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00:00:01
Death & Taxes - Two Things Your Farm Can't Avoid
193 Plays4 years ago
In this episode of the Direct Farm Podcast, we're excited to welcome back Matt Hammond, National Sales Manager over at Avalara. Listen as Matt and James discuss the nuances and challenges around taxes for all small farm businesses in the US.
Show Notes:
https://www.avalara.com/us/en/index.html
https://www.barn2door.com/resources
Recommended
Transcript
Introduction to Direct Farm Podcast
00:00:02
Speaker
Welcome to the Direct Farm podcast, the weekly listen for farm selling direct. We'll talk about the four levers for farm success, which are quality, brand, price, and convenience.
Increasing Sales and Efficiency for Farmers
00:00:14
Speaker
We'll hear from outside industry experts and producers like you to delight your customers, save time, and to increase your direct farm sales and business. We're glad you're here.
Sales Tax Challenges for Farmers
00:00:26
Speaker
Hey, welcome everyone. My name is James. I'm the chief operating officer over here at barn to door. And today we've got a fantastic conversation set up for you with Avalara and like to invite a good friend and colleague over at Avalara, Matt, that you want to introduce
Complexities of Sales Tax
00:00:40
Speaker
yourself. Yeah. Thank you, James. I appreciate you having me here today and really excited to talk about what's going on. And you know, it's never adult world in the sales tax base and.
00:00:50
Speaker
And things are changing as we head into 2022. So there's a lot of stuff going on. So it's a great time, you know, touch base on the things you can't avoid, which is death and taxes for sure.
00:00:59
Speaker
I absolutely love the name of this webinar. Death and taxes, absolutely love it. But it is an important topic. And for farmers who may not be collecting taxes today, this sometimes can be a bit of a scary topic. So we're going to dive in and walk through some examples of where there are some real realities that taxes are very significant issues, something you need to be paying very close attention to in the same way you think about death.
Struggles with Sales Tax Compliance
00:01:22
Speaker
Death and taxes are two things you cannot avoid. But good news is with Avalara, there is a solution that can give you a lot of peace of mind.
00:01:29
Speaker
And so we're going to walk through that. And why don't we just dive right in, Matt? So first off in your experience, I mean, you've been working in Avalara for quite some time. Why do so many small businesses seem to just not pay attention to or avoid this kind of ticking time bond of taxes? Is it just that it's too complex? It's an unknown. Is it they think they can just get by? Why is it that so many small businesses are non-compliant? Yeah, I think a lot of it has to do James with
00:01:56
Speaker
They're focusing on revenue generating activities, getting their sales, marketing. And one of the last things companies think about is sales tax. You know, a lot of what we're seeing is companies aren't aware that they need to have to get registered and collect file remit in states outside of where they're located. So the rules of Nexus have changed a lot. And I think it's just one of those things where you don't think about it out of sight, out of mind. It gets thought about the least, but it is so important.
00:02:26
Speaker
And one of the things you'll hear me say a couple of times today is it's one of the highest sources of revenue for states.
Impact of Multi-Level Sales Taxes
00:02:32
Speaker
And that's what shows how big of an importance it is.
00:02:36
Speaker
Trust me now, more than ever, with the states, you know, having budget deficits, sales taxes is at the top of their list. Absolutely. I know here in Washington state, sales tax is second only to property tax, right? And it is just the primary source of income for many localities. And so it's not just even the state that we're dealing with. We're also dealing with the counties and cities that are also applying their share of taxes as well, right? So there's a lot of, a lot of layers and nuances that I know we'll dive into that.
00:03:03
Speaker
If you're a farmer listening in, you know, perhaps you haven't collected sales tax one thing you might want to be aware of is that failing to collect taxes, believe it or not, it's a felony, and that's true both under federal and state laws, and so it's one of those big things now, probably one of the big, big concerns or big questions.
00:03:21
Speaker
that probably comes up often is, is, well, what happens? You know, let's say I get flagged. Am I even on anybody's radar? Let's say I'm a small farmer and I'm doing a hundred thousand dollars a year and selling, selling my products, what
Risks and Costs of Non-Compliance
00:03:33
Speaker
have you. Am I really going to be on the radar of a, of a state tax authority, Matt? Is that something you actually see? Well, one of the things we heard of over the last couple of years change was that, you know, one of the number one jobs coming out of college was states were hiring.
00:03:47
Speaker
You know, auditors and younger employees to try and go out and find unregistered tax businesses. And, you know, I rely on some of the statistics we've heard over the last couple of years and 56% of companies have found the cost of a sales tax audit can be over $50,000. So let's just think about that. If you are a small farmer a year and you're only in a working in your location, if we have to make sure is that you don't run the risk of not collecting tax when you should be.
