There are around 129 million arts and craft participants in the US, according to Mintel, yet until recently there was no shopping channel designed to meet the demands of this constantly expanding market. In 2014, UK-based home shopping network, Ideal Shopping Direct, introduced plans to move into the US market, with the vision to grow its business and take advantage of this huge opportunity.
However, it soon became apparent to the company that doing business in the United States is a very different procedure from doing business in the UK. According to tax compliance experts Avalara, the US has over 12,000 different tax jurisdictions, tax holidays for specific items throughout the year, different taxability classifications of the same items in different states, and over 100,000 rules and boundary changes every year.
The Nexus Question
The initial challenge that presented itself for Ideal Shopping was how it could overcome the ‘nexus’ question. It is not a requirement for international businesses selling in the US to collect sales tax in a state unless they have ‘nexus’, i.e. a connection or business presence in a state or jurisdiction. If businesses have nexus in a state, they are expected to collect and remit sales tax according to the state’s regulations.
Answering the nexus question and identifying how much tax Ideal Shopping Direct would have to pay presented an extremely complex proposition to business as it prepared its expansion to the US. Justin Hattee, Group Financial Controller of Ideal Shopping Direct explains: “We knew about local sales tax from personal experience of going to the US on holiday, but we didn’t know the reality of the complexities involved. We wanted to get it right first time so we could hit the ground running and maximise the market opportunity we had identified.”
Consultancy and technology
Ideal Shopping Direct sourced the help of Avalara to overcome these various complexities and identified the company as best suited to aiding its sales tax obligations via its AvaTax™ solution.
A detailed nexus study was carried out by Avalara’s professional services team and Ideal Shopping Direct, establishing its sales tax liability in 12 states, due to numerous assets including head offices and broadcast locations spread across various geographies.
Avalara’sAvaTax software works by integrating into pre-existing accounting systems, ERP and CRM providers, and ecommerce software. It delivers real-time sales tax decisions automatically in the cloud, and provides an automated returns filing process. This proved vital for Ideal Shopping Direct’s growth into the US, with speed being a critical factor. The whole process took only a few months to set up, from initial contact with Avalara to systems being live. The shopping channel was able to successfully launch across the US on the 29th December 2014.
“We can now perform reconciliation at the push of a button, without a small team of experts being required to focus their constant attention on Sales Tax,” explained Justin Hattee. “We put the headline price on-screen for the viewers. Once they complete the order, online or by phone, AvaTax instantly calculates the applicable sales tax rates based on their address. Speed of response is critical in this respect and has allowed us to offer our best service to this new market.”
AvalaraAvaTax quietly and efficiently managed the background sales tax dilemma, allowing Ideal Shopping’s new Create and Craft channel to successfully launch in December, broadcasting to 35 million homes across the US.
The automated returns filing process guaranteed that Ideal Shopping Direct was fully compliant from the outset with minimal manual intervention required. It has allowed the company to successfully navigate what was once a complex tax landscape, and overcome any obstacles in their way for a strong and profitable future.
“From a project integration perspective, our teams are very happy with how the implementation went and our IT director is amazed with the simplicity of the link between the Avalara software and the Sage systems we use for our orders,” added Justin Hattee. “AvalaraAvaTax allowed us to launch successfully and legally in the US with complete confidence in our tax compliance. We just needed the initial knowledge in terms of getting things set up and then it runs itself. That’s the beauty of the solution.”
“Businesses often encounter new complexities when they enter new markets,” advises Sacha Wilson, Sales and Marketing Director at Avalara. Cross-border trade into the US should be seen as no exception, with Wilson adding: “Ideal Shopping identified the opportunity to grow its business in the United States and we’re pleased to help facilitate its expansion, allowing its new Create and Craft channel to offer the best customer experience while remaining compliant with different rates of sales tax, ultimately leading to a very successful launch.”