Sramana Mitra: Automated tax filing has been around for a long time. I did a story on Sabrix. That must have been 2007. We are in 2016.
Peter Horadan: You’re right. It has been around for quite some time. One of the things we find amazing is that it has not yet been automated. Most companies are still dealing with transactional taxes manually. There is a lot of opportunity to help customers by automating this. When you’re going after trends, there’s a couple that are related to each other to make this an interesting space. The first is the incredible growth of online sales. Forester estimates over $350 billion in online sales this year.
Online selling continues to grow. Beyond that, businesses of all types are realizing that they need a multi-channel strategy. We’ve seen pure play digital retailers. Even traditional businesses are realizing that, to survive, they have to have a multi-channel approach where they’re selling online or selling through affiliates. They’re embracing online sales as well. Beyond that, there is just the aspect of growth. Companies are seeing a ton of growth via online sales. As you grow, you tend to do business in more areas.
As you do business in more areas, you encounter more jurisdictions. There’s over 70,000 tax jurisdictions just in the United States. As you grow, you run i to more of those. Their requirements are all different. Growth brings complexity. People are also finding that, with the Internet, it’s easier to reach people in new markets. A lot of people are realizing that it’s just as easy to sell in another country as in my own country. As soon as you do that, you run into cross-border tax issues which has another level of complexity.
Then the final trend that compounds all this is that governments are noticing that as things move online, their perception is that they are not participating in the same piece of a transaction that they used to. In the US, a lot of online retailers are not collecting sales tax nationwide. The states are both increasing their enforcement efforts as well as coming up with new precedents to try to get more sellers to comply with their laws and collect taxes for them.
All of those things combine. Online sales is growing. Companies are realizing that to compete, they have to have a multi-channel approach. Growth brings interactions with new jurisdictions and then governments are saying, “We have to increase our enforcement of transactional tax.” All of those things are coming together till more and more businesses realize that they really have a giant problem here. They are facing an incredibly complicated burden or complying with transactional tax.
Sramana Mitra: Are you focusing primarily on companies that do aggressive online selling?
Peter Horadan: There is certainly a market for us. However, we have customers that are traditional physical retailers or who have multiple channels as well. Certainly online sellers is a visible example. There’s plenty of shopping carts on the Internet where when you go to that shopping cart and you see the subtotal with the estimated tax and shipping, that tax number is generated in real-time by AvaTax services. We’re doing about 500 transactions a second.
Sramana Mitra: Let’s focus on that then. You said that the shopping carts are all using your technology. Are we talking about Shopify and BigCommerce?
Peter Horadan: Both Shopify and BigCommerce are our partners. We have over 540 integrations. Part of making it simple is that it’s simple in the systems you’re already using. Our customers are already using either shopping carts or ERPs. We’ve built 540 integrations into those systems so you can just turn it on and start using it. Within Shopify or BigCommerce, all the customer needs to do is enable it. When their customers are going through a checkout, we’re calculating the transactional tax. We also record that, so at the end of the filing period, we file the sales tax returns with all the involved jurisdictions.