00:04:17
Speaker
And think outside of your home state or your sell your product that's taxable versus exempt from sales tax. It's something that you have to get right on the front end and a lot of companies and specifically farmers as well. You know, they may think that they're never going to go through a sales tax on it. But here's one of the things that's very important is it's not necessarily
00:04:36
Speaker
that they're gonna come find that particular farmer. You may sell to another company or an end user or another business at some point in fashion and they go through an audit and then they see that they bought and sold products for you. It's very easy for them to then ask to see, well, let's see if this company is compliant because the person that you were selling to or doing business with was not. So odds are you may not be as well. And again, and we'll talk a little bit over the call today is a lot has changed for,
00:05:03
Speaker
reasons why farmers specifically may have to collect tax outside of their home state because a lot of the regulatory changes in the past few years have definitely been impacted.
00:05:12
Speaker
So the potential of getting an audit is very real. And I think to your point, I think I've read somewhere between 50,000 and 80,000 new auditors being hired around the country. Sadly, to just go and enforce a law, right? I think if everyone was compliant, it would be less of an issue, but we obviously know there's a lot of non-compliance. We certainly see that here at Barnador. We know that there's a lot of our farms that we work with today who are not yet using Avalara. And so we don't know whether or not they are compliant either. Maybe they're working with their accountant, we don't wanna assume the best.
00:05:41
Speaker
But one of the things about that, you know, if you're not doing that, like you said, it sounds like an audit can be anywhere from 50,000 to a hundred thousand dollars in taking upwards of two weeks. I couldn't imagine what a distraction that would be for my business to have auditors camped out in my office, just piling through receipts and asking me questions. And one of the things that's interesting is over the course of the past 12 months, 73% of the tax liability has just increased significantly in the last year.
Product Taxability and Regulatory Changes
00:06:10
Speaker
They're now taxing and changing taxability across all state lines of whether certain products, services, foods, candy items, whether they're taxable or not. The state of Maryland made a change this year in the beginning of March, middle of the month to change the taxability of a service. So all these companies now had to go charge tax on that when they never had to previously. And so stuff like that can change, you know, in the middle of the month and it just because the state makes a change. And so that's one of those things where, you know, from an audit, you know, it's going to take you away from
00:06:40
Speaker
You know, everything you're doing to run your file, get your product, you know, out the door and to your consumers the fastest. When it pulls you away from that, nothing good is going to happen from it. And they're not in a hurry to go through your books, to look at your sales, to make sure you're taxing it properly, to see if you have any exempt customers or exempt sales. That's one of the number one things that happens in an audit is they go, okay, what states are you registered in? Great. Let's look at the sales that you have in those states where there's zero tax.
00:07:07
Speaker
And why? Is the product exempt? Is the service exempt? Is the delivery taxable or not? Those are the things that they look at when they're going through audits and that typically trips people up right up the gates.
00:07:18
Speaker
That's a bummer. And it's unfortunate too, given the fact that if you just simply make a small investment and plan ahead, you can have software do the work for you and uncover some of these things. So let's talk about some of the things that Avalara software does today in helping farmers assess and understand whether their products are taxable or not, right? So maybe you can just walk me through just generally before we go into specific examples of products.
00:07:43
Speaker
But can you just walk through, you know, generally, you know, like when thinking about the goods, you know, like, what are the things that a tax agency is thinking about the product in assessing whether or not it's taxable or not? Is it dealing with treatment, production, assembly? How's it looked at from state to state?
00:08:01
Speaker
Yeah. So, and every state is different James. And I think the biggest point of it is that the, you know, the product, the service, the food, the food item, how it's being sold, who it's being sold to, if you're selling it into your state or shipping it across a state line, you know, the, the taxability can vary significantly. And part of what our software will do is we look at each individual item that's being sold on the invoice in the shopping cart for selling e-commerce.
00:08:28
Speaker
And we have these Avalara specific tax codes. So you tell us where you're selling, whether you're selling honey, fruit, onions, potatoes, nuts. We will then make the determination on across all 46 States that collect tax. Whether or not it's taxable in those particular States, because every state varies now, general food and consumption. Some of those are going to have similarities across, uh, the country. But what I will say is there are a lot of States where you'll have three or four different foods that are taxable.
