Ever wonder how we use Avalara Returns to file our client’s U.S. sales tax returns? Today we have recorded how we filed client’s tax returns so that you could take a look at the process.
The Filing Timeline in Avalara
As we explained before, Avalara Returns is basically an automated system. Every day the platform will import your transactions from Shopify and organize those transactions under different states. Once a new month starts, Avalara translate the received sales data into sales tax returns for the states you have scheduled to file.
The program recommends that you start verify and approve the tax returns from February 5. You shall have 5 days to approve the tax returns. If any tax returns remain unapproved on February 10, Avalara will mark all of them as approved at midnight.
On February 11, Avalara starts withdrawing taxes due from your designated bank account and filing approved tax returns to the Departments of Revenue (DORs) of different states. By the February 29, all states’ sales tax returns should have all been filed and paid. The filing cycle is over and another month will kick in soon.
The Approval Process in Avalara
Even though Avalara is an automated system, Avalara still expect tax returns to be approved before filing. Avalara provides total sales from the previous month and taxes calculated and collected during each transaction. Avalara then prepares the tax return and provide the final balance to be paid. Most states provide vendor’s compensation as a token of gratitude for merchants’ hard work in collecting sales taxes on behalf of the states.
To approve a tax return, it’s very important to extract our sales data and taxes collected from our accounting system, then compare them against the amount provided by Avalara. For this client, the accounting system is Shopify because that’s the only source of sales.
For those returns with matching revenue and tax amount, we approve the returns by hitting the “airplane” button to the right.
Usually the amount in Avalara is the same as Shopify’s. However, this is not always the case. For example, once upon a time, we had a situation where the linkage between Avalara and Shopify was broken so the sales data wasn’t imported into Avalara. At the following month, we had all tax returns undercounted the sales and taxes collected by 50%! We had to request an extension to the deadline so that Avalara can have time downloading the transactions from Shopify again and generated new tax returns.
Moral of the story, sales tax monitoring is still needed, even though we have the automated system. That’s why we include Sales Tax Monitoring in our tax services.
Pre-Approval Adjustment and Return Regeneration
This month we have found small discrepancies in three tax returns. We have nine monthly returns in total so that’s 33.33% of total returns needing minor adjustments.
These discrepancies were created by two reasons: The first source is the insistency from the invoice date. Shopify has 3 sales invoices dated January 31 but Avalara recorded them as February 1. Therefore, we adjusted these invoices to match our accounting system, which is Shopify.
The second source of the discrepancy is from product returns. Avalara doesn’t catch the tax portion of the product returns, resulting in the tax overpaid. This is a known issue and, unfortunately, the solution is not found yet. We manually adjusted the sales invoice as well.
After revising the information in Avalara system, we are expecting the changes to affect the tax returns. However, this is not happening right away. Avalara will schedule the server to regenerate the new tax returns. This usually takes an hour. During the process, there is a “refresh” system on the affected returns, as you can see from the picture.
This is the time for a coffee break!
Approve Remaining Sales Tax Returns in Avalara
After the coffee break, all three revised tax returns have been refreshed. We compare the final numbers and they match those our Shopify system perfectly. We approved these returns by clicking the “airplane” buttons to the right . Another month done!
The automated system will quite effortlessly. The returns were prepared without our instructions. Even though it takes several hours for us to reconcile the numbers, it is still considered very fast because we basically completed 9 tax returns within half work day. If these tax returns had been prepared manually, it would have taken a week.
Operating Cost: Avalara
You may wonder how much the Avalara system costs each month. The official quote be only be obtained from an Avalara sales representative but here is a rough breakdown for my client:
Fixed annual fee (documents & support): USD $ 1,000.
Monthly recurring fee (for an average of 13 returns a month): USD $ 800.
Total annual costs: USD $ 11,000 roughly.
Costs per tax return: Roughly USD $ 70 per tax return.
These are the fees charged by Avalara. Our services fees are extra.
If you have high volume of U.S. tax returns to be filed, Avalara’s price is quite reasonable. But what really stands out is its efficiency and its capability to handle some transaction volumes. We can assist you connect with Avalara and guide you through the setup process. To learn more about our U.S. sales tax services, please visit our web page or schedule an appointment with the underlying link.
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