Avalara and Microsoft Dynamics: Tackling Tax Compliance Headaches with Automation

Avalara has rolled out a major upgrade to its integration with Microsoft Dynamics, aiming to transform how businesses handle the increasingly complex world of sales and use tax compliance. 

The announcement comes as companies face mounting challenges from shifting tax laws, multi-state operations, and the risk of costly audits – a landscape that automation is rapidly reshaping.

Automation Answers a Growing Compliance Crisis

Avalara's enhanced integration with Dynamics 365 and legacy platforms, including Dynamics GP and Dynamics NAV, is designed to automate the entire tax compliance lifecycle, from tax calculation and exemption certificate management to returns preparation and filing, all within the familiar Dynamics environment. 

The move responds to a clear need: a recent Avalara survey found that 53% of businesses see the complexity and constant changes in tax rules as a top challenge, while 52% believe that automating tax across their systems would significantly improve compliance.

Jayme Fishman, Avalara's Chief Strategy and Product Officer, summed up the company's approach.

"As an end-to-end compliance platform, AvaTax offers businesses a singular solution for managing both sales and purchases, consolidating their tax compliance efforts into one efficient system," he said. "Using our cloud-native approach to software development, AvaTax for Accounts Payable not only simplifies the compliance process, but also provides greater visibility and control over tax obligations, helping Avalara customers stay compliant with ease."

Why Use Tax Still Trips Up Companies

Despite advances in sales tax automation, use tax remains a persistent source of confusion and risk. In a recent MSDW Podcast episode, Myles Metzger, a CPA and use tax product solution consultant at Avalara, highlighted a widespread misconception:

The biggest misconception that I have encountered overall is that folks think that if a vendor doesn't charge them sales tax, they don't need to do anything about that. They don't need to review it, they don't need to take a look at it, which is completely false. Every audit that I've been part of in my career, the biggest assessment always comes down to use tax and not sales tax.

Metzger described his own experience managing use tax for a large manufacturer, where manual processes consumed more than 40 hours a month and left plenty of room for error.

I was manually looking through invoices, manually going through a spreadsheet, spending 40-plus hours a month just looking at use tax. One, it's prone to human error. Two, it's so time-consuming that it's really hard for folks to get this completely accurate every single time.

Metzger warned that as companies grow, the manual burden only increases. He said that the more time you spend managing use tax, the more it shifts from a simple review of purchases to a monthly burden.

How the Avalara-Dynamics Integration Works

Avalara's solution plugs directly into the full suite of Microsoft Dynamics 365 applications, including Finance, Commerce, Sales, Business Central, Field Service, Project Operations, as well as legacy on-premises platforms, such as Microsoft Dynamics GP, Microsoft Dynamics NAV, and Microsoft Dynamics SL.

This integration centralizes tax management for easier reporting and ensures that taxability is determined using preset rules and up-to-date tax content, reducing the risk of human error and freeing up valuable staff time.

Key features include:

• Rooftop-accurate tax calculation: Avalara verifies addresses with rooftop precision in more than 13,000 U.S. jurisdictions, applying correct rates and reducing the risk of errors, returned shipments, and unhappy customers.
• Unified compliance across channels: Businesses can apply consistent tax profiles to each customer, regardless of sales channel, e.g., online, in-store, or direct.
• Automated returns and filing: Avalara automates the preparation, filing, and remittance of sales and use tax returns, consolidating liability into a single worksheet and payment. The platform works directly with state and local governments to file and remit taxes on behalf of the business.
• Exemption certificate management: The platform collects, stores, tracks, and validates exemption certificates within Dynamics, with automated alerts for expirations or invalid certificates, ensuring compliance at every transaction.
• Economic nexus tracking: Avalara monitors economic nexus thresholds and provides detailed reporting, alerting users to new tax obligations as they expand into additional states or countries.

Real-World Results: From Manual Mayhem to Modern Compliance

The impact of automation is already being felt by businesses of all sizes. Hickory Farms, a household name in specialty foods, turned to Avalara and Microsoft to modernize its tax management with Dynamics 365 Finance and Operations.

"We wanted one system that could do everything well and a few things very well. And we wanted it to be cloud-based," said Matt James, COO of Hickory Farms. "The teams involved with our tax compliance upgrade have been incredibly responsive, and they work great together."

Another customer, Chris Wallace of PDS Packaging, praised Avalara's ease of use.

"Once it's set up with Microsoft Dynamics GP, it is almost automatic and very easy. Most issues are more human errors on our end," Wallace said. "It makes invoicing easy."

For Digital Ally Inc., a Dynamics GP and AvaTax user, the benefits extend to audit readiness.

"We save time by not having to search for and update tax rates," said Elaine Ware, Assistant Controller at Digital Ally Inc. "If we are ever audited for sales and use tax, I am confident I will have all of the data that is requested."

The Bigger Picture: Risk Reduction and Resource Reallocation

Automating tax compliance isn't just about convenience – it's about risk management and freeing up resources. 

"If you have someone who you trust enough to kind of spend 20 or 40 or more hours a week or a month on this kind of work, you'd think you'd probably have other good ways to use that person's intelligence and skills than this kind of repetitive work that could be automated," Metzger noted during the podcast discussion.

Avalara's integration with Dynamics is designed to let businesses do just that – redirect staff from manual, error-prone tasks to more strategic work, while reducing the risk of audit penalties and lost revenue.