00:08:57
Speaker
And then one or two that are not taxable in that state. So, you know, it starts with really evaluating which states you need to be collecting tax in and a software like Adlera will help initially. Make the calculation city, state, county, any special taxes that are applicable while then also looking at each item that you're selling and determining if it's taxable or not. And we have thousands and thousands of what we call Adlera system tax codes for goods and services.
00:09:22
Speaker
And you map those one time to your items, your SKUs, and then we will be the ones that are making the determination on whether or not it's taxable in the states that you're required to collect term attacks on a future forward basis. Wow, that's huge. And given the variation that can happen from one state or more importantly, even one county or a city block to another, trying to do that analysis manually is pretty much impossible. And especially in an e-commerce scenario, you have to have something that's actually
00:09:50
Speaker
doing it in real time.
Importance of Transparency in Sales Tax
00:09:52
Speaker
Now, I know some states too also require that you actually must disclose the tax at the time of checkout as well, right? So I know that sometimes we see farmers choosing to just not collect tax at all, and yet they might be in a state where they're actually compelled by law. They actually have to list tax out on the receipt. Is that something you're seeing as more common state to state?
00:10:13
Speaker
It's, it's becoming more prevalent because from, I think it's like a two factor thing. Number one, it's a compliance. You want to display it up front. The customer sees it, you charge it up front. And again, think of sales tax as a pass through expense. So you're collecting it from the customer.
00:10:29
Speaker
And then you're taking that exact amount and turning it back and giving it to the state that they then have to report on their end. So that's the first part. And then the second thing is, obviously you have to be careful with the states where you may have to get registered in that you never had to collect tax before. That is one of the most prevalent things we're seeing now is farmers that are shipping products all across the country are having and triggering economic nexus thresholds where I never had to get registered in Michigan.
00:10:57
Speaker
because they didn't have economic access three years ago. And now I've crossed the threshold to now I have to get registered, collect, file, remit tax, calculate tax, file a sales tax return that I never had to file before. That's again, one of the really scary things that we hear from people all the time is I've never had to file this tax return. I now have to get a department of revenue login, username, password, filing frequency, bank account for that particular state. That's a lot to take on just for having to get registered in a new state.
00:11:27
Speaker
And that's why right now is the best time to get a grasp on what states you should be collecting or emitting tax on. If you haven't reviewed your sales tax profile in the last couple of years or ever, now's the time to really sit down and go, okay, are we collecting tax where we should? Are we taxing our products and services accordingly because there's such a high importance on it now?
Nexus and Tax Collection Responsibilities
00:11:50
Speaker
Well, let's talk about one of the words you just brought up, which is the term Nexus. Now, let's rewind a little bit for folks to help them understand what this term means. So previously, for many years, Nexus was based on the concept of having minimum contacts, like you actually had to have some sort of physical presence in a state in order to be subject to tax. And that's why I could buy a good or service from a vendor that might be on the other side of the country out of the state, and they wouldn't be taxable if I purchased it online through the internet.
00:12:19
Speaker
That's now gone, right? Generally now we're seeing that Nexus varies from state to state and it varies widely, right? Some states still have some sort of physical presence. Others do it based on dollar values. Some do it based on the number of transactions. Some do it on a combination all the above. If I'm a farmer, like how do I even sort this stuff out? It seems like it's a rat's nest now if I'm trying to sell across state lines.
00:12:42
Speaker
Yeah. And it's always changing. And the traditional physical presence nexus that you honed in on in the beginning, James, that's still, that's still here and that's present. Like if you're, whatever state you're located in or where your farm is or where inventory or trucks or employees, traditional sales tax nexus, creating activities has been historically a physical presence, right? What changed though, is that now if you sell a certain amount or you sell over a hundred thousand dollars, or even if you ship
00:13:11
Speaker
a hundred or more individual orders to a specific state, you could cross what they call economic nexus, which means you now have to get registered, collect filing taxes in those states, even if you never go there. Now, what I've heard is, is a handful of farmers recently, they're crossing state lines to deliver their product. So they're not shipping it via third party or a common carrier. If you're crossing state lines to deliver something, that means you now have to get registered in that state for sales tax, even if what you're selling is not taxable.
00:13:40
Speaker
And that's what trips up a lot of folks, but back to the economic nexus is the way I like to view it is you no longer control what state you collect tax in. And you're going to go, Matt, what do you, what do you mean by that? Well, if I buy enough of your product and you ship a hundred orders to North Carolina, you have to get registered. If you sold a hundred thousand dollars worth of your product to South Dakota, you now have to get registered, even though you're located in Pennsylvania.
