New AI-Based Avalara Managed Tax Category Classification Solution Simplifies Assigning Sales Tax Categories to Products

Avalara launches Avalara Managed Tax Category Classification, an artificial intelligence-based, self-service tool paired with assisted classification services to allow businesses to efficiently classify their products and services to tax categories — regardless of the size of their product catalogs.

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Avalara Managed Tax Category Classification will generate classification decisions and aid in state and local taxability determinations for businesses’ U.S. product catalogs.

“Today, the classification of product catalogs to correct tax codes can be an onerous and time-consuming process — especially for businesses with large catalogs. By applying AI and machine learning to the classification process, businesses stand to save time and money, while also improving the accuracy of their determinations.”

Kevin Permenter, research manager at IDC, a global provider of market intelligence

Classifying Product Catalogs is Complex and Time-Consuming

When businesses introduce a new product or service, it must be classified into the correct tax category. With over 13,000 sales and use tax jurisdictions in the U.S. alone and many having unique sets of rules for taxing products and services, accurately assigning taxability is challenging.

To determine product taxability, businesses must consider details such as how an item is made, where it’s sold, how it’s delivered, and more for every jurisdiction.

Because product and service catalogs and tax laws are continually changing, product classification and taxability determinations require year-round attention, staffing, and resources.

Given the complex nature of product catalogs and tax laws, manual classification and determination could pose audit liability if done incorrectly while also creating a strain on time, personnel, and financial resources for businesses.

Simplifying The Process with Avalara Managed Tax Category Classification

Avalara Managed Tax Category Classification accelerates the classification process using machine learning enabling businesses to:

• Improve the accuracy of tax calculations. Match products and services to the correct tax category, enabling more accurate tax rate determinations. Avalara Managed Tax Category Classification uses machine learning to provide up-to-date classifications that help mitigate over- and undercharging tax while leaving room to apply special considerations, like SNAP and WIC eligibility.
• Save time classifying products. Decrease the amount of time spent researching and making decisions on proper product classifications. The deep product content database assists AI and machine learning algorithms and search functions to identify and classify products easily.
• Simplify product classifications to protect business margins. Accelerate time-to-market for new products with faster classification, and reduce the risk of penalties and audit with more accurate classification details regardless of the size and volume of product catalogs.

“As businesses expand in today’s omnichannel environment, they are continually adding new products to sell across numerous channels. Our managed tax category classification product equips businesses with an automated solution that not only reduces the time spent classifying product catalogs of any size, but also improves the accuracy of tax determinations at the time of purchase.”

Sanjay Parthasarathy, chief product officer at Avalara

Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types.

The AI-based Avalara Managed Tax Category Classification service is the company’s newest solution to help small businesses navigate the complex world of sales tax after the landmark U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., which required businesses to collect and remit sales tax in interstate commerce.