Managing tax on sale of goods, services and software is complicated. This is more so for e-commerce and SaaS businesses because of different sales tax regulations and because the rules vary from State to State (and from Country to Country).
While large corporations/businesses can afford to hire employees to manage these compliances, a majority of small and medium businesses struggle to keep up with the rapidly changing sales tax landscape.
To service these small and medium businesses a host of sales tax compliance solutions have come up. They register your business, calculate the sales tax obligations, file returns, and remit taxes.
The most well-known among them is Avalara. While Avalara was originally geared to service the US sales tax compliance market, it has now expanded its services to cover other jurisdictions (including Canada).
In this article, we discuss why Avalara is not a complete sales tax compliance solution for Canada.
Core features of Avalara
Avalara is foremost a software company designed with large enterprises in mind. It is not a service company!
While Avalara has now expanded to several jurisdictions outside of USA, its main service offering continues to be US Sales tax compliance.
Avalara offers the following services:
Sales tax calculation
Nexus tracking
Exemption certificate management
Filing and remittance
Why Avalara is not a complete solution for Canada
Inability to track expenses
Unlike US Sales tax, Canadian GST/HST is a VAT i.e. it is levied at every stage of the supply chain with an input tax credit (ITCs) for GST/HST paid on purchases.
Because Avalara does not track expenses, a traditional ERP system must be used to track expenses. This results in businesses having to compile tax reports from different systems every time a return is due or to calculate taxes payable.
Return submission
Due to Avalara’s inability to track expenses, the ITC information must be manually extracted and shared with Avalara before they can submit the returns.
Avalara’s return preparation merely involves extracting the sales report, obtaining the GST/HST paid information from the business and entering the numbers in the return form. Avalara does not check/review the information for errors or any planning opportunities.
This can lead to issues during audits as the Canada Revenue Agency enforces strict documentary requirements to be eligible to claim ITCs.
Inability to track/manage correspondence from Canada Revenu Agency (CRA)
Avalara does not track or manage correspondence from CRA. This must be managed internally by businesses.
Avalara also does not communicate with the CRA on the businesses’ behalf, if required.
Lack of technical expertise
Avalara does not have ample in-house technical expertise for Canadian Sales tax. This means that the businesses must determine the correct rate of taxes to apply, on what value to apply those taxes. Thus, in case of errors in setting up Avalara to collect taxes, taxes can be under-collected exposing the businesses to potential tax liabilities.
Often these errors do not come to light until the business is being audited.
Pricing
Given Avalara’s complexity, pricing is not disclosed online. Instead, needs are evaluated, and a custom plan is created. Pricing is based on a variety of things, including the number of transactions, jurisdictions it sells in, and the required features.
This pricing can quickly become prohibitively expensive losing all the intended benefits of using a software over consultants.
Cost of compliance services offered by Avalara is comparable to the cost of experienced consultants.
Sub-par customer service
Avalara relies heavily upon the fact that customer has setup the software correctly. In case of any errors or questions regarding the software, customers are left to raise online service tickets while they wait for an effective solution. The solution can take several days sometimes weeks.
While the above examples only cover GST/HST, these issues can quickly add up considering that in addition to GST/HST (which is the Federal sales tax) Canada also has Quebec Sales Tax, British Columbia Provincial Sales Tax, Manitoba Provincial Sales Tax and Saskatchewan Provincial Sales Tax.
Thus, Avalara should only be used, at best, as a sales tax engine for Canada.
Why CanadaGST
CanadaGST is first and foremost a service company. We are not a software company.
We pride ourselves in the fact that our founder has over 18 years of experience working in Indirect tax. Additionally, to ensure each client is served personally, we limit the number of clients we accept.
Our Services
Analyse the business to determine registration requirements
Assistance in obtaining registrations where required
Assistance in setting up sales tax engine to collect sales tax
Extracting information periodically to prepare and file returns
Assistance with Audit, where required
Additionally, we regularly monitor your tax accounts for any updates and communicate with CRA on your behalf to avoid any audits being triggered due to lost mail/CRA correspondence.
Everything is done by qualified and experienced sales tax practitioners as opposed to techies with no real-world experience in sales tax.
If you need help with Canadian Sales Tax, contact us for a free 30-minute discussion.