Business

Where to put the decimal point

(L-R) Rory Rawlings, Scott McFarlane and Jared Vogt of Avalara - DOUGLAS CRIST/Staff Photo
(L-R) Rory Rawlings, Scott McFarlane and Jared Vogt of Avalara
— image credit: DOUGLAS CRIST/Staff Photo

Avalara simplifies the business sales tax.

Marshmallows are taxed three different ways in the U.S., depending on color and size. School supplies in New York City are sales tax-free – but only the week before school starts.

An accounting headache? Avalara is bringing aspirin.

“It’s all about jurisdiction,” said Scott McFarlane, chief operating officer of the Winslow-based business. “Just because you are in one state doesn’t mean you don’t have a sales tax problem.”

Avalara opened shop a year ago to take the pain out of sales and use tax calculating and filing for small- and medium-size merchants.

The rules begin with paying sales tax on products sold in states where a company has a place of business, but the rates can vary dizzyingly by location, date of sale, product and customer – with some 8,000 taxing jurisdictions nationwide. Seattle alone has three taxing authorities – state, city and the Regional Transit Authority – each of which must be reported separately.

Avalara’s solution is an application service provider (ASP) software, which a business’ accounting package can call out to via the Internet to calculate applicable sales tax for each sale and return the amount to the financial package.

Then when needed, reporting tools figure out how much money needs to be returned to each taxing authority.

McFarlane compares it to a credit card transaction that dials up to find out if the card swiped has enough credit for the transaction.

“We specifically talk to small and medium businesses, because historically there are companies that solve problems for larger companies,” McFarlane said. “We provide (them) at a rate they can afford.”

Fees for the service are based on the number of transactions a customer makes, similar to a cell phone plan with a purchased number of minutes each month and a per-minute fee there after.

“Sales tax is a ‘pass through,’” McFarlane said. “The business is an agent for the state. Any work for it (calculating) is wasted effort.”

Few companies want to spend a lot of money to calculate sales tax which doesn’t help the bottom line, but that cost is balanced by the pain of an audit.

The software evolved from an experience Avalara president Rory Rawlings had as a consultant to a California firm that was hit by a painful state audit. The client did $20-30 million in annual sales, but the salespeople still had to look up tax rates and tally taxes to file in spreadsheets.

The audit found both overcharges and undercharges, so the business had to issue refund checks to some customers, write a large check to the state for underreported taxes, and devote months to reconciliation.

Rawlings wrote a tax calculation engine, but the software proved too costly for smaller companies, so he looked at a subscription service through an ASP model. For customers, the service requires no software upgrades or hardware management.

McFarlane adds that the ASP model is timely, as most businesses now have broadband access.

Christina Opalka, director of marketing communications, says customer response has been positive, and they have seen little direct competition. Current customers include cell-phone manufacturer Kyocera Wireless.

The company is growing quickly. Rawlings, McFarlane and Chief Executive Officer Jared Vogt, who all live on Bainbridge, are hoping to pull in untapped local talent, including parents who don’t work because they want to be close to home or who commute but would rather be closer by.

“The opportunity is huge,” Opalka said. “It’s really an underserved marketplace, there isn’t anything else out there.”

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A less taxing way

Avalara is at 900 Winslow Way East, Suite 130. For more information, call 755-3277 or see www.avalara.com.

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