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How AI can help manage surprisingly complex sales taxes

  • Hope Reese

Seattle-based Avalara offers “the first exemption certificate management solution” to leverage AI.

In the United States, there are more than 13,000 sales and use tax jurisdictions, each with unique parameters and different levels of enforcement. As a result, sales tax rules can vary widely. Factors like the type of goods (like streaming services or plain ol’ products), location and more, all contribute to making the management of sales tax a complicated endeavor.

Recently, the Seattle-based company Avalara released an AI-based software tool, the Avalara Exemption Certificate Management Pro, or ECM Pro, that it claims can be a big help for small-to-medium businesses that are facing challenges with managing tax services. Avalara, which offers cloud-based tax compliance automation, has created this solution to, it says, help simplify the process of exemption certificate collection and compliance management.

Exemption certificates may be required by a vendor when a business makes purchases that it does not need to pay sales tax on. In the digital era, with many sales happening online, it means that these certificates may be needed faster than before, and more frequently. But the process of obtaining these certificates, then validating and storing them comes with problems — and it’s error-prone and time-consuming.

In a recent survey of small and medium businesses carried out by Avalara, more than 25% pointed to the pandemic as contributing to technology sales, which means even more complexity of tax management, and a greater demand for automated technology.

While some tax management services have used automation, ECM Pro is “the first exemption certificate management solution of its kind in the industry that leverages AI and optical character recognition to automatically scan compliance documents and validate the information included,” according to Sanjay Parthasarathy, chief product officer at Avalara. “The use of AI and OCR is a gamechanger for exemption management as it enables easier data entry for forms and quick validation of certificate details for improved accuracy.”

According to the company, the new software product offers companies a way to automate document validation, by “automatically scanning compliance documents for data entry and certificate validation. It also says that it is offering a “reimagined user experience” with a user-friendly dashboard that can make the whole process simpler for employees.

Avalara also will offer “access to more than 35 integrations into billing, ecommerce and ERP systems, as well as a robust open API architecture for additional integration development, supporting best-of-breed integration solutions and key tasks from within leading ERPs.”

The company also has an option for businesses to automatically ask for exemption certificates at the checkout point, streamlining the process of collecting these documents.

Typically, tax-exempt transactions have been made through paper-based processes, in person, Parthasarathy said in a statement. Avalara Exemption Certificate Management Pro means that “businesses can use our AI-powered automation to manage larger numbers of exemption certificates with improved accuracy and efficiency,” he continued, “while also improving the customer experience across digital and in-person channels.”