A Deeper Dive | Reduce Friction with Tax Tech

Episode 4: Achieving Frictionless Commerce Podcast Series

Vertex Automation for Tax

Episode 4 Summary

Tax is an important component of frictionless commerce. In this episode, Vertex’s Peter Olanday, Director of Retail Consulting, helps you understand why that is as well as common tax challenges IT professionals face, how to mitigate them, and tips on how to work better with your tax counterparts.

Achieving Frictionless Commerce: Helping IT professionals tackle friction within their organization.

Introduction (00:05): Welcome to Achieving Frictionless Commerce, a podcast series brought to you by Vertex, where tax and IT experts discuss how you can create a frictionless buying experience that will better support your customers and drive future growth for your organization—as well as the surprising way that tax plays a part.

Jeremiah Owyang (00:27): Developing a smooth customer buying experience is a necessity for today's businesses—it's no longer an option. For IT leaders that are challenged with making this happen, the good news is that there is help out there. Welcome to Achieving Frictionless Commerce. My name is Jeremiah Owyang, a technology analyst and entrepreneur based in Silicon Valley, and your MC. Join me and my guests, experts from Vertex, a leading global provider of indirect tax software and solutions in our six-part podcast series. Together, we will discuss what the term frictionless commerce means right now, what you can do to minimize any barriers in your customer journey, and the best steps to take that will lead to long-term organizational growth.

Jeremiah Owyang (01:14): Today, I'm joined again by Pete Olanday, Director of Consulting Vertical Solutions at Vertex. Pete is here today to discuss and help educate IT experts on what happens when tax technology is and is not right, and how tax plays a role in frictionless commerce.

Jeremiah Owyang (01:33): Welcome, Pete.

Peter Olanday (01:35): Thanks, Jeremiah. Glad to be here.

Jeremiah Owyang (01:37): Well, maybe you can give a quick background about yourself, and for those that didn't check out our last discussion, I hope you go back and listen. Love to hear a little bit about you.

Peter Olanday (01:45): Sure. My name is Pete Olanday, and I'm the Director of Consulting for what we call Vertical Solutions within Vertex Consulting. And what that means is focusing on industry specific solutions and integrations of our tax calculation and compliance solutions, retail being one of those industries. [I’ve] been with Vertex now for going on 11 years, and prior to that I worked 10 years at Ikea [where I was] responsible for their point of sale in North America.

Jeremiah Owyang (02:14): Impressive background, Pete. I've got a question for you. How does tax play a role in frictionless commerce?

Peter Olanday (02:20): So, if you think of commerce in generality, right, it's everything in that customer's buying experience, and tax is just a small piece of that. Think about when you're walking in a store or shopping online. You're browsing products, you're looking at prices, you're looking at product descriptions. Then you proceed to the checkout process, whether that again, is in person or online. Discounts and promotions and that sort of thing, do you need it shipped, etc.? And then tax is calculated as part of that checkout process prior to the actual payment.

Peter Olanday (02:54): So, when you look at frictionless commerce there's a lot of possibilities for friction in that tax calculation. And especially in today's world where you can buy anything, buy anywhere, get anywhere type of scenario—where you have omni channels, you can traverse multiple channels within the same transaction—the tax gets pretty complicated. So, you can imagine all of the friction points of, do I need to calculate tax where I'm buying it from? Where am I getting it shipped to? What are the types of products I'm selling? What are all the parties involved in that transaction? And we think about things like marketplace where there could be third party sellers and things like that. So, there's a lot of possibilities for friction to sort of stand in the way of the customer completing that checkout.

Peter Olanday (03:43): And then when you think about it from the retailer's perspective, again, we're talking multiple channels—online, maybe a mobile app, brick-and-mortar store locations, maybe they sell on a marketplace. You think about how to keep that tax calculation the same product across all those channels, [in other words] trying to keep that consistent so the customer gets charged the same tax no matter how they interact with you. We started to see during the pandemic that your order isn't necessarily coming from a distribution center or a warehouse anymore. It can come from the store that's located closest to you. It can come from a store with the highest inventory levels of that particular product. So, these stores are operating as mini distribution centers, so there's that complexity too. Trying to calculate the tax of point A to point B when you don't know where point A is going to be at the time of checkout.