00:14:04
Speaker
So you now have to monitor your total sales across the whole country and see if you're going to cross any of these thresholds for sales tax purposes. And it changed everything. And we're seeing companies and businesses and farms specifically that they only had to collect tax in one or two States, but you know, they're, they're getting ready to blow everything out of the water and do a couple of million dollars. You're automatically going to trader that in additional States. So that's those things.
00:14:28
Speaker
Yeah, and it doesn't even need to be numbers that big. I mean, it could be tens of thousands of dollars, right? It doesn't need to be millions by any means, right? So the next threshold could be simply based on the number of orders even, regardless of value, depending on the state that you're in. And for our listeners too, the other thing just to be aware
E-commerce and Tax Compliance
00:14:45
Speaker
of too is like,
00:14:45
Speaker
A big part of this has all been driven clearly by Amazon right with the amount of e-commerce is happening online. In fact, 50% of everything that's sold on Amazon now sold by a third party Amazon seller, and they have a mandatory requirement the sales tax is collected on everything with Amazon now.
00:15:00
Speaker
And so that's just, again, with that being kind of the guiding principle of how e-commerce is operating now, and now this is the expectation of departments of revenue in every state, county, and city, you have to understand that the level of sophistication and expectations for your compliance have increased. But let's move forward because there's good news, right? The good news is that there's software that can solve this for you. And while it sounds complex and onerous, and it could be if you chose to do nothing,
00:15:29
Speaker
But if you move forward, let's talk about how Avalara could potentially help you in being able to calculate these tax obligations for you in real time. Matt, let's talk about, we work with a variety of different types of farms. We often work with protein farms, produce farmers, dairy farmers. Let's run through an example for each. Let's start with proteins.
00:15:47
Speaker
Let's take this product here. Not uncommon that we see a pasture proteins farmer assemble a set of cut products could be cut meats, sausages. Some of those things are prepared. Some of them may not be prepared. Some of them might just be raw product. How should a farmer be thinking about this? And you know, like, how is the state going to look at and assess this product from a taxability standpoint? Yep. So the state's going to look at number one, prepared food has
00:16:14
Speaker
Varying taxability for potentially something that's not prepared, frozen, how it's being delivered or how it's, how it is truly sold, you know, as is prepared, general food for general consumption, direct to consumer. That can always vary from state to state because some states deem that general food is taxable or it may even have a reduced rate. Like the normal tax rate is 5% and they actually charge only 4.5% on food for consumption.
Varying State Tax Laws
00:16:41
Speaker
So that's one of those things where.
00:16:42
Speaker
If you're not using a software, you have to truly go do research and look at those states and dig deep into the Department of Revenue website, which for Colorado, you could spend all day in there. And some of these other states that are challenging, Alabama, Louisiana, they can have different rules and different taxability based on how it's sold, what's being sold. I talked to a company last week and they sell a form of like a candy bar. And I know that's probably not relevant for our audience today, but
00:17:11
Speaker
dependent upon the flower content that altered the taxability significantly across like 15 States. Cause it wasn't a food item. It was a candy. And so that's one of those things to think about is just, you know, for, for the proteins and how it's being sold prepared the delivery. If you're charging for delivery or shipping, the taxability of shipping can also vary from state to state. So you either have to try and do all that research yourself on a partner revenue website or leverage a CPA or someone like that, or a tax attorney.
00:17:39
Speaker
Or you can lean on Avalara and we can make all of those determinations for you, simply by picking a tax code that best aligns with what product or service that you're selling. And then we are the ones that are in charge of determining the taxability, 50% taxable, whether it has a reduced rate or heck maybe it's even exempt from sales tax in a couple of states. I know in Colorado, like nuts are exempt from sales tax, but onions, potatoes, fruits, and honey, they're all taxable.
00:18:05
Speaker
It varies based on the product and as well based on the state for where you're shipping it to. Because again, the thing that's key James is sales tax is derived from where the product or service is changing ownership or being shipped to.
00:18:18
Speaker
to determine to calculate the proper amount of sales tax. So let's talk about that because I know there's a really big distinction between states that are origin based versus destination based. So for an intrastate sale, a sale that's conducted within state lines doesn't cross any state lines. Let's talk about Colorado, which you brought up. And there may be Utah, which I know is origin based versus Colorado, which I believe is destination based.
00:18:43
Speaker
Let's talk about the differences. Let's just start with you talk. That's a little probably the simpler example, right? So if I'm a pasture proteins producer and my ranch is up in Provo and I sell product down to somebody in salt Lake, can you talk a little bit about how that taxes are calculated in that scenario?
