The Taxing Truth: How Avalara Makes Compliance Easy

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Doug Lewis: Well, Matt. Emily, we're back again. For better or for worse. Actually, today I think is better because we have someone worth listening to. So it's not just the three of us, which is always exciting. And don't get ahead of yourself. Uh, Mike. Michael, we'll get to you in a second. Uh, usually the bar just sets so low when it's just me, Matt and Emily. Because we have nothing to say. None of us really [00:00:30] knows much. So it's fun to have a true expert in here, but you know enough. Enough of that. Uh, I want to get to the introduction. And Emily, instead of me just hacking through this. Do you want to introduce Mike? Mike?

Emily Madere: Yes, I will interview. Uh, interview. Um, introduce, uh, Michael. So for all of our listeners, um, this past Friday, we actually had, um, a vendor come to our office, and Michael is a part of this vendor group. I'm not going to give away the name yet. Um, and they [00:01:00] talked about the different solutions that they can provide to our clients through our intact practice. Um, so, you know, drumroll. You can't see me, but I'm. I am doing the drums. I'd like to introduce Michael Hewlett of Avalara. So thanks for being on the podcast.

Michael Hulett: Oh, yeah. Thank you. I appreciate the opportunity to, uh, chat about tax.

Doug Lewis: Oh. Oh, my.

Emily Madere: God.

Doug Lewis: That's so.

Emily Madere: Exciting.

Matt Lescault: You flew in to do tax? I thought we agreed never to do tax as a topic for the podcast. [00:01:30]

Emily Madere: We did agree, but I, I met, uh, Michael and I was like, man, he's making tax fun. Like, we need to get him on the podcast.

Doug Lewis: And and before you introduce, give us the full background there. Mike. Michael, why I'm calling you Mike. Michael is because before we started recording, I asked you the preference and you said half people, half people call you Mike, half call you Michael. So I think just for simplicity, we're going to call you Mike. Michael the whole way through. Sure. That just seems so much easier.

Michael Hulett: That's [00:02:00] fine with me.

Doug Lewis: And the other, the other thing with your name. Because I want to make sure I had the pronunciation Hewlett on the last name. And you had to specify not part of the Hewlett Packard, uh, family.

Michael Hulett: If I was doing if I was, I wouldn't be doing this.

Doug Lewis: Okay, good.

Matt Lescault: Now, would you be doing. Hold on. Now I want to know, what would you be doing if you weren't.

Michael Hulett: Sitting on a beach somewhere drinking mai tais?

Emily Madere: That's a that's a good question. And before we get into the nitty gritty of avalara and the fun taxes, if [00:02:30] everyone here won the lottery, what would they do? Would they still be doing this? Matt, what would you be doing?

Matt Lescault: I'd probably still be doing this. I hate to say it.

Doug Lewis: Wow. That's. I'm sad now that you said that.

Matt Lescault: Why are you sad? I really enjoy what I do know. It's.

Doug Lewis: This is. This is great, but I think I'm on the mike Michael train where, you know, if I truly won any legitimate amount of money like that, I would be on my own private beach somewhere. And probably never. You'd never hear from me again. [00:03:00] I would be I would be rich the right way.

Matt Lescault: See, for those listeners that aren't watching on YouTube, I'm a very, very white person that has no melatonin, no nothing. And I go from white to red to peeling. And so my my wife loves the beach. Me? I would just die of skin cancer. So I'm going to stick inside working. That's that's the key. Working, working.

Doug Lewis: I mean, you couldn't go to, like, some mountainous area and like, be, you know, like, you don't have to be, you know, it could be anywhere.

Matt Lescault: I [00:03:30] actually really do like the mountains. That's that's true, I love skiing. Um, I could do that. But eventually you have to go back and, like, you get your brain flowing and doing something. So I just, I think I would just do more extended, uh, vacations and probably work less, but I wouldn't stop working.

Michael Hulett: Yep. Agreed. Um, I would I have some side hustles, and my wife has a business. She runs, I would invest into those businesses, and I would probably still continue to do what I'm doing now.

Matt Lescault: Oh, actually, people asked me, I said [00:04:00] I would I would hire a lot more people to do the things that I don't like doing every day and just focus on things I like doing. But I want to know side hustles, what side hustles.

Michael Hulett: So since I was about 11 years old, I've been, uh, buying and selling comic books. So, uh, I just, uh, do it for fun on the side, but it's turned into a pretty profitable business, and that's cool.

Matt Lescault: I got I got to talk to you. I have, like, 500 comic books from my childhood, and my kids will go [00:04:30] into there, and then they'll start playing with. I pull it out and I'll go on to on, on, on the web and I'll go to like eBay and I'll be like, oh no, this is a $300 one. You're not taking this one. And I'll go on this one like this is $2 here. This one you can have. Yeah, we.

Michael Hulett: Definitely have a long conversation about that at another time.

Doug Lewis: What? So what's the most valuable comic book you've ever had your hands on? I'm curious.

Michael Hulett: Um, that's a good question. I mean, had my hands on.

Doug Lewis: You physically own had it. Yeah. Like it's your baby.