Peter Olanday (04:30): And then, marketplace has multiple sellers. I could be an independent seller selling on somewhere like Amazon, or on Etsy, or on Walmart Marketplace. How do you calculate tax in that type of scenario when there's a third party involved? So, there's a lot of possible areas of friction. There's a lot of moving parts behind the scenes when it comes to tax calculation.

Jeremiah Owyang (04:50): Woah, so that is a web of complications that you just spelled out. I don't know how many different factors you just shared…12…20? It was a lot. Now let's talk about our friends the IT professionals. I can only imagine that they kind of get frustrated when the tax is not correct. What have you heard from them?

Peter Olanday (05:08): The biggest thing is that it's a moving target. Calculating tax isn't just multiplying a percentage rate on the price. Like you just said, Jeremiah, there's a lot of factors involved in even the more simpler tax scenarios. And then all of that can be changing. Vertex sees legislative changes on an ongoing basis. On a monthly basis, I don't know how many hundreds of tax changes there are, and those could be just the simple rate changes. A jurisdiction increases the rate by 0.1% or whatever. You know, just that kind of the natural progression of things.

Peter Olanday (05:36): We also start to see new taxes. So, we start to see things like environmental fees on certain things that we didn't see before. Things like there's a mattress recycling fee in a certain jurisdiction; there's a white goods disposal, so if you buy a washer and dryer and you have to dispose of the old washer and dryer, there's an environmental fee on that; you put new tires on your car, there's like what [a] $5 charge per disposal to each tire. So, there's things like disposable bag fees. The list goes on and on. So, these are constantly evolving, and jurisdictions are coming up with new fees and taxes [that are] brand new. So, they're not just a change goes up or down.

Peter Olanday (06:11): We also saw fairly recently a record number of sales tax holidays. So, in areas down South where you have storm preparedness, you have back to school sales tax holidays in a lot of areas (a lot of states) where certain things—and that list of products, the products that qualify for those—are constantly changing as well. So, you've got these sort of time sensitive changes that kind of cause a lot of heartburn for IT because they have to go in and make sure that the rates change for this particular weekend and then go back to the normal rate come Monday.

Peter Olanday (06:41): And then there's other scenarios. Merchandise returns can cause a lot of challenges if you don't have that process set straight, right? How do I calculate tax on a merchandise return on a purchase 60 days ago? Do I have visibility into what the tax rate was 60 days ago? What if it changed in between? [If] I can't refund the customer the current rate, I might be overpaying [or] I might be underpaying. It might not be the same is the bottom line. So, merchandise returns pose some issues as well.

Peter Olanday (07:08): And then, like I said, this whole idea of cross channel shopping, meeting your customer in multiple channels and the handoffs that happen in between those channels causes some problems. It can cause problems if you don't have your solutions aligned in the correct way.

Jeremiah Owyang (07:23): Wow. I didn't even think about those additional implications especially around the returns and the timing. And you brought up a point, there's federal, there's regional, there's state, there's local, there's city, and each individual item could have a different tax implication. It's quite significant.

Peter Olanday (07:39): Yeah. I mean, and then that's just sort of the getting it right. That's just the getting an accurate or precise tax calculation. A lot of our customers also have experienced (through the pandemic) this idea of the performance and when is a peak time anymore. Black Friday, Cyber Monday, those peak times used to be pretty predictable. I can really narrow it down to a certain week or a certain month of the year, usually around the holidays. It would depend on what you sell. But now, with things like supply shortages [and] shipping delays, the holiday shopping season is starting earlier. And then also that people are shopping more online. It's more digital now. Peak times can be almost any time of year. So, having a scalable solution that can be elastic enough to handle sudden peaks in volume is also a challenge.

