Automated Solution Helps Dylan's Candy Bar Save $100K Annually on Online Sales Tax Collection
With the Supreme Court's decision to side with states in the South Dakota v. Wayfair case, enabling them to collect sales taxes from online retailers without a physical presence (i.e., nexus) in their state, selling products online became that much more complicated for online retailers. This is especially true when you consider the nearly 13,000 different jurisdictions that online retailers will potentially have to collect and remit sales taxes for.
So what are online retailers to do? In this interview with Total Retail, Lois Browne, vice president of finance at Dylan's Candy Bar, an omnichannel retailer of candy and candy-related gifts, discusses the value an automated tax solution from Avalara has had on Dylan's e-commerce business.
Total Retail: What were the online sales tax challenges that Dylan's Candy Bar was struggling with prior to working with Avalara?
Lois Browne: Our rapid expansion into new product lines and distribution channels exponentially increased the complexity of our tax accounting. We had employed an omnichannel strategy, including new retail stores and an expanded e-commerce presence, that introduced even more layers of complexity. This included a greater potential for errors, especially in collecting consumer use taxes, as the requirements for collecting aren't always clear.
As the complexity of collecting use taxes increased, so did our exposure to auditors, making us a yearly target for audits. The accounting team was calculating taxes, filing in each state, and managing compliance for hundreds of customers essentially by hand. We were being charged back taxes, penalties and interest.
To make matters worse, our systems didn't talk to each other. For example, our inventory and point-of-sale systems were completely disconnected. With a growing number and different types of SKUs in our inventory, additional states to contend with, and more financial information to track and manage, we needed a better way to figure out how to manage our business.
TR: How were those challenges negatively affecting Dylan's Candy Bar's business?
LB: Our annual audits were grueling for our team, requiring dedicated time and resources. We were in a big growth period as a company and since our exposure was so high, we had no choice but to prioritize this problem.
TR: What was attractive to Dylan's Candy Bar about Avalara's tax solution?
LB: After we decided on NetSuite for our ERP system, we realized we could quickly start automating sales tax calculations using Avalara. With their help, we're able to manage exemption certificates and easily file returns. Avalara’s solution integrates with our systems out of the box, including our NetSuite system.
To make it even easier for our teams, Avalara’s solutions are seamless and user friendly. It's a simple, turnkey process, and Avalara is able to provide us information about the constantly changing regulations and laws.
TR: What are the business benefits that Dylan's Candy Bar has realized since it started using Avalara's automated tax solution?
LB: Dylan’s Candy Bar expanded into new geographies and locations in the past year — we're now in Chicago, in JFK airport, and even launched a collection with Target this past Valentine’s Day. AvaTax is able to determine sales tax for the new locations and products, a process that can take some businesses months without technology.
With Avalara Returns, we've eliminated the countless hours of labor it used to take to pay each jurisdiction individually. We now make a single payment, which Avalara uses to pay each jurisdiction individually and on-time, based on compliance requirements.
Finally, and arguably most importantly, we’ve shut the door on annual audits. We’re able to exemplify our compliance and confidently present this to auditors. We're seeing real business benefits from ensuring our tax compliance, and we’re no longer the low-hanging fruit we once were for auditors. We've saved more than $100,000 annually in back taxes, interest and penalties.
TR: In light of the recent Supreme Court ruling in the South Dakota v. Wayfair case, how can online retailers begin to prepare their businesses for an environment in which they'll be required to collect sales tax in all states into which they sell, regardless of nexus in that state?
LB: First, businesses must keep an eye on all states in which they do business and closely monitor their transaction history and laws already in place. Businesses must also determine whether they meet the threshold requirement to be affected by this ruling.
After retailers figure out to what states they owe sales tax, the next step is to determine if their business is equipped to collect and remit that tax. This can be extremely difficult to do by hand, as we found out. For many retailers, the best bet to make sales tax compliance a worry of the past is to introduce a sales tax automation product to your existing ERP system. The cost of not complying with state nexus regulations can lead to headaches for your accounting employees, as well as a hit to your bottom line.
The laws are still in flux, and it’s best to consult an expert before making any decisions so that you can figure out where your business needs help.
TR: How will the South Dakota v. Wayfair Supreme Court decision affect Dylan’s Candy Bar's business, if at all?
LB: Seeing as we already employ Avalara’s tax automation solutions, we've been able to “soften the blow” when it comes to the effects of South Dakota v. Wayfair. We feel confident that we can handle the changing tax laws brought on by this ruling and can preemptively address any changes we need to make internally, staying ahead of the curve.
Related story: The Supreme Court and Sales Tax: What You Need to Know