Origin vs. Destination-Based Sales Tax
00:18:59
Speaker
Yeah. And that's an area and sourcing rules and States that have individual sourcing it's specific to their own state. Now on that example, you would actually charge the sales tax rate based on where you're located.
00:19:10
Speaker
even though you're shipping it to the other side of the state. Now, for example, Colorado, if I'm in Denver, but I'm shipping it to Breckenridge, I'm gonna be charging whatever tax rate, which is gonna be so different an hour away. In Colorado, I would charge tax based on where it's actually being shipped and delivered to. Between the origin from where the farm was producing the product in Provo, Utah, versus the destination in Colorado, where it's based on where the product is being received or sent to.
00:19:37
Speaker
Correct. And Texas is the same. So Texas, if your farm is located in Texas, and you ship it anywhere in that same state, you're actually going to charge whatever tax rate is where you're located or where it's shipping from in the state of Texas, regardless of if you ship it to the other side of the state. And there's only a handful of states that are like that, but it can be complicated. I've heard more stories where they charge the ship to address, they charge tax based on the other side of the state. And they were doing it incorrectly for like four years. And they went through an audit and they had under collected
00:20:07
Speaker
amount of sales tax over collecting and under-emitting or over under collecting and over-emitting either way both those scenarios are non-compliant and that's why it's got to be done right on the front end and again a software like Abitax can make those determinations on behalf of the sellers because you just want to go ahead and send your invoices out and charge your clients and then have the tax calculated in those business as usual and that's where our automation comes into play.
00:20:31
Speaker
Super helpful. Let's talk about produce. Produce, we oftentimes will see, you know, people sign up for what's called a CSA community supported agriculture, a subscription to having vegetables or produce arrive on the doorstep each week. You know, my impression is that generally produce, you know, a raw product generally has been treated as non-taxable in most states, but I know that may not necessarily be
Tax Implications of Bundling Products
00:20:54
Speaker
true. Love to hear your thoughts on produce because, you know, it seems to be
00:20:58
Speaker
A lot of times we get farms who start with just a basic produce box, but then all of a sudden they start to mix in other products with it too, like jams and jellies, which are, which are manufactured. Right. So love to hear, hear your thoughts on that. Yeah, it's interesting. When you talk bundling and you talk boxing and you start putting a bunch of things together. And if you, if you're just, when you group things together, that can alter the taxability, which is interesting because number one, it's not necessarily how you ship it, but it's more so how do you charge for it? You say, look, it's a box.
00:21:28
Speaker
And it's $100 a month and it's a recurring subscription. Great. If there's a bunch of different things in there and you're not breaking them out by line, by protein, by James preserves, you technically don't have a way to determine if each one of those tax will you'd be conceding that, Hey, look, we're just charging tax on everything that's in that box. The compliant way is to break down each individual item that's in there, pick a specific code, because some may be taxable, some may be exempt from sales tax. And that's really where.
00:21:57
Speaker
unless you're using a software like Avatax, you're probably not going to be able to do that. And that's one of the challenges we see a lot. It's like, Hey, look, you're just going to concede that it's fully taxable when that may cut into your margins and then also potentially your competitors that.
00:22:11
Speaker
They're not charging tax on a bunch of those things because they know they're exempt and they're using a solution like ours. That's a great example because I know for many farms, they do often bundle products with some other value added good that compliments those raw products quite nicely. And so to your point, it sounds like it could be the case that the raw products are non-taxable, but the value added product is. And so if you're going to charge tax, you want it to be prorated appropriately. I would say if I talk to 10 people,
00:22:41
Speaker
They probably would not know that if you put everything together on just one lump sum, and that's a better way to phrase it, not sort of the box, but it's just a lump sum for the order. The whole thing's taxable. And you think like when people are making houses and buying products and stuff like that, okay, we just have a single line item. It's a gross total. It's $10,000. It's fully taxable and 98% of it may be exempt from sales tax work. And that's a lot of tax. And again, what's key is the state
00:23:07
Speaker
isn't really against that because that's just more revenue for them. It's more sales tax, but it can be challenging and can be tough when you have competitors or you have other vendors that are trying to get sell something very similar. And it's cheaper because there's minus $13 worth of sales tax, because that's a key component with e-commerce. And when companies are buying and you're going to add to cart and you're seeing that it's significantly cheaper with somebody that's probably
00:23:31
Speaker
selling something very similar. And I'll leave it at that. Well, let's talk a little bit about, about some shelf stable products. Cause those get shipped a lot more often around the country. We, we often see, you know, more perishable products tend to be delivered more locally, but shelf stable products that often regionally unique. I think of like almonds in California, right? Or maybe it's popcorn from some heritage corn producer in Iowa that people are shipping across state lines.
