're doing that is because you guys behind the scene to convert to latlong, which gives us rooftop accuracy behind will maintain the jurisdictional lines, drop it in on a map that gives this right assessment. It's also important to know your sourcing rules though, so the rate is only one piece of the equation. There are certain states where you apply the origin. Some you pull from both. You need to know what your state dictates for that transaction. Most the time it is going to be destination. But you keep in mind there are a few states out there that are perfect. Thank you. Also need to update those by the way. So sorry just to continue to add on it zip codes. So because those rates or rules change. So like Seattle last year we went from 10.2 to 10.25%. You have to have some kind of system in place to know when a place changes its role, because usually you would update your tax item, whether it's QuickBooks or Microsoft or Oracle, you need notification of when something goes from 10.2 to 10.25, and then you have to update that if you do it manually. So it's just a piece of the puzzle. Definitely is going through some more of these questions here. There's so many good ones to choose from, trying to figure out which one to ask as a couple. Oh, this is a good one. So if I only hit economic nexus in a state for one year, am I required to then collect sales tax and file monthly returns forever? I again, there's kind of a couple of things tied in that, yes, you would have the requirement to register. Once you register, then you're registered, you have the requirement. I'm on a move forward basis to collect and were made appropriately. Now, if you go under the threshold, states do have rules where you can register, but it's your responsibility to do your register. If you're registered there, you have the requirement. So states will adjust your filing calendar there. So you said monthly dates will not always put you on a monthly filing calendar. They can put you on an annual or quarterly if they start you on a monthly and your sales reduced for some reason, it's not unlikely they'll move you to a quarterly or potentially an annual basis. It just depends on the state you live. And and I have seen a couple of questions. So going back to taxability, product, taxability, all of that stuff, does Avalara automatically upload and know all of these tax rates into our system? And the answer to that is it takes a lot of work. But yes, but is there anything that you would add on that, Hans? Can you say that one more time for me? So we're not bringing in rates into your system. It's calling out to us. We calculate when we bring back the total amount of tax. If you do it manually, that's where you have to update everything. And yeah, I think the question was more along the lines of what does. So the AvaTax, does that automatically understand all of these rate changes, the rule changes, the product taxability changes, Does that automatically get updated in your system or in our system? Yeah. Not only does it update it, but we guarantee it. It takes a few hundred people alone just to maintain their relationships with the states to keep this updated. Yeah Yeah. Now there's a good question here on sourcing. So if Avalara calculates the tax rate based on the ship to address of the customer, how is tax calculated? If, for example, Illinois, we don't always calculate on the ship to. So this is why we bring over both ship from and ship to. We establish the sourcing rules. If it's an Illinois transaction, which is an origin based state, it will revert in a ship from ship to Illinois. It will revert to the origin. Now, one thing I would be careful about in this example, because Missouri's asked about it as well, those are both origin based states. We'll see examples where companies get this wrong. If Illinois is shipping to Missouri, it will revert to a destination. It's an interstate transaction. So interstate for those would be origin. A destination would be if it crosses one state to another. Kind of a niche question, sorry you guys, but it was a good one. I got I had to answer that one. No, totally. Well, along those lines somewhat, someone asked the questions or or a question around marketplace sales. So there's specific question. If you have AvaTax connected to a marketplace selling platform there for example, was Shopify can have AvaTax determine whether the sale should be taxed by origin, location or destination. But I almost don't think that that's the right question to be asking, because on a marketplace, it's usually up to the marketplace to do that, right? Got it. So most marketplaces fall under what we call marketplace facilitator roles passed very closely to the way here. And what it dictated was these marketplaces have the requirement to collect on behalf of the vendors and remit on behalf of the vendors. So it's their responsibility for the tax on those marketplace sales. You still have to report your gross sales, include that on your returns to a lot of states. But the actual calculation piece for those sales would be done by the marketplace. Usually they would incorporate the sourcing rules on specialty marketplaces are utilizing us. So they're doing it pretty pretty accurately. And you did mention Shopify. Shopify is fantastic. We have a great relationship with Shopify, but be careful and make sure that you're actually utilizing them for a marketplace I'm in because they have different portions of their business. You know, some are just using it for an e-commerce component. Others our marketplace marketplace is covered by them for the calculations, but if it's just the e-commerce portion there, then you would still be on that. Who is the merchant of record is really important as a great call out. Thank