Michael Hulett: I know [00:05:00] exactly the one. So there's this guy in Durham who's a lawyer, and he's got a lot of money, and, uh, he doesn't have. He didn't have time. This was like a decade ago. He asked me. He's like, if I give you this much, can you find me the first Spider-Man? Which is like Amazing Fantasy 15? And at the time, it was only worth like maybe 6 or $7000. It was like a mid-grade copy. That same copy is worth like, I don't know. Gosh, prices have gone down a lot lately, but, you know, at least 50 to 70,000 now. I would say that's [00:05:30] insane.

Matt Lescault: I feel like I need I need a catalog that I have, like, I have the number one Deadpool, the first Deadpool. I don't think it's worth that much. I don't, I don't know, but I also have some ones from like the 50s and 60s because, um, randomly, I lived in Paris and comic books were big there, but you could get like DC comics and like some of the old stuff for pretty cheap. When I was a kid, it was I spent a lot of time, uh, buying comic books.

Emily Madere: Maybe to to segue back into our earlier conversation. Michael, [00:06:00] do you use avalara to, to do your taxes when you're selling comics?

Michael Hulett: Um, I am very fortunate that I can access certain parts of our service to look things up, but to be quite honest, like just from doing it so long, I just kind of, um, know what I need to do, and. And I'm pretty small, so, like, I don't have to deal with some of the complexities that our customers deal with. Um, but I definitely leverage aspects of it when needed.

Emily Madere: Love [00:06:30] it. So. So maybe for our listeners, who are you besides this super man selling, uh, comics? Spider-man? Yeah, whatever. Um, and, like, who is Avalara? Just give a good overview for our listeners.

Michael Hulett: Sure. So my name is Mike Hewlett. I've been with Avalara for coming up on six years. Uh, basically the best, the simplest way to think about Avalara is, you know, there's there's two guarantees in life. [00:07:00] There's death and taxes. And avalara, we can help you with one of them. I'm guessing you can figure out which one it is and which one it isn't. Uh, so the simplest way to think about, you know, just the complexities of taxes, it's just really hard. Uh, and avalara makes it easier for your customers, our customers, the market, to get the correct tax information to the state. Because what the state wants is they want you to take the right amount from the customer, and they want you to give [00:07:30] the right amount to the state. And that has always been hard. But recently, you know, as of like 2018, some laws came into effect. And it's just made the process for collecting and remitting tax in the US like almost impossible to get it right. And, uh avalara. We've been doing it for two decades. So when that change happened in 2018, we were really ready to deal and face with that market change, and that's helped us become the top provider in the world for [00:08:00] what we do, which is kind of exciting to say, but in the simplest way you make tax easy, but there's a lot of complexity that goes into making tax easy.

Matt Lescault: And you just said something the world, because I think if I'm correct, you guys support VAT tax. You're in Canada, you're in UK. I mean, this isn't just about uh, the US and uh, our tax.

Michael Hulett: Yep. That's correct. It's a it's a global company. And the funny thing with tax is like you can't be good at it unless you physically are there because every [00:08:30] country's laws are so specific. You can't just try to be across the pond and figure it out. You have to have bodies there, like working with like the local legislation to get that information right. And we have cascaded out across the world to become a global company. And, uh, you know, some obviously some countries are more accommodating than others, but we would we we feel pretty confident that we're the top VAT provider globally. Um, I don't know if I have a piece [00:09:00] of paper that says that, but I'm pretty sure we are.

Matt Lescault: That sounds a lot like labor law. Like it's the same type of complexity that you run into. I'm not getting into labor law, by the way. Yeah.

Michael Hulett: I do not want to get into labor law.

Doug Lewis: So I'm curious, could you give us kind of your global entity? Right. You're all over the place. You do all this crazy stuff. Just ballpark. How many total employees do we have globally? If you had to shoot from the hip?

Michael Hulett: Yeah. Employees at Avalara. Um, I would say 4 to 5000 somewhere in there. [00:09:30] Um. And growing. Um, I was hoping you were going to ask me. How many customers did we have? Because I knew that one off the top of my head.

Matt Lescault: Oh, they give us that one.

Doug Lewis: I gotta say, you're you're three steps ahead, but. Sure. Yeah. Give us. Just give us all of the. Just give us all the thumbnail numbers you have.

Michael Hulett: Sure. So, uh, the the things that make Avalara work or the things that make it successful is some of the numbers. So the the big numbers, we've got 43,000 customers, uh, that know and trust and work with us. Typically when somebody [00:10:00] signs up with us, they are going to work with us for the lifetime of their business because we're really sticky, which is good for us. Uh, but, uh, another number that we'd love to share is that we have 1200 to 1400 integrations, meaning there is a relationship between an accounting platform and avalara, or a shopping cart, or an ERP with Avalara for 1412 to 1400 different ERPs. So Sage is a great example. I represent the Sage team. Uh, [00:10:30] we have a direct integration with Sage. We work with NetSuite, we work with Oracle, you name it. So typically when a customer signs up with us, they'll be working with us as they grow and change. Um, they might have, uh, additional states, they might have additional products. They might say, hey, we love QuickBooks, but we're too big for it. We're moving to Sage. Um, when they make that switch, Avalara can make that switch with them. So as a company grows and changes, we grow and change with them from a standpoint [00:11:00] of, uh, you know, another great number is the number of jurisdictions in the country. Uh, jurisdictions are just a place on the map where a group of people got together, banged a gavel and assigned tax to goods and services. And those jurisdictions can overlap each other at different spots on the map. So unfortunately, getting the tax right when you when somebody bought something on your website and they are in another state [00:11:30] and their specific address has different jurisdictions that pile on on that specific address. It's almost impossible to get the tax right. And we're seeing, oh gosh, uh, 11,000, 12,000 jurisdictions uh, and growing in the United States. So, you know, just some numbers to think about when thinking about taxes. All numbers. But those are some ones that kind of pop out when I, when I think about it.

