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

11/22/11Follow @curtwoodward

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There could be more growth ahead if national tax policy gets an overhaul. The sales tax battles that Amazon has waged with state governments have spurred possible action by Congress, in the form of a new bipartisan bill that could set up, for the first time, a national system for taxing Internet sales.

Right now, most online purchases have escaped local sales taxes in the U.S. because there simply isn’t a national system for collecting them. States have tried—see the aforementioned tax spats with Amazon—but most of it has been for show, because only Congress has the power to regulate interstate commerce.

Amazon is vocally behind this latest push to get a federal law. As Amazon CEO Jeff Bezos recently told Wired, “We want federal legislation. That’s what we’ve been working on. And I think we can get that done this year.”

If that happens, it could dramatically increase the amount of sales tax collections occurring nationwide. Even in Washington state, where Amazon already collects sales taxes because of its Seattle headquarters, state officials estimate they’re missing out on about half of all the sales taxes that should be collected. That amounts to hundreds of millions of dollars a year, in a state that is heavily dependent on the sales tax and—like many others—chronically low on revenue following the Great Recession.

Avalara’s happy to be on the edge of this national spotlight. But it’s not depending on the wheels of political process to grind out an answer to drive its growth.

“We know that this is going to be a big business. When you stop and look at it, we have 7,500 customers that use our product around the country in various forms. And you can’t tell me why I can’t have 100,000 or 500,000 customers by the time that this is done,” McFarlane says.

“Businesses have had this problem forever,” he adds. “And whether there’s an Internet tax or not an Internet tax, there’s 11,000 taxing jurisdictions in the United States, and businesses have to solve that problem. So we look at what’s happening with interest. We’re obviously swimming with the tide.”

There is some irritation that the big players like Amazon have argued that collecting sales tax around the country is just too big a burden. “What chafes me is when people say that there’s not a solution out there, it’s too hard. The reality is, it isn’t. It’s a statutory requirement. We have the technology,” McFarlane says.

“Don’t get me wrong—we would love to calculate sales tax for Amazon, right?” McFarlane adds with a laugh.

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

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