Avalara Rockets Ahead with Sales Tax Software while Amazon, Big Retailers Battle

11/22/11Follow @curtwoodward

After a year of epic battles with politicians and brick-and-mortar competitors, Amazon.com has made sales-tax policy a relatively sexy topic in the business world. But another Seattle-area technology company has been working for years to navigate complex sales tax systems—and it’s growing like a weed.

That company is Avalara. Started by an accountant/developer and based on Bainbridge Island, WA, the company provides web-based software that helps businesses automatically calculate and pay sales taxes with precision, no matter where the sale takes place.

How big a problem is that? There are about 11,000 different taxing districts in the U.S. alone, with overlapping boundaries, shifting rates, and long lists of exemptions. Selling the same item to two homes in the same neighborhood could actually mean charging two different amounts for sales tax, if they’re on opposite sides of a tax boundary. And retailers are deputized as the tax collectors, taking in all the revenue up front and sending the government its cut.

It’s the kind of complex, constantly shifting set of data that has been practically begging for a software solution for years. But even businesses that were already using accounting software to keep their books traditionally had to punch in the nitty-gritty details of sales tax data manually.

Avalara makes it automatic by tracking the sales tax zones nationwide, tying them to a sale’s location, and plugging in the information exactly where it’s needed in accounting or e-commerce software. And since the Internet has expanded the sales footprint of virtually any business, making it possible for even a small retailer to find customers nationwide, making those calculations has become increasingly necessary.

It’s also downright fun, if you ask the Avalara guys. Even though their particular island is of the more frigid San Juan variety, the company embraces a pretty lighthearted culture that counters the potentially dry subject of sales tax policy. The executive team donned tropical shirts for their official headshots, and when we met recently at the company’s Seattle office, CEO Scott McFarlane’s shirt stripes, watch face, and laptop skin were all being employed to display Avalara’s signature bright-orange color scheme.

“Some people want to put a computer on everybody’s desktop. I just want to calculate everybody’s transactions,” McFarlane says with a powerful laugh.

Avalara got its start in 2004, and now has about 250 employees worldwide. The company, which has raised $21 million in financing this year, is led by three co-founders: CEO McFarlane, technical chief and board chairman Jared Vogt, and tax chief Rory Rawlings, the accountant-developer who has also been instrumental in helping to develop national sales tax policy through the Streamlined Sales Tax initiative.

Avalara’s rise has been quick enough to land it on the Inc. 500 list of fast-growing companies in 2010. It made the larger Inc. 5,000 list this year (No. 682), with last year’s revenues pegged at $16.7 million. This year, the business will grow again by 50 to 75 percent, McFarlane says, putting Avalara’s sales in the neighborhood of $25-$30 million. … Next Page »

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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