Doug Lewis: That's it sounds very simple [00:12:00] which, which I like, um, very easy, you know, easy digestible numbers to get through. I'm curious, you mentioned your global entity. You have all these employees, all these jurisdictions, all these, like, little nuances on how to operate in specific geographies. Is there anywhere, you know, you just don't have a presence somewhere you couldn't handle? You know, like I'm kind of curious, are there like black holes on the map for you?

Michael Hulett: Yeah. So there's black hole. There's one big black hole for everybody. And, uh, that's India. Um, so India is a tough [00:12:30] cookie because the local legislation is so disjointed, like there might be some areas of India that are, like really dialed in some of the bigger cities where you have that open communication and it's easy to work with that group. But there's a lot of India where that ability to work with that infrastructure is so challenging that it's hard to even understand for us. And that's where we're the best at in the world. It's hard for us [00:13:00] to to get the information because again, you have to get it from the horse's mouth. And if it's a challenge, then you know that that can be a barrier. So I would say India's probably the the the big elephant in the room for most companies in the world. Um, for most customers and, uh avalara, you know, we'll we'll get there. There's no question about it, but it's just not as easy of a nut to crack.

Emily Madere: And so, um, you [00:13:30] mentioned, of course, the, the integration with Sage. And you, you do avalara for Sage only, right?

Michael Hulett: Yeah. I work directly for Avalara. We made a really we made a lot of smart decisions early on. One of the, probably the, one of the best was segmenting folks by the ERPs or connections. Just because the nuance of Sage is so specific to Sage, and even within Sage, you've got Sage 100, 300 500 x three intact. We actually segment [00:14:00] out and Sage 50 as well. We segment out by those different ERPs. So we have experts who understand the complexities of not only the integration itself, but the actual verticals that tend to work with that, that particular ERP. Uh, you know, Sage is a great example where, you know, Sage 100 x three and 300 are, you know, manufacturing, distribution, construction, and, uh, intact is trying to [00:14:30] move a lot of those customers over to intact for construction. But intact has like a real heavy software presence. Intact has a massive, uh, nonprofit presence. Uh, and you'd be surprised those nonprofit folks have a lot of taxability. Uh. Uh, but, uh, the nuance of each ERP is very segmented. So Avalara made the decision to segment as well.

Emily Madere: And and when you were in person, you mentioned that at the beginning when Sage was writing Intacct, Sage [00:15:00] was writing their code, that they did something very specific for Avalara. Could you talk a little bit more about that?

Michael Hulett: Absolutely. Yeah. So we do have all those integrations. We've got that 12 to 1400, uh, different integrations across the, the different accounting platforms. But Avalara had been doing it for 21 years. Sage has been partnering with Avalara for 15 of those 21 years. And Sage, you know, looked at how they were doing things and they said, hey, you know, we don't we we don't want to do this, right. Uh Sage does have an option for, [00:15:30] you know, basic environments for, for tax. But Sage made the decision to instead of just building an integration with Avalara, they actually wrote Avalara into the software code of Sage in tax specifically. So every instance of intacct has avalara turned off. So if you just went to like the admin center and went to the third party integrations, if you look under like Salesforce, you'll see Avalara turned off just waiting to be turned on.

Matt Lescault: Because that's kind [00:16:00] of like that white label where Avalara is sold on Sage paper, and that's now being done with some other ISVs as well. But wasn't Avalara one of the first ones that that was the case? Uh, I don't know the exact history, but it feels like you guys have been around, uh, in that aspect a lot longer than some of the other players.

Michael Hulett: Yeah, you know that that marketplace for Sage is slowly growing, and that's great. Uh, but yeah, we were definitely one of the first to to have that type of specific built into the software integration. So it's, it's really [00:16:30] nice because a, the, the tax engine that we provide is actually sold on Sage paperwork by Sage. Um, so it's actually a Sage product, right? So that's definitely helpful for our Sage customers who want to get their compliance needs dealt with efficiently. And yeah, we've been doing it for 15 plus years, and we're one of those early adopters in the Sage marketplace.

Doug Lewis: So Michael, you might might not know this. Sorry, Mike. Michael, you [00:17:00] might not know this. Uh, but I'm curious how many partners are actually built into the Sage Intacct code like you? Is it a small elite club? Are we looking at, you know, thousands upon thousands of partners? Um, I'm really curious to know kind of what what your thoughts might be there.

Michael Hulett: Well, if if if you're in your Sage admin center and you go to it, you'll see it's a pretty small group. Um, you know, one, I think, um, you know, the one that stands out is Salesforce. Um, and [00:17:30] then, you know, like the ADP, I think, um, but it's a small group. I mean, it's just a few, uh, providers. But when it comes to tax calculation is the one and only.

