Saturday, August 13, 2022

Steve Lacoff, General Manager of Avalara Communications

Steve Lacoff

Nothing in the world is certain except death and taxes. While we may be far from solving the former, Inside Telecom sat down with Steve Lacoff, General Manager of Avalara for Communications to discuss how their solutions can make tax management easier for all involved amid a world changing pandemic, when going digital is the new normal.  

What are the patterns that have changed in communications and technologies with the spread of COVID-19?

Covid-19 has certainly impacted a lot of businesses in a negative way, but broadly speaking it’s actually been a little bit of a tailwind for communications. Everybody has been at home, with millions of people having to transition into remote work. In order to do that, connectivity is crucial.

Accordingly, an uptake in virtual collaboration occurred with people using platforms like Microsoft Teams and Zoom,  as well as VoIP for enterprise voice being extended into employees’ home offices.

Also, on the consumer side, people had more at-home time, and budget, for living room entertainment, creating a significant uptake in streaming services. Streaming giants like Disney+ doubled their subscription base during the pandemic. This scenario occurred across the board with streaming platforms. What’s interesting about it is that when those platforms begin with a free trial, then customers transition to a month to month contract, it’s a very sticky service. Consumers were exposed to more streaming services during COVID-19,which in turn has driven more adoption.

What can you tell us about data, VoIP, and video streaming, with businesses turning digital?

Those services are foundational, as businesses have gone digital and increasingly embraced remote work.

Companies have for many reasons been intrigued with remote working, including the reduced necessity for big offices, and the elimination or reduction of commuting, giving employees more flexibility.  Suddenly, hundreds of thousands of companies were thrown into this forced experiment to give it a test run.  We collectively found that, with platforms like VoIP, Zoom and Slack, remote work did not impact productivity.

While COVID may have forced them to redefine the work culture, companies discovered that remote working worked.  We’re beginning to see that every company has licenses to Zoom, and they are increasing their investment in messaging platforms.That leads companies to adopt a new strategy, where you can’t just be a pure play messaging company or voice provider or collaboration company. All those capabilities have to come together in a single unified platform where all these services work together. We have been a big shift in terms of companies expanding their capabilities, either building their own platform or through acquisition.

Supply chains have been experiencing heavy pressure due to the global health crisis; how has Avalara been able to absorb this amount of pressure trickling down? What are the tax solutions you provide for the ever-evolving telecom, streaming, and technology industries?

We provide tax calculation and compliance products and services for telecom and tech companies; therefore we’ve been able to help companies navigate these challenges in a number of ways.

With merger and acquisition activity, multiple businesses are coming together and typically have multiple tax platforms that require unification. When they do that, they start evaluating whether or not it is a capability the company can run in the cloud. One of the key advantages we have is that we are a native cloud technology service. As such, we’ve been able to help many companies consolidate these different systems into one tax service where we can handle all their tax calculations, and all their registrations and compliance filings. Basically, we take all that corporate tax complexity and provide outsourced cloud tax compliance solutions.

When companies come together, it’s intended to expand their product capabilities. Therefore, when you have a broader set of products, you get a more complex set of tax requirements because the taxability and the rules, particularly in the United States, vary dramatically from service to service. We have a robust library of content where we can provide customers a future-proof solution no matter what product or technology.

What are some of the complex compliance challenges you’ve faced during the pandemic?

Some of the challenges are simply inherent, as the taxation regime in the U.S. is incredibly complex, with taxes at multiple levels: federal, state, county, and city level.

As companies go digital and make their services and capabilities available in the cloud, they are now serving customers not in just one state or region, but across the U.S. and globally.

And as these communication services move away from being infrastructure based and transition to the cloud, they take on a much broader taxation footprint, with increased complexity.

A second challenge has to do with cord cutting and the rise of streaming. With traditional pay TV services, we’re subject to a whole string of taxes, not only in traditional sales and use  taxes, but also telecommunications taxes. During the pandemic, streaming was introduced broadly, and not subject to any tax.  Over the last two years, on a state-by-state basis, jurisdictions began introducing not only sales and use taxes, but also traditional telecommunications taxes for streaming that were based on the taxation of TV services.

The reasoning is simple – with cord cutting, you had consumers moving away from a heavily taxed service to a service that had little to no tax, shrinking that tax base. In an effort to reclaim some of those taxes, states have aggressively looked at taxing streaming in the same way they did pay TV or cable service.

What differentiates Avalara from its competitors?

It’s several things: one is that we are a true cloud-based service. Traditionally, tax software systems were run on-premises, having a lot of associated costs and maintenance. It is very simple for customers to implement our cloud-based products and services, which scale fluidly.

The second thing is ease of migration. Since Avalara’s founding, the area of focus has been to provide out-of-the-box integration to ERP and accounting systems, ecommerce and billing systems, and subscription management systems, via connectors. Avalara  is integrated with over a thousand different technology solutions that companies use to run their business.  

Our breadth of content is another important benefit, which includes all the various tax rates, and the rules associated with those rates. We have a very large content team that researches all of our content to ensure the accuracy of taxes – this capability allows us to be agile and ahead of the curve in terms of ongoing rate changes, and, for example, additional states that are adding taxes on streaming services.

Could you briefly tell us about the benefits emerging from Avalara for startups and partnering with Female Founders Alliance?

There is a big benefit of what we do for startups in terms of ease of integration with a cloud based system. Avalara offers a very flexible set of tax compliance solutions for early-stage companies to adopt, and we support these companies as they continue to grow.

How has the pandemic affected your ability in facing tax fraud? Could you give us a brief example?

Avalara began to see significant anti-fraud measures with the e-invoicing requirements that are now taking shape in the EU from a VAT perspective. This trend toward “real-time” tax collection will have many advantages for governments to be able to secure their tax due on a more immediate basis. However, it introduces significant complexities for businesses. Avalara has been working diligently to stay ahead of the introduction of this new tax regime change. To that end, we recently acquired a company, INPOSIA that handles many e-invoicing requirements.

How has the rise of cryptocurrency affected your business? And what are you doing to adapt to this new technology?

Avalara is more focused on the longer view of the development of stable digital currencies. The accelerating shift to government-sanctioned digital currency is an inevitable global trend, following closely behind an increasingly digital economy. In the U.S., we’re seeing a rapidly evolving effort with the CBDC Digital Dollar Project, buoyed by the growing adoption of cryptocurrencies such as Bitcoin, the speed, ease and traceability of digital currency, and competitive positioning toward other world governments. CBDC efforts across countries are frequently collaborative, with governments, private industry, think tanks and educational institutions providing resources for research, development and testing. Avalara is a pioneer in developing advanced technology to drive innovation in compliance, and this includes our ability to handle taxability and compliance around digital currency. Avalara will continue to closely monitor CBDC developments around the Digital Dollar Project, and we stand ready to assist as efforts move forward and private sector resources are required to develop a country-leading digital currency.

 How has the ever-growing pressure from worldwide governments on Big Tech companies affected your business?

This is something we’re watching closely – the ramped-up pressure on Big Tech is certainly increasing the complexity of tax overall. We’ve already seen action taken in Maryland with a gross receipts tax. It could ultimately have effects for both communications tax and sales tax.