Unique Tax Provisions for Nut Growers
00:23:57
Speaker
You know, it's, it's interesting. I remember in taking tax law when I was in law school, how, you know, unique some of the tax code provisions were that existed for nut growers specifically, because maybe it's because of the power of their lobby.
00:24:12
Speaker
Maybe it's because of the amount of water that they consume. I'm not sure, but it seems like nuts get treated very differently than other things under the tax code. I don't know if that's a historical or a lobbying issue, but help our listeners understand like what you've seen and some of the complexities around this. Well, it's interesting because I was building up a matrix here a day when I was at work and leading up to our call and I was just looking at, there's a lot of states that they will actually treat nuts as exempt sales tax.
00:24:42
Speaker
And there's a handful, I'd say nine to 12 where they treat them as taxable. And why that is, we'll never dig if I'm the intimate, but it, if I was shipping those, if I had to collect tax all across the country, I'd really be at a pickle if I had to figure out which 15 States it was exempt from sales tax in and the other 40 that is taxable. But again, I think when you look at the, the what's being sold.
00:25:07
Speaker
You know, nuts. I mean, honey's another one. Honey has extreme varying taxability. There are three or four States where the nuts are taxable. And then a lot of things on that same line are all taxable. And then honey's exempt from sales tax. And it's like, why is that? And I think a lot of it is because, you know, the States have their specific rules and they can make their regulatory changes whenever they want. And sometimes it can be due to the popularity of potentially where it's being shipped.
00:25:33
Speaker
I've seen a couple changes this year, the research and everything that gets provided to us at Avalara, where it's like they are now taxing these products because they're becoming so much more popular. They were exempt before, but the rise of e-commerce and then specific, you know, and again, a lot of its geography and what's being sold and you know, what consumers are wanting more of, like those sales have gone up a lot. Okay, well, if we now say those are taxable, that's that much more, you know, streamline income that the states are going to have.
00:26:03
Speaker
That's one of the things that's important for farmers to really be comfortable and confident in their sales tax profile, i.e., where do I have Nexus? And then that's on the front
Understanding Sales Tax Responsibilities
00:26:15
Speaker
end. And then the back end is, okay, is what I'm selling taxable or not? And even if I only had to collect tax in like four or five states, James, it'd be really good to know that, okay, well, I'm actually, I'm gonna hire an employee or a marketer or someone for that business in this state, is what I'm selling taxable there.
00:26:33
Speaker
Because then a lot of companies I've seen, and some farmers as well, they've also put stuff on their website that says, hey, when you go to purchase from us, if you're in these seven states, you're subject to sales tax due to the economic nexus wayfare ruling from three years ago. I've seen this claimers on the websites. And what it does is it gives their buyers a better buying experience because they were notified, hey, you're subject to sales tax because of this. And because it's all about repeat customers.
00:26:59
Speaker
customer experience and a seamless checkout process and a seamless buying experience because you want repeat customers and you also want word of mouth and people to say they had a good experience when they bought from you because then their friends buy from you.
00:27:11
Speaker
Well, and you bring up a very good point too, is that the sales tax can be calculated real time at checkout, right? So people are assembling their cart and everything else. They get the, they get the dollar amount, but then when they go hit checkout, the tax is calculated automatically and just posted there. At that point, you're going to see a very high conversion and people are just going to pay the tax anyhow, much rather have somebody just pay that as part of their purchase, rather than you taking that on that burden as a farmer and having to pay that out of your gross margin.
00:27:41
Speaker
abandoned shopping carts. I've read more about those percentages and conversion rates this year than I have in all seven years that have been in Avalara. That is probably one of the most catastrophic things people have when it comes to e-commerce sales is that they go all the way on the buy and say, Oh my God, $10 sales tax. Ooh, I'm not going to buy this now. So transparency and having everything accurate on your website is key. And again, the last thing you want are returns, refunds, crediting people tax because
00:28:08
Speaker
The state said it wasn't taxable and you did charge a tax on it. So it's all about the buyer experience.
00:28:14
Speaker
Yeah, big time. Well, let's talk a little bit about some of our dairy producers, right? We get a lot of dairy producers who generally they're keeping the milk locally because that's not something you generally are going to sell across state lines with a few exceptions there.
Taxability of Dairy Products
00:28:28
Speaker
But cheese, however, is something we often see is shipped quite a bit and often crosses state lines. And it's something that is prepared, right? So there's some sort of activity done to it, unlike raw milk.