Matt Lescault: And just to expand on that, I think there's the difference between it being built into as like in your configuration component component. And then you have the partners that build using platform services. So it's actually embedded into intact. But it's not the same level of integration that Salesforce Avalara [00:18:00] has. Um, so it's kind of different levels of, of that.

Michael Hulett: Yeah. You can you can always bolt on, you know, build an integration, build that language between two like accounting platform API's. But to go that next step and actually, you know, build the solution into the software code of another ERP or another software that's kind of like the next step. And there's there's that tighter integration.

Doug Lewis: Wow. So shockingly interesting I didn't I didn't expect that. [00:18:30] Yeah. Go ahead Emily.

Emily Madere: No. So what else does Avalara do.

Michael Hulett: Sure. So you know, the guy who started the company 20 years ago, shockingly, is still the same guy, right? He loves it. We went through a going public, then going private. Usually a guy like that rides off into the sunset. But he loves the company and he's the reason it's a great company to be at. Uh, he had a mission to have Avalara be a part of every piece [00:19:00] of tax in the world. And he's slowly working his way there. And you know that the tax engine itself is kind of the core product. Applying tax on an invoice, getting the tax right, understanding the tax changes as they happen. That's kind of the core of what we do. But the market demands you to be able to to carry more of the different obligations that are surrounding overall compliance. Uh, so I would say that the B to the tax [00:19:30] engine, A is the is returns. So when you when you, when you reach out when a state says, oh hey you need to register here, you here. You need to collect and remit from that point forward. You got to get it from the state or from the customer and then give it to the state. And you have to do that either on a monthly basis or a quarterly or annual basis. And when if you have it in one state, it's manageable. If you have it in two states, it gets a little bit more burdensome. If you're working in like five, six, seven, eight, you know, some people are working [00:20:00] in all 50 states and beyond.

Michael Hulett: Managing those returns becomes almost a full time job. And avalara we partner with the states. So we do that work on your behalf. So there is a very minimal footprint that you need to do when it comes to taking on the return. Um, one of the areas where Avalara is a thought leader is certificate exemption. And for a lot of our Sage customers, that's a big, big burden. Um, when when you work with somebody [00:20:30] in either like internally a partner for your business and or a customer and they say to you, oh, hey, no, we don't pay tax. Here's this piece of paper to prove that we don't have to pay tax. Well, you've got this piece of paper, and now that's. You have to share that with the state to prove why you didn't charge them tax. Well, unfortunately, that little piece of paper has a stamp on it that says expire on this date. Right. So when you are working with a ton of customers [00:21:00] or a ton of partners, and you're holding all these physical pieces of paper, you know that people are sticking them in file folders and forgetting about them, checking a box inside an ERP like Sage. Or they're going one step further. They're scanning it and they're putting it in a folder. They're still just checking that box. And Sage what happens is when you start to deal with hundreds of these certificates or thousands of these certificates, keeping up with the dates is impossible.

Michael Hulett: And but you still check nobody [00:21:30] unchecks that box inside the ERP. So everybody's just saying, oh, this they don't pay tax, they don't pay tax. And there's all these invoices that are reflecting no tax. Well, the the state auditor comes knocking on your door and you have all these expired certificates. Well, back in the day they would give you a slap on the wrist, say, oh, you don't have a certificate on file. No big deal. Now no certificate is the is the same as expired. So with Avalara, we have a way to automate that [00:22:00] service. You're going to make sure the certificates always staying up to date. And the key takeaway is that at the moment of the transaction, the tax engine that's integrated with Sage is actually communicating with the certificate service in making sure there's an updated certificate on file. So it removes the big problem with tax in general human error. So those are two mount rushmore's of services we provide along with the tax engine. But we also help with property tax nexus and back liability [00:22:30] determination. We help with um 1099 w-9s. We help with, um, streamlined sales tax, uh, basically free registrations or free returns with the states. Uh, so we do a little bit of everything we do tax research, you name it. So if you think of tax and compliance, we probably can help.

Doug Lewis: So. Well there's a lot to unpack there. I got I got kind of a two parter that are quasi related on that thing. Number one, how in the world are we still doing the paper certificates? Uh, [00:23:00] just is just mind boggling to me. Yeah. Uh, part two then, is you mentioned that we've moved from a slap on the wrist as a penalty to more severe penalties. What are those?

Michael Hulett: Sure. Yeah, that's a great question. So, you know, the the best. You know, when somebody always gets, you know, like avalara, we're pretty, you know, from a standpoint of market and cost, we're pretty, uh, accommodating to the cost of these services in the market. But sometimes folks will be like, oh, they're kind of get sticker shock when they see the cost of the service. But [00:23:30] I say with confidence that the cost of doing business with Avalara is always going to be head and shoulders better return on investment, or a less cost than dealing with an audit in the state. You know, typical audit is, you know, a six figure type of a scenario, uh, just on average, a countrywide. Um, so when we're when we're dealing with avalara, it typically the, the, the cost benefit of, of, of doing business with us far outweighs, uh, [00:24:00] the a the audit experience is is not a fun one. Uh, I would say from finance finance perspective, audit is like the one of the worst. You hear it and you cringe, right? Um, but with avalara, when you have an audit experience, avalara everything we do reports seamlessly, right? The goal is to get the accurate information into a report that is easy, easy to give to the state. So at the moment of that, uh, you know, [00:24:30] oh, no, here comes the auditor. Instead of, like, panic and fear. You know, here's here's a donut, here's some coffee. Here's the reports you need. And, you know, it's a much more smooth, simple experience.

