Avalara, Inc., a leading provider of cloud-based tax compliance automation for businesses of all sizes, released new survey findings that show tea merchants and small to medium businesses in the United States continue to struggle to navigate tax complexity and tax rate changes on the 250th anniversary of the Boston Tea Party. In fact, eight in 10 tea merchants (82 percent) feel anxiety related to staying on top of their tax obligations.
In the United States, there are more than 900 sales tax rules on tea products.
"The Boston Tea Party was our nation's first public disagreement over tax complexity – which is far from over," said Scott Peterson, vice president of U.S. tax policy at Avalara. "Fast forward 250 years and U.S. businesses that are selling goods across states today must comply with tax laws set by legislators they cannot elect – which presents an ongoing challenge as these businesses struggle to comply with constantly changing tax rules across the U.S."
The survey also found that three-quarters of modern tea merchants (76 percent) have faced penalties or fines for tax errors — costing an average of US$2,000 annually — as nearly all sellers (94 percent) are unaware of the number of different tax rates on tea products.
The majority of tea merchants (83 percent) believe that tax complexity is now out of control and eight in 10 (80 percent) say it is one of the biggest burdens on their companies.The average tea seller spends more than nine hours a month on tax compliance and 71 percent of merchants say tax complexity has prevented them from expanding into new markets – both domestically and internationally. For example, a U.S. business selling tea products to customers in the European Union (EU) will need to comply with different rates of tax for green and herbal tea (3.2 percent and nine percent, respectively).
As a result, 76 percent of tea merchants would urge the government to consider ways to reduce sales tax complexity with 42 percent considering lobbying decision makers and half (50 percent) even contemplating a legal challenge. As an alternative, 90 percent would look to reduce the burden of complexity with automation or AI.
American tea merchants are not the only ones struggling to keep across their obligations. In fact, four in five (83 percent) of tea merchants in the United Kingdom have faced penalties or fines due to unintentional non-compliance with U.S. sales tax obligations. While the majority, (53 percent) agree that it is more difficult to sell tea in the United States given tax complexities when compared to selling elsewhere.
Sales Tax Complexity Costs Businesses Time and Money, Creates Anxiety
U.S. tea merchants are not alone about feeling anxious about the country's tax complexity, as Avalara's survey also revealed that 69 percent of small to medium businesses found that sales tax complexity looms large with far-reaching impacts for their bottom line. Findings include:
- 40 percent have faced penalties or fines for non-compliance in the past – the average fine costing US$1,600.
- 70 percent say tax complexity is one of the biggest burdens on their companies.
- The average business spends 10 hours a month on compliance.
- 62 percent of businesses say tax complexity has prevented them expanding into new markets.
- 80 percent of businesses would urge the government to consider ways to reduce sales tax complexity.
- 88 percent of businesses would use automation or AI to reduce the burden of complexity.
The following tax changes have been monitored and tracked this year alone by Avalara:
- More than 8,700 sales and use tax rate changes across the U.S. thus far in 2023, that is nearly 30 a day.
- The top five states for sales and use tax complexity based on the number of sales and use tax rate changes in 2023 are: 1) Alabama with 3,734 changes, 2) Kansas with 2,292 changes, 3) Virginia with 743 changes, 4) Missouri with 350 changes and 5) New Mexico with199 changes.
- 16 states have not yet changed any sales and use tax rates in 2023.
- Food is the category with the most number of changes to sales tax rates, with 4,967 changes already made in 2023
Avalara helps makes tax compliance faster, easier, more accurate and more reliable for 30,000+ business and government customers in more than 90 countries. Tax compliance automation software solutions from Avalara leverage 1,200+ signed partner integrations across leading ecommerce, ERP and other billing systems to power tax calculations, document management, tax return filing and tax content access.
Avalara's research was conducted by Censuswide, surveying 100 U.S. tea merchants and 301 decision makers that deal with tax in small to medium size businesses (up to 240 employees) and 2,000 U.S. consumers between Nov. 9 - Nov 21, 2023.
For the U.K. data, Censuswide surveyed 300 U.K. decision-makers in small to medium-size general businesses/retailers (up to 240 employees) who have a basic understanding of tax regulation and sell goods across the U.K. and globally. Censuswide also surveyed 102 U.K. decision-makers who say their company sells tea and sells products internationally. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles.
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