Jeremiah Owyang (08:27): So, here's another challenge that was brought to my attention, but I would love for your take on this. You know, there's this common misconception that when tax is in fact correct, that IT doesn't have an issue, but that may not always be the case. Can you please enlighten us?

Peter Olanday (08:43): Like I said, the tax is pretty black and white if it's right or it's wrong but to get that right answer to how much tax is supposed to be charged on this transaction (on this line item), there's a lot of moving parts behind the scenes and a lot of hoops that IT might have to go through to get to that right result. So, just because it's right doesn't mean that there's no friction. To the customer it might seem like a seamless checkout process…the tax comes back [and] it looks right. But behind the scenes there could be a lot of systems that have to talk to one another. There might be some manual processes that are sub optimal, right? A lot of hand keying in rates in a spreadsheet and uploading…that type of thing. So, that's sort of the things that we see out there. That there's still the hamster on the wheel so to speak behind the scenes trying to (just through brute force trying) to get it right. So, just because the tax is correct doesn't mean that there's no friction, that the things are working the way they're supposed to.

Jeremiah Owyang (09:37): And as you pointed out in our prior discussions, the customer doesn't have too much patience…they want it done now. So, when things are not going well what do you recommend to the IT professional? What steps should they take to mitigate some of these issues?

Peter Olanday (09:52): The obvious thing is to automate anything you can. Any kind of manual process just is ripe for error, but it also is not very scalable. You just can't hire rooms of people to keep the tax rates up to date across all of your systems. It's just not feasible. So, you want to leverage automated tools and systems. Also lean on specialized solutions for that function. So, we work with a lot of customers that maybe have developed their own tax calculation engine and tax calculation logic, and what they're really looking for is just tax rate content from us. But it's more than just multiplying the price by a percentage. There's a lot of logic [including] tax laws that might even dictate above or below a certain price point determines if it's taxable or non-taxable. There's quantity-based fees like we mentioned [such as] the tire recycling, the mattress recycling…those types of things. Those can get complicated when you couple that with a traditional percentage rate tax.

Peter Olanday (10:46): So, lean on specialized solutions like Vertex. This is what we specialize in, and it's really designed to accommodate all of those nuances and all the complexities with calculating tax. And then finally, I would say consolidate those functions into as few solutions as possible. What we've seen in the past (and traditionally) is that retailers have pretty much siloed their sales channels. So, your e-commerce channel was sort of a separate organization within the overall organization, and your brick-and-mortar business was a specific silo, and they didn't really talk to one another. And now with—especially as it was sort of magnified during the pandemic when I could buy online and go drive over to the store and get curbside pickup— customers are traversing those channels, and that means that those systems need to be able to talk to one another.

Peter Olanday (11:34): Some of our customers have for example, for tax calculation, a specific tax product for e-commerce, a different product for brick-and-mortar stores, and maybe a different product for their mobile app. You're maintaining three things doing the same thing. So, that would be my advice too, for efficiency and for consistency. So, if you have a single source of the truth when it comes to tax, you're going to be more likely have a consistent tax calculation across the channels…a more seamless customer experience.

Jeremiah Owyang (12:01): Keep it simple. I love that. Pete, I would love to hear, not to embarrass anybody, we don't need to hear any exact names, but I want to hear a story. I would like to hear a scary story of something that went wrong in your experience having worked with so many companies.

Peter Olanday (12:16): There are quite a few, but just to keep it at sort of a high level, and it kind of echoes the trend that we're seeing not just in retail but overall, is everything moving to the cloud. So, everything is hosted. We're starting to see a trend (or we have seen the trend for a while now) where organizations don't want to host their own applications. They're not spinning up these huge data centers, and getting the CD in the mail and installing it on their own servers, right? Everything's moving to the cloud. Everything's a hosted or managed service or SaaS type model.