Matt Lescault: So one of the things I like here, and I don't know how much you guys from Avalara talk about this, but compliancy and keeping up with regulations and all this kind of stuff, that's not fun. Nobody likes doing that. Now, maybe. Maybe people have learned [00:25:00] to like doing it. You seem pretty pumped when you talk about it. So let me not speak for everybody. But, you know, when we go in and we talk to clients about the utilization of intact and the value that they get out, we're not we're not like, hey, we're you're going to love this tax stuff. But the reality is that this is absolutely needed to to operate your certain businesses. Obviously, not every business needs avalara, but many do. And from my side of things, I look at this and say a solution like Avalara, whether we're in tax, whether we're in payroll, [00:25:30] whether we're in any of these things that are compliancy related. If we can take the man power out of it, if we can take the human element out of it, and what our clients are focused on is delivering. And we talk about this frequently, the value added component of that department, really understanding how the business works. And they know that they have a solution that solves the compliancy and regulatory, uh, requirements.

Matt Lescault: This allows finance departments to be more effective for the organization. And so for me, I think [00:26:00] that's that ends up being the biggest value is how we're taking away. I mean, back in the day, what you had a tax compliance office for a lot of these, uh, organizations, and you had people that were just sitting there and making sure that these certificates weren't expired, making sure that we were filing a new states, filing zero returns to a state that we didn't sell into today because we're selling it tomorrow. Um, and all of those kind of components, I, I have a client that that I probably should have used Avalara for a long [00:26:30] time ago. But I remember California when we talked about jurisdictions. California had district sales tax. So you we would sell to somebody and I would go on the computer and I would look up where the address was, find out what district it was, and then I would go into the sale, the California sales tax sheet, find that, put it there, then go to the next one. Well, I remember one time that I got an address and it couldn't tell me what the district was, so I had to call the California office and the person couldn't tell me.

Matt Lescault: And they were just like, [00:27:00] pick one, just pick one. Yeah, I can't tell you. And it's just and that's the craziest thing. And that's what my client was paying me to do just to stay compliant. What real value did that have to the client at the end of the day, besides making sure that they didn't get the penalty, the fine or or whatnot. So, um, when I see when I see services like this, um, when you talk about sticker shock, you know, I always like to go back to those kind of conversations like, would you rather be doing this manually, or would you rather be focused on this, or would you rather this be an [00:27:30] automated process that happens based on the data that's in your ERP, the address that's in your ERP, the way you're invoicing? If you're mapping items from your ERP to certain service types, that will dictate the. I think about restaurants and how, you know, alcohol might have a different tax rate than the food and and so forth, and how all that can get that get automated, I think is a is pretty impactful to the decision making.

Michael Hulett: Yeah. And you brought up some really awesome points. I think that one [00:28:00] of the main ones is like Avalara from a standpoint of what's the what's the ROI, right. What's why would you need to do this? What do you get out of it? Uh, obviously the big one is that compliance, right. But the the funny thing with, with finance folks is that, you know, when you talk to them, very few of them ever, you know, there are some crazy folks that actually want went to school and want to be tax professionals, right? Um, but unfortunately, those are few and far between, right? Most [00:28:30] finance folks have, you know, ideas of grandeur being the CEO, CFO of a big company. And very few come out of college saying, hey, I want to be the tax woman or guy. Right.

Matt Lescault: Um, the tax compliance person, there's a lot of people who come out of school that want to be CPAs and do taxes 100%.

Michael Hulett: Yeah, but like, we're talking about, like, figuring out the tax of things. No question, I apologize there.

Doug Lewis: Well hold on. Let's not throw tax under the bus too much because I think tax still is above auditing [00:29:00] on pretty much everybody's wish list of where they want to end up. And that's not a knock on auditors very important people.

Matt Lescault: But when we talk about tax compliance the audit is just part of that whole thing because the state will be quick to audit you on it, because states make a lot of money on on those type of taxes. We're not talking about income tax. We're not talking about estate or what really happens to personal or individuals or really corporate income tax. We're talking about, uh, sort of operational tax is the best way to put it. You know what? What how you get [00:29:30] charged tax based on the operations that you're doing. Correct.

Michael Hulett: So yeah, and there's typically you know, like I was kind of shocked when I like got into this industry and started realizing how small the staffs are. And sometimes I mean, we're talking massive companies and there's like 6 or 7 people in the.

Doug Lewis: Now what's what's massive like let's, let's like from your perspective what's like kind of your, your SMB enterprise, you know, like where do you split the difference?

Michael Hulett: I talk to like a company that they were like 76 to $100 [00:30:00] million company and they were like 6 or 7 of them on the finance team. Um, that's.