00:28:39
Speaker
So talk a little bit about how that often gets looked at for something that's a product that's not shelf stable, but still nonetheless is a prepared food. It might be shipped across state lines. You know, I mean, rule of thumb, tangible personal property, something you can touch. That's a lot of the time it's going to have a form of tax ability to it because it's a tangible good. Very similar to, you know, or a consumable food or a food item.
00:29:08
Speaker
It is something tangible, however, it can be consumed. So that can drive the taxability. It's something you can touch. It's something that's physically being shipped from A to B. And then when, you know, the States are looking at what goes into the product. And I mentioned like the flower for the candy piece. We talked about a couple of minutes ago, every state's different. And what I've seen is, you know, I think about half of the States will tax it and half of it will not. But when you get into how it's being prepared, obviously how it's sold and then who it's being selling to.
00:29:38
Speaker
you know, tangible personal property, slightly direct to consumer. That's viewed for the most part at the state level. That's a taxable sale. It's a taxable good, even though it may be used or be consumed at the end of the day, but food items. I guess the thing I'll drive home to James is it's very tricky because it's not cut and dry that says, Hey, it's taxable in every state. Every single thing that I've looked at that a farmer would produce or sell nuts, milk, oats, meat, honey, potatoes, fruit.
00:30:08
Speaker
There's not a single one that is every state is taxable, every state it's exempt. Yep. It's all across the board. It's different 13 states. It's taxable 13 states is not taxable. And then the other 15 or so it's partially taxable. I would never want to have to figure that out on my own. It goes back to the do what you do best and outsource arrest James. But at the end of the day, it's just you have to think about it like this when farmers are increasing their sales and their demand is going up.
Automation in Tax Compliance
00:30:35
Speaker
You have to think about compliance. It's extremely important. And it's just like payroll. It's something you're going to outsource. There are companies out there like Avalara that can do it for you. And if, if, if the last two years taught us anything, it's controllers, CFOs, owners of businesses or farms, they are looking for things to automate. Whether it's the, how you're cultivating your, your, your product that you're growing and you're selling, like how can I scale this? How can I use automation? I mean, think the tools and the machinery on the farms. That's key. Like.
00:31:05
Speaker
what those machines can do now versus 15 years ago, that's exactly what you need to think about is what's can be automated and what can be streamlined from a technology perspective to automate compliance for my company and for my farm. And that's where Avilera and Abitax and our sales tax automation compliance suite comes in.
00:31:27
Speaker
That's really well said and probably most important is the peace of mind that this is going to offer the farmer to not only know that the taxes are calculated correctly, but they're also remitted and paid correctly as well. You guys actually stand behind that. So let's talk a little bit about this in summary for folks.
00:31:44
Speaker
Number one is we see at Barnador that the vast majority of farms are not collecting taxes today, which causes us concern because that's one of the reasons why we invested in our partnership with Avalairs. We want to make sure farmers have access to AvaTax so they can be compliant. It is a small investment, but a very important investment to make so you can be compliant.
00:32:05
Speaker
Secondly, is if your farm isn't collecting taxes today, not only could you be subject to a very potentially costly and time consuming audit, you could also potentially be guilty of a felony both federally and at the state level.
Consequences of Non-Compliance
00:32:19
Speaker
So you don't want to risk your farm business by simply failing to make a small investment in Avalara. So if you're a farmer out there, you got 50,000, 100,000, quarter million, million dollars in sales. Like look, it doesn't, there's no single threshold. That's a magic number. You need to realize that again, the IRS and state tax authorities, they're looking for and they're hiring more auditors to again, collect taxes and increase the coffers of the government.
Barnador and Avalara Partnership
00:32:46
Speaker
So with that said, let's talk about how you can solve this. So if you're a Barnadore customer today, you can simply go online and you can choose to get an Avalara tax consult. You know, all of our Barnadore customers can get a consult today with Avalara. You simply go on there. There's a button in your account section.
00:33:05
Speaker
where you can request a consult and you'll get to speak with somebody like Matt or somebody on his team who will speak with you personally and help you better understand and do an assessment with you about, you know, is Avalara a good solution for your farm, right? And especially given the special circumstances that might be surrounding your products and your state.
