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Avalara Named a Leader by IDC MarketScape

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Key Takeaways

⇨ The excerpt highlights the increasing complexity of managing sales and use taxes due to growth in digital commerce and evolving tax regulations, emphasizing the need for technology solutions to cope with these challenges.

⇨ It outlines key market trends, such as the rise in cross-border ecommerce, aggressive tax enforcement, and the role of e-invoicing, shaping the corporate tax application market over the next three to five years.

⇨ Avalara is positioned as a leader in the market, offering flexible cloud-native architecture, extensive integrations, and support for various tax types, but faces challenges in partner integration management and integrating new acquisitions.

Current Market Overview
Growth in tax regulations has made it increasingly complicated to sell product globally. It is a vicious
cycle per the IDC. Organizations are looking to technology advancements to cope with the ever-changing challenges of global business. Growth in the digital economy has only made the process of managing sales and use taxes (SUT) more difficult as each sales location may have its own tax reporting obligations.

In addition to a global pandemic, corporate tax managers were exposed to a rapid rate of change in tax
regulations in 2020. The regulatory rules are constantly changing along the following dimensions:

▪ Marketplace facilitator laws. In the United States, several states including Illinois, California, and Massachusetts have implemented or reworked their laws requiring marketplace facilitators (e.g., Amazon, Walmart, and eBay) to collect and remit sales tax on behalf of their third-party sellers’ transactions. There is tremendous energy around this issue as states look for stronger visibility and access to the tremendous revenue growth within the digital economy.
▪ South Dakota v. Wayfair. The South Dakota v. Wayfair Supreme Court decision is removal of the “physical presence” mandate; now states have the authority to collect sales tax from retailers and other online sellers that have “substantial nexus” (i.e., conduct a considerable amount of business) in that state. Each state and local tax jurisdiction within it that charges sales tax must now decide how it wants to define substantial nexus. This means that all sales will need to be subject to the collection of sales tax, whether they be direct or by third-party sellers.
▪ Shifting jurisdictions. Within each state, each jurisdiction has a unique set of rates and characteristics that makes maintaining compliance more difficult. Further, the tax rates within the United States are constantly changing at both the state and the local level.
▪ Shifting indirect tax rates. Indirect taxes like sales and use tax, value-added tax (VAT), and goods and services tax (GST) are critical aspects of the emerging global digital economy. Nearly every major economic region is undergoing some level of indirect tax reform; the countries announcing VAT/GST changes include Canada, Malaysia, China, and India. Recent global tax initiatives (e.g., Wayfair, Making Tax Digital, and Golden Tax) are promising to make tax determination even more complex in the coming years.

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