Matt Lescault: Means they have good systems. They probably have Sage Intacct, and it's probably automated with third party software.

Michael Hulett: So like that's just a good example of like these are these are a small group of folks doing a lot of different stuff. And obviously, you know, that's an extreme example, but there's a core group managing the finance of an entire organization and tax. You can invest an incredible amount [00:30:30] of people, power and time into it and the the unfortunate realities. You can still get it wrong. Uh, so we see hundreds or thousands of tax changes every month in the US, and we literally the states tell us that information. When those changes happen, Avalara gets notified by the state. We update all that information in, in our systems and our content and our tax engine. And the next invoices reflect that update or that change. Right. So [00:31:00] even if you have this dedicated person, the state didn't notify them of that tax change. They could have done all the work yesterday and the law could have changed, you know, two days from now like. So it's very hard for those folks, even if they're investing effort in time to get it right because of a the complexities of those jurisdictions piling up, or b, the fact that the law can change at any time. Like I had this one customer they were in, they sold the same product in [00:31:30] the same location and they're like, oh yeah, we're good because we sell these the same thing in the same place. And uh, the reality is, is you can have the same product and you can sell it in the same location, but the tax that's applied is subject to change at any time. And it does. Right. So those folks, when they learn and understand that, that there's complexity around the tax for their products and service at that specific location over time, that's a big, big eye opener [00:32:00] for them.

Matt Lescault: Well, let's not forget to talk about how understaffed the tax departments are at the local and state governments and trying to get answers from them and trying to navigate what is expected as an individual, uh, finance team, how tough that is. I mean, I, I have my war stories of going into I'm here in Maryland going into the Maryland state offices, trying to solve issues, and it'd just be like an all day affair.

Michael Hulett: Yeah. [00:32:30] You had said you like, I called into the state of California and I was curious. I was like, in some states are like better than others, right? But I was like, how? Like, did you just call in and like, hey, I'm talking to somebody? Or was there like a big was there just a hard time just to even get somebody on the line?

Matt Lescault: So with the states that I had to end up when this is when I actually did work. I mean, I technically do work, but when I, when I did client work, um, the states that I had to deal with on a frequent basis, if [00:33:00] I found somebody good, I'd like become friends with them, I would, I would, I would get funny, talk to them, talk to them about the weekend. And then I'd be like, so what's your direct line? How do I get to you every time?

Doug Lewis: What's your personal cell phone? What's your Social Security credit card? Yeah, I was like, okay.

Matt Lescault: What what's your home address? I'm going to send you some chocolates and I'm not. I promise I'm not going to stalk you now. Uh, but it was it was relationship building. And, I mean, I enjoy relationship [00:33:30] building and not everybody does. But I would get in there and I'd be like, I remember there was this one guy at the Department of Labor in, uh, in, in Maryland, and we had a really good relationship. But then he stopped talking to me and he came and he was like, Matt, you told me you were going to get this stuff done, and you didn't get it done because I was trying to, like, catch up for some clients. And I was like, I'm so sorry, but the client's not getting me the information. I, I in the same boat that you are and we and we end up having a chuckle and we got back in good terms. But like the relationship could get broken [00:34:00] down, but when you're helping them, they'd help you. Um, so to answer your question, Michael, I'm not going to do the mike Michael like dog. That's that's only his thing. Um, you know, it can it can take a lot of time. And you have to take the time to create these, uh, create these relationships.

Michael Hulett: Yeah. And, uh, thanks for, uh, thanks for the segue. Um, so avalara, you know, is really like, it's a, there's a complex stuff happening in the background to make it all work. Right? One of the things is that integration with the ERPs, uh, [00:34:30] the other one is like a really intuitive and like, uh, accommodating algorithm that's like a really cool software. Right? The other big piece of it is human beings building relationships with other human beings. Avalara folks working with the sales or with the state folks on the other side. And those relationships have been, you know, very strong for, for literally 21 years. Uh, and we don't Avalara doesn't get doesn't [00:35:00] have the tax information. We don't make the tax up. Right. We're the tax company. But all the tax information comes directly from people at the states when they when the laws change the state, folks tell Avalara folks somebody makes that change in the system. So there's still very much that human component with what we do.

Matt Lescault: I was wondering if that's how you guys handle it or because I know some there's there's tax research organizations, uh, out there. One that I'm [00:35:30] familiar with, tax analysts, that's a nonprofit here in Virginia that just compile tax data and provide that from research. And there's organizations that just subscribe to their data set to to allow that so that there's kind of like one access point for all that information. But it sounds like you guys are really, uh, really going at this, uh, in your own relationship, your own approach to state, local, uh, uh. Documentation coming into you and you guys compiling it, does that mean that you have your [00:36:00] own? I think I know this, I know this answer, but you have your own kind of tax research, uh, tool provided to the customers and, uh, able to sort of answer those questions. Or is that all internal to what Avalara does?