00:33:25
Speaker
But then secondly, talk about what's it look like to get things set up in integrated man. Cause it, from my understanding, you know, we have a fully certified integration. It seems pretty simple. You just press a button, but you talked about categorizing products. What does that look like? Yeah. So on the first part for the consultation is we'll talk about your farm. We'll talk about where you're located, your inventory, the stuff you buy from, you know, partners you work with and where you actually get your, your goods and your materials you're using to grow everything because
00:33:51
Speaker
The consultation is going to uncover, okay, what state should you be collecting tax in? Are there any states outside of where you're located where you may have crossed a threshold or you may have to get registered for sales tax? Number one, which we can provide the registrations. And that's again on the front end, right? It's your sales tax profile first and then setting it up and downloading and integrating it is very simple. We already have a pre-built seamless integration from our door, which is great, which allows our tax engine to talk to your software so we can calculate the proper amount of sales tax.
00:34:20
Speaker
On the front end, that's as simple as checking a couple boxes telling us whether you sell honey, whether you sell nuts, whether you sell meats, prepared foods, telling us what you sell and checking a box that's saying, Hey, collect tax in the state. And then any point in time from that point forward that you have a sale in that state, we will calculate the tax on the front end right there on the invoice or in the cart. However, you're actually selling the product or voicing your, your customer.
00:34:45
Speaker
And then when it does come time to file and remit, whether it's monthly, quarterly, annually, semi-annually, the disclaimer is the States determine your filing frequency as well as which form. You will then input that information into your AVID tax account and then Avalara can file the returns, remit the payments. If you get a notice from the state, those pesky notices, as I've been told that that's a very light word to say, you forward that notice right on to Avalara and our compliance team, and we will handle the notice and work with the States on your behalf.
00:35:13
Speaker
So we will file the sales tax returns for you, remit the payments, answer any tax notices. Some states will give you credit and discounts. If you file your returns on time, we have almost, I think 130 folks in our compliance team alone. And that's all they do is file sales tax returns. So you're outsourcing the automation of the filing, the calculations and the remittance to Avalara. And let's say you file four returns a year, quarterly, that will cost $200 annually. So it's roughly $50 every time we file a tax return. Now.
00:35:42
Speaker
There's a lot that goes into a quarterly return. All of your sales, your gross sales, taxable, not taxable sales, we take all that into consideration. And we will also, as we're calculated tax, and let's just say the three states you're required to, we will monitor all of your sales across the country. And if you get anywhere close, it's usually when you get to about 80 to 85% of the threshold in a state.
00:36:05
Speaker
When you log into your Abitax account, that state will be highlighted and it will say you have crossed your gate, you're approaching a threshold, you're probably going to need to consider getting registered in that state. That's the safety net, James, that everybody wants. No one has the mechanics or any software out there to do that if you're not using a company like Avalira. And we have that automatically at no charge inside of our software, which is great.
00:36:26
Speaker
Wow, this is amazing. I'm so thankful we had you on today, Matt, to help farmers understand just the, again, the sanity and the peace of mind that this can bring to a farmer who, like you said, should focus on farming and just outsource this type of tax compliance to Avalara, right? Because this is going to help them not only be compliant, it's also going to ensure that they're collecting the right amounts of money, avoiding any unnecessary fines and audits that, you know, where they would be in a lurch.
00:36:54
Speaker
and instead have a partner like Avilara that's going to give them, again, certainty that they're going to be able to come through those things with flying colors. And just as a reminder too, for all the farms to remember, sales tax is the second highest source of revenue for most states today. And so this is not something that's about to go away. If anything, as e-commerce continues to come to the forefront, and as we continue to see more and more food purchased online, one out of five Americans now is purchasing their groceries regularly online now.
00:37:20
Speaker
Like, look, this is going to become an increasing area of focus for tax authorities. So with that, I think we're going to wrap things up and want to say thank you so much to Matt and the entire team over at Avalara. We appreciate the partnership. And farms, if you want to learn more, there's a whole variety of resources that we have available at barnador.com backslash resources, including links to all kinds of fantastic articles from Avalara.
00:37:45
Speaker
past webinars that we've done with Matt and other blogs we've done with the Avalara team to explain what destination tax, a destination in origin based states are, et cetera. So if you want to learn more, you can do more research there too. Before we sign off, Matt, anything else you'd like to share with our listeners today? I just say, you know, again, now's the time to just, just make sure that you can tell yourself that, Hey, I I'm comfortable with where I should be collecting tax. I did an assessment or I, I had a free consultation with Avalara just to give yourself that security that, Hey,
00:38:14
Speaker
We're doing it right. We're collecting the right amount of tax and you know, we're registered where we should be. But we're here to help. Well, thank you so much for your willingness to help and thank you farmers for all the hard work you do feeding us and start things with Barnadora and Avalara so you can manage your business. And again, go to bed each night with peace of mind knowing your compliance. Thanks so much again, Matt. Have a wonderful day. Cheers, everyone. Awesome. Thanks, Jay.