you for that. We've had quite a few questions around services and especially when it comes to digital products and services. And I know we don't have there's not a blanket statement because I think for that it really does depend on the depends where at what you're selling, where you're selling. But is there anything that you would want to elaborate on when it comes to kind of the services or digital goods services questions? It depends. It really does. So Washington, you know, software as a service, technically it's a digital good, an API call going in and out. Washington will fully tax it. California does not tax it, Texas taxes it If it's over 80% are sorry, will tax it at 80%. It just depends on what the state it gets behind it. California for tech software usually doesn't tax it. There are some manage service agreements, which they do. They consider some of it a tangible product. So defining your products and services are really important and then determining the taxability based off those definitions. So sorry, I know that doesn't help, but that's the challenge behind it is depend on the state. Yeah, yeah, totally. And I think it's either up to businesses, you can totally go out and source it on your own, find the information in the documentation on your state's website, see if it applies to exactly what your services or what you're selling. And if it doesn't, or if you're you're not able to find a good response to the documentation they have, you're left with reaching out to the state individually and contact their OR. And this is where something like Avalara Tax Research and type of tax database can really help where you have access to tax experts who may have been asked that exact same question and might have the answer off the top of their tongue or are able to kind of reach out to a community to get answers to their questions. Yes. Spot on, you know, having having access to an expert. So any you know, sales and use tax is important, especially when classifying products. Yeah, absolutely. But there are crazy nuances out there, you know, clothing and apparel. You know, people think clothing, it's a tangible item, it should be taxable. In California, it's taxable. In New Jersey, it's typically not. In New York, It's only taxable if it's over $110. If the items under it's not. So there's just a lot of weird rules out there. Yeah, I did see a question that just came through around exemption and or exempt sales. So this person was specifically asking how does Avalara and the software know if an e-commerce order is exempt from taxes? Can you talk a little bit about maybe the back end process that goes on behind the scenes? Yeah. So again, this depends on this is one of our biggest differentiators is we have so many prebuilt integrations, so e-commerce sites, ERP, ideally for our customers, what we're doing is we're implementing and connecting with every platform through the quota cache process. The invoice level is really the most important because if an auditor walks in the door they're not going to looking at AvaTax, they're going to look into GL They're going to see or your ERP and look at the invoice itself. So having a connection point where you recognize or finalize the sale is really important. It's the customer that you're selling to. You can flag it as exempt with our ECM tool exemption certificate management. If there's if and only if there's a validated document on file for that customer is when we would exempt the customer. You can have flexibility in it. You know, you can still tell the system to not tax it. We just don't recommend it because it's not fully compliant. For e-commerce orders, what's most commonly done is, you know, if the customer is exempt, you'll see that there's a separate log in. So there's a process in place behind the scenes. Hey, are you a reseller? Perfect. Create a log in, we’ll contact you. You will get your exemption certificate. We have the APIs tie in to get those exemption certificates if it so that handles the entity, the customer side. If you're asking how do we know if it's exempt from a product or service, this all comes down to what I call tax codes. It's definitions that we maintain. It's part of the setup process. On our side is you assign your items, categories or groups to our contact codes. That way, when the web call occurs, we not only know the where, but we also know the what, and then we apply the taxation behind that. So if it's in a state that it's not taxable, we apply zero tax. Perfect. Okay. And one quick question. I just saw this one going or come in related back to the marketplace sales conversation that we were just having a we required to report the amount of sales tax remitted on our behalf by a marketplace facilitator on our sales tax returns I think was great. Yeah, yeah. And usually not so much the tax remitted, but the gross sales is some states will ask for it. It just depends. But minimal gross sales are usually required for it. Got it. We have also built what we call extractors for most major marketplaces. So while we want you calculations because they're collecting it already, we will have the ability to extract the data, to consolidate it with your other sales channels. That way you can report the gross sales on the returns and report appropriately on it. So, But Hans, appreciate your time and expertise here. This is really great. And going through all of this Q&A, I know I always learn something on these webinars and I've been doing this for about four, four and a half years. So I hope for all of our listeners that you were able to get some valuable information out of this and have a deeper understanding of what sales taxes and what you need to know to get started. and we will see you for one of our future webinars