Michael Hulett: Yeah. Thank you for that. So so the best way to think about it is like the understanding of taxability of products and services like we call that content meaning like we understand that a screwdriver is taxed this way all over, right? Uh, times that by or multiply [00:36:30] that by all the different products and services in the world, that content or that understanding of the taxability of all that stuff is a pretty big thing. It's its own animal. So, Avalara, we've got the largest tax content repository in the United States and potentially on the Earth, I believe so. Um, on the earth, uh, to get that information, a we are getting that information directly from the States, like they're providing those updates and those changes, but as well, Avalara [00:37:00] we we have customers coming to us all the time with questions, uh, and through our we have the tax engine that's just applying the tax in real time right on the invoice. And then we have the tax research Service where our customers can pose Posed questions, reach out, ask specifics tech tax related questions about their products and services, and get quick tax answers. And most of the time when somebody asks a question, they [00:37:30] literally just type it in and they get an immediate answer. But there are those times where, like, we haven't talked to the state about it, the state hasn't shared it with us, so we don't know, right? And in those cases, the customer poses a question.

Michael Hulett: One of our accounting folks that works with the service will reach out to the state, get the answer from the state, and then update the customer. So through that tax research service that's really the Taxability arm of our business is Avalara Tax Research, [00:38:00] formerly TTR. It's a long standing tax research service in the market. Um, so typically within, you know, if if there's a rare chance where they don't get immediate answer, they'll reach out to the state and will or, you know, our accounting professionals might have the information and that will now go into that content repository. So it's not only available for that individual who pose that specific question about that specific product or that specific [00:38:30] service or any that certificate, or if I pay tax in this location, but I'm working with this other vendor who's responsible. Um, all those types of questions all go into the system once we get them, and the customer will get a response within 24 to 48 hours. Um, but I think every time I've ever asked them a question, they get me an answer that night. So pretty, pretty efficient.

Emily Madere: So I have a question, and I don't know if the guys have any more questions, because I do want to ask you about, uh, this is going [00:39:00] to sound weird where you are right now. Um, but one of my questions is if you can name like, your top states, like what states are the most difficult when it comes to a tax standpoint?

Michael Hulett: Yeah. So so you know, we we always say internally there are the good states because they bring us a lot of business, but externally they're the bad states for our customers, right? So it's kind of a double edged sword. We want to think about states that that either don't have a good infrastructure, um, or they don't have a good product like method of reporting [00:39:30] or sharing information. And we want to look at states that have a lot of jurisdictional complexity. Um, the some of the big baddies are obviously California. It's just massive. There's so much going on up there. They have a great, you know, like like when Matt communicated with them, they have a really great, you know, group of folks that you can engage with. Um, but they're it's just a beast. There's a lot of stuff. There's a lot of tax there. So it's very challenging [00:40:00] to get tax right there. Um, Colorado is a challenging state. A good example is there's uh, something called like if you sell into Greater Denver, there's something called the Greater Denver Special tax and the, uh, Denver, uh, scientific or the the Colorado scientific and cultural special tax like these two taxes for doing business in Denver that like a zillion businesses that sell into to greater Denver proper [00:40:30] have no idea they exist.

Michael Hulett: And they're just these weird little local jurisdictions that are it's just a tax for doing business in a big city. Right. So another great example is New York, obviously, like I'm from New York, the taxes are just, uh, I left New York because the taxes were just out of hand. Um, so New York just by itself is could be its own animal. Um, Texas has the most jurisdictions in the United States with like, like [00:41:00] 1300 plus jurisdictions, all overlapping each other in different ways. And it's like the second largest state in the country. So it's just almost impossible to get the tax right there. Um, you don't need to be in any other state other than Texas to need to have a lawyer. Um, uh, the, uh, state I just visited Louisiana to come out and see Emily and the folks on her team is, uh, very challenging because they also have a lot of local jurisdictional tax. And, uh, [00:41:30] the the state of Louisiana doesn't necessarily present that information. And the easiest way to digest. And.

Emily Madere: Oh, is that the only thing? Uh, no.

Michael Hulett: I'm not speaking any, any, any ill will of, uh, of, uh, Louisiana. Um, but, uh.

Emily Madere: Let's talk about the, the state that you're in right now, which is Georgia, and you're in Atlanta.

Michael Hulett: I'm, I am in Raleigh, Durham, North Carolina.

Emily Madere: Oh.

Michael Hulett: So I'll be in Atlanta visit. [00:42:00]

Emily Madere: Okay. I thought you were visiting the Sage offices today.

Michael Hulett: I will be getting on a plane later on and doing just that.

Emily Madere: Well, for those of you who don't know, Sage just opened their new Atlanta office. It's supposed to be the hub for all things Sage and all things intact. Um, Matt, you look like you wanted. You wanted to add on.

Matt Lescault: No, I'm just listening.

Emily Madere: No. Um, and and Michael got the special invite to go, so I can't wait to hear about your experience.

Michael Hulett: Great. You [00:42:30] think you. And when you say special invite, I think the better term is we muscled our way in.

Emily Madere: Okay. Okay, well, that does go along with my thinking that Avalara is literally Superman for taxes and apparently muscling in to headquarters.

Doug Lewis: So, you know, uh, Mike, Michael, uh, Emily was asking about states that are good and bad, right? Kind of tougher to deal with, easier to deal with. I have to know, by the way, I have a bone to pick with, like, resort fees, but we'll leave that for a separate issue. Um, [00:43:00] you know, in all your time at Avalara, have you found there's like, one consistent product or service out there that the complexity is just miles away from everything else. I mean, like like alcohol sales or, I don't know, software sales or something that sticks out that's like, this is the toughest single item or service to really do and do, right?

