It’s no secret that the herculean effort required to keep corporate board meetings on time frequently involves tracking the arrivals of certain board member attendees.
Of course, the most anticipated arrival inside the boardroom is often not a board member at all but a new business measure or yardstick commonly referred to as a metric.
And just as board members often hail from faraway places, so too do metrics. Or so explains Ross Tennenbaum, a former investment banker, who in 2020 stepped into the CFO office at Avalara, a developer of tax compliance software.Read More
“I’m obsessed about what I call, for lack of a better name, the macro-to-micro continuum,” observes Tennenbaum, who notes that his new environs have opened his eyes to the life that metrics lead as they swim upstream to the boardroom. “It’s about how you connect that board-level output to the individual all the way down in the organization,” comments Tennenbaum, who believes that too often there’s a sizable disconnect between the aggregated top-level results being discussed at corporate board meetings and the customer account manager who’s been struggling to meet a customer retention quota number.
Says Tennenbaum: “That individual needs to understand how he or she is connected to everything up the chain.”
Among those businesses aspiring to achieve the type of deep workforce connections that Tennenbaum is now seeking, SaaS (Software-as-a-Service) companies are known to have an enviable advantage. Read our article featuring CFO Ross Tennebaum on Forbes.com.
CFOTL: Would you agree that the challenges that businesses face when it comes to tax compliance are in part organizational ones?
Tennenbaum: In some companies, I agree, but I’ve got to say that it depends on the company, and we see it every day. There are so many reasons why this gets missed. Sales tax or transaction tax compliance is extremely complicated, and there’s no competitive advantage from doing it right. It’s like payroll: You’ve got to do it and you’ve just got to get it right, and if you get it wrong, there are material consequences, especially around tax. But nobody wants to focus on it. There are much more important and higher-value things to do, and this is why we exist as an automation service. It is so different in every business. The reality is that the game has changed over the past few years because there have been a lot of regulatory changes in the U.S. and globally that have just made it more difficult to do sales tax compliance.Read More
There was a change in 2018 in the Supreme Court, South Dakota v. Wayfair, Inc., that changed it from requiring a physical nexus. You had to deal with tax compliance even where your physical presence was just economics. So, if you’re selling across all 50 states, above a small threshold, you have to deal with collecting and remitting and filing tax returns in those states. This went global, where now we have similar rules. The game’s become a lot harder, and customers have moved from a local business down the street, where they’re in one jurisdiction and much more simple, to omnichannel. They’ve got e-commerce, they’re selling in all 50 states, they’re selling globally. They’re selling in marketplaces like Amazon or other outlets, and it’s just hard.
I look at our deals every day because it’s all so different for different types of companies. Last week, we had this private security company sign up. They were founded in 2009—so, an 11-year-old company. They had no process whatsoever to collect or remit sales tax. They did a study with a Big Four accounting firm that discovered that they had a nexus in 40 different states. They had a sales tax nexus in 40 states, and they had not collected a dollar from any customer, weren’t registered, weren’t filing, were woefully out of compliance.
Why?, we ask. Why? Well, they had a very small accounting team, with only a couple of people, that had grown organically. They are a private company, so they didn’t have the public bar. They were focused just on internal financial reporting and what the aggregate results were. What does the P&L look like? They didn’t have the sophistication of tax people there. They had to clean it all up and automate it all.
I had another one that had been around since 1999, a pet apparel company, which is something that can take a number of forms—just like almost every type of business. In 2018, in addition to their stores, they became an e-commerce company on Shopify. Well, once you go e-comm, borders dissolve. You’re selling everywhere. But they didn’t think about this. They were thinking: “I’ve got to have a cart, and I’ve got to have my pet apparel looking nice, and I’ve got to think about marketing and sales, and there’s shipping and there’s tax in my cart—I’m good.”
Well, they’re not thinking that at some point down the road, they’re going to have to file in all of these states, and they’re going to have to register, and they’re going to have to collect. So, this was another one that came to us woefully out of compliance, and we’ve got to help to fix it. Again: They had a small accounting team and just were not focused on this stuff. There are all kinds of examples just like this.
When you get to public companies of our size, about $500 million in revenue or larger, what you then find is that you do have tax people, true. We have several—a few-person tax team—but there’s a lot to focus on: global entities, global tax compliance, IP tax. There are just a ton of tax things, and sales tax and transaction taxes are just one of them.
But you really want them to be focused on the bigger needle moving things and, to free up time to do so, automating the mundane task of sales tax compliance. So, companies are becoming aware of this. What I always say is, “Every business is in some state of noncompliance, or they’re spending a ton of money to be compliant.” The bigger the company, the more they have outside consultants, big tax teams, automation, a little bit of everything, and they’re spending a lot of money on all of this. They’re very much aware. It’s not an organizational issue. They’re coming to realize that they can automate most of this with a company like Avalara and stop spending all of the time, effort, and money in trying to figure it out the old manual way.
Avalara | www.avalara.com | Seattle, WA