© Avalara Ray Bigley – VP Business Development; Avalara Andrew Johnson – Partner; Peisner Johnson & Company Expanding Your Digital Value Via State And Local Tax Advisory Services December 6, 2013

Making sales tax less taxing. 2 Market Forces & Evolving Markets Market Place Fairness Act (67 to 29) Peisner Johnson & Company – Client Service Opportunities Summary Today’s Discussion

Making sales tax less taxing. 3 $107,000,000,000 $55,000,000,000 $130,000,000,000

Market Forces: State Budget Gap

Making sales tax less taxing. State Budget Gaps

Making sales tax less taxing. $12,500,000,000 $23,800,000,000 Market Forces: State Budget Gap

Making sales tax less taxing. Market Forces 46 States, WA DC & Guam

Making sales tax less taxing. 8 Sales & Use Taxes In “LOTS” of Jurisdictions 46 States (Including The District of Columbia) have some form of Sales And Use Tax NOMAD States – No Sales Tax in NH, OR, MT, AK, DE Alaska has no State Sales Tax, But does have Local Sales Taxes There are over 11,000 North American Taxing Jurisdictions

Evolving Markets Mobile payments ( Affirm, Square, GoPayment, Fortumo, Zong ) Gaming ( mobile devices, Xbox, PlayStation, Wii )

Making sales tax less taxing. Omni channel Markets: Mobile 10

Making sales tax less taxing. Emerging Markets – Gaming, Mobile Payment 11

Making sales tax less taxing. Omni channel Markets: Gaming 13

Making sales tax less taxing. 14 Next up after Marketplace Fairness? Digital Goods – MP3 Files, Movie / TV downloads, Purchased Image, etc. Virtual Items – Exist within a specified environment. Example -Xbox Live marketplace, MapleStory: Flower bouquets, Games-weapons Sheldon’s dilemma from the Big Bang Theorydilemma

Making sales tax less taxing. Grants authority to states to require a remote retailer to collect sales tax Defines a remote retailer as any seller who makes interstate sales of products or services Applies only to remote retailers with annual remote sales in excess of $1 million, but remote sales includes exempt sales Requires very little simplification from states, and most of that is only for remote retailers Marketplace Fairness Act (67 to 29) “Very Brief Overview”

Making sales tax less taxing. Andrew (Andy) Johnson Peisner Johnson & Company, LLP

1.Nexus 2.Tax Rates and Taxability 3.Use Tax 4.Exemption Certificates 5.Tax Returns The 5-Point Assessment

Nexus

What is nexus? Nexus: A connection; a link or tie Minimum level of physical presence that allows a jurisdiction to require you to register, collect, and remit sales and use tax

Obvious

Less Obvious

Auditing your customers Sharing with IRS and other states Special task forces Leads o Former employees o Competitors How do states find you?

THE PROBLEM NEVER GOES AWAY… IT ONLY GETS BIGGER

Analyze the Nexus Footprint Assessment #1

Tax Rates and Taxability

Under-Collecting

●Something taxable in one jurisdiction may not be taxable in another... ●Except when it is. ●Rules are constantly changing - more than 5,000 changes in the last year alone

Fundamentals Tangible Personal Property (TPP)

Only CERTAIN services are taxable

Fundamentals ●ALL sales of TPP are taxable unless there is a specific exemption for that item. ●What about digital products?

Make Sure Clients Charging Tax on Taxable Stuff at the Right Rate Assessment #2

Use Taxes

Online Purchases

Putting Your System in Place ●Decide who should manage use tax accrual ○Accounts payable department ○Purchasing department ●Service opportunity for CPAs Accruing Use Tax

Make sure clients have a system for accruing use tax on taxable purchases — don’t overpay though Assessment #3

Exemption Certificates

Exemption Certificates Are Low-Hanging Fruit

Sampling

Review certificates actually collected by client. Assessment #4

Tax Returns Screenshot/CBS

Review returns filed Assessment #5

Protect Your Clients 1.Nexus 2.Tax Rates and Taxability 3.Use Tax 4.Exemption Certificates 5.Tax Returns The 5 Point Assessment:

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Making sales tax less taxing. Who is Avalara 49 Market Leader in Automated Sales & Use Tax Located on Bainbridge Island, WA & Seattle Offices across North America, in EU & Asia 11,000 customers 60,000 registered users 4 million calculations per day – approaching 1.5 billion annually Manage 5 million exemption certificates & file 500,000 sales tax returns Filing & remitting $14 billion in sales & use tax annually Original member Streamline sales tax & Certified provider

Making sales tax less taxing. 50 Questions