Michael Hulett: Sure. Um, so one I think is [00:43:30] funny. And then the one that I think is the problem. Uh, so in New York, if you have a bagel in a package, like if you get just a whole bagel that's not cut, it's taxed differently than if New York. If you have a sliced bagel with stuff on it, it's taxed differently. So that's just one that always stuck with me just to, like, show the complexity of just the market. But I would say 100% it's hands down software. Um, and the reason it's software [00:44:00] is because when I first started, folks would be like, ah, it's software. It's not taxable. We're good. And slowly every year the states pile on. And the reason being that, you know what, 30 years ago? More than that now, like with the advent of the internet, all the main Street businesses slowly kind of died off. So all that local business that brought in revenue, it just kind of vanished, right? Or diminished significantly. And the states have basically been struggling in that [00:44:30] since that time. In 2018, the the state of South Dakota went to to Wayfair, the big, big online retailer Wayfair and said, hey, we want we want your money, we want that revenue.

Michael Hulett: And Wayfair is like, no, we don't. We're not in your state. We don't have to pay any tax. That went all the way up to the Supreme Court. And it went into law in that state and became a national law. And now, post 2018, we have this complexity where all you [00:45:00] don't have to be in that state to still have to pay tax in that state. You just have to trigger the certain thing to now now you got to do it. Uh, software is like foam, foaming mouth, like they're excited. The states can just bang a gavel, and now they're collecting millions and millions of dollars of revenue from all of these different software companies. Right. So when a when a state has success with it, you know, auditors, you know, the state people, they work together, they talk [00:45:30] with each other. They realize, oh my goodness, that state just made so much money. Let's pass this into effect. So obviously California will be like our last remaining state that doesn't charge because that's like their bread and butter. So they don't charge for SaaS, but they charge for accommodating a complementing services around SaaS. Right.

Doug Lewis: So are the resort fees. Yes. Gotcha.

Michael Hulett: Yeah. Well, so every year software just gets another state signs on and starts collecting and remitting. [00:46:00] And now, you know, from the varying taxability of a product or service. Software is number one. And eventually, you know, years from now, I can't see any state not having some sort of a tax law for software specifically. So that would that's a that's the big one. And resort taxes. I just worked with a company that does glamping. Um, and they're incredible. Like they're I can't wait to actually use their, their service. They have all these like, fancy [00:46:30] outdoor glamping like, uh, places out in, uh, um, uh, in, uh, Wyoming and, uh, out in Montana. And they're just stunning. I mean, it's the most beautiful thing you've ever seen. And there's all these crazy, weird resort taxes that their, like, their heads are spinning. And, uh.

Doug Lewis: This is a business trip for you. You're gonna have to write this off.

Michael Hulett: Yeah. Unfortunately, I don't think I'm going to be able to make it fly. Uh, but definitely the complexities of resort tax is [00:47:00] only getting worse.

Doug Lewis: Exciting stuff. Uh, to be respectful of time. We can wrap it up here. Um, so, uh, Mike, Michael, I usually throw this out to the guest and or Matt or Emily. No one's really ever taken me up on it other than a handful of people. Uh, for better or for worse, we like to end these things with just a terrible dad joke. And, I mean, just, like, not funny. Just like, oh, God. Okay, that kind of dad joke. So I'll throw it out to you if you have one on standby. I'd love to hear it.

Michael Hulett: You know, my [00:47:30] kids are always grilling me. I've got a seven and a nine year old boy. They're always grilling me. Uh, but unfortunately, my brain has limited space, and it's full of tacks.

Emily Madere: Uh.

Michael Hulett: So I always go to the Google and get the answers. Uh, now. Chatgpt. Uh, so I don't have anything off offhand that I could throw at you.

Doug Lewis: Matt. Emily. Last shot throwing out.

Emily Madere: Natalie.

Doug Lewis: You okay? Um, it's gotta be. It's gotta be really bad today. Um, okay. So what, uh, what do you [00:48:00] call an elephant? That doesn't matter.

Matt Lescault: Elephant. Not.

Doug Lewis: Any other guesses?

Emily Madere: I suck at these.

Doug Lewis: An elephant.

Michael Hulett: Oh.

Doug Lewis: Oh. You see?

Doug Lewis: It's good. It's great. That's exactly the response that we want.

Doug Lewis: We want to end on a just a real medium note. That's the best way to do these things.

Michael Hulett: And one important thing to note Avalara is tax research service. If you sign up for that, there is a a a dad joke of the day every [00:48:30] single day inside the system.

Doug Lewis: Oh, if you if you didn't already sign up.

Doug Lewis: I mean, if that doesn't just put the nail in the coffin of the sale. I don't know what will, but Mike, Michael Hewlett, thanks for joining us, my friend. We'll have to have you back in the future. Uh, and maybe, uh, maybe at Sage future. We'll see.

Michael Hulett: That'd be great. Appreciate the opportunity, guys. Thank you so much.

Emily Madere: All right,Bye

Doug Lewis: Take care.

Michael Hulett: Bye.