Peter Olanday (12:45): With that said, you put a little more distance between the systems that you do have that need that function and whatever function is in the cloud. So, for example, if I have point of sale running in the store, my tax calculation solution running in the cloud, there's the internet in between and any kind of latency. Some of the horror stories are a critical failure point, where if the point of sale can't reach that cloud solution for tax calculation, the transaction stops. And that to a retailer is, that's the worst-case scenario.

Jeremiah Owyang (13:16): That's not good at all.

Peter Olanday (13:18): Right. So, you just can't even transact. You can't even finish the transaction. It's almost better to calculate, to say zero tax (not charge tax) and let the transaction go to avoid frustrated customers, losing the sale altogether, etc. So that's sort of a common one that we see out there. We've worked with a retailer that was concerned about that exact issue and implemented one of our offline solutions so that they have essentially a local copy of our calculation engine that they can fail over. So, if there is an outage—whether it be an internet or something in between—our server's just not accessible for whatever reason, it just seamlessly fails over to their local copy, and they just continue transacting. They don't even know it happened. That's more of a success story coming out of sort of that horror story of what can happen in a cloud type architecture.

Jeremiah Owyang (14:06): See, that's a brilliant idea, that local backup. I have some friends that are veterans, and they taught me in, a really important thing, that something always breaks. So, one is none. So, two is one. You always got to have a backup plan (laughs).

Peter Olanday (14:17): That's right. That's right. That's the same exact idea that we have, what we try to convey to our customers, is you've got to have a fail over. You've got to have a plan B.

Jeremiah Owyang (14:25): Kind of a heavier topic, Pete, curious, how has the pandemic changed friction due to tax?

Peter Olanday (14:30): That's a great question. Again, it's this whole cross channel shopping experience that I think really became prevalent during the pandemic. I think what you saw before was, I'm going to go out shopping, I'm going to go to the grocery store, and it was pretty much physically going. Or it was, I'm going order my groceries online. None of these channels are really new. It's just that the sort of traversing of the channels very seamlessly in the same transaction—in the same customer experience—is somewhat new or at least the trend is increasing.

Peter Olanday (15:01): So, I can order things on the mobile app and then drive over to the store and pick it up. I can be in the store. With the supply shortages we saw, you know maybe they didn't have what I wanted in stock, but they had something similar. So, I could be in the store and order it online and have it shipped to my house. So, you start to see the channels really are not silos anymore. You start the journey in one channel and then you can finish in another. And so, what we saw within the pandemic is that retailers really needed to be nimble enough to support that type of customer experience. Being able to hand over, handoff the customer from say, the online channel to the brick-and-mortar or vice versa. And having systems that facilitate that were really differentiators during those earlier times in the pandemic when everyone's trying to just react to the new ways of shopping.

Peter Olanday (15:49): Another thing that kind of really picked up pace during the pandemic is the marketplace. So, you have smaller, maybe local retailers who obviously have to close their stores or limit the capacity in their stores. Maybe they turn to marketplaces to be able to sell their goods to a wider customer base. And maybe they didn't have a website of their own so they're selling on Amazon, and Etsy, and eBay, etc. So, we start to see marketplaces really take off. We also categorize things that you might not think of as marketplaces but are sort of that third-party facilitator. So, we look at the food delivery services like Uber Eats, DoorDash, Grubhub…grocery delivery like Instacart. Those types of services are essentially marketplaces because you're transacting with them. The customer is really transacting with that marketplace, and then there's a seller behind the scenes (whether it's a grocery store or a fast-food restaurant or whatever).

Peter Olanday (16:42): So, you start to see customers reach out beyond their normal customer base, right? If I'm selling on a marketplace, I'm not just selling to customers in my immediate area. Now I'm selling across the country, possibly across the world. And then, like I said before, the performance. That was one thing you know…the ability to scale higher volumes was something we saw in the pandemic. You know, you think back to 2020 when everything was shut down. The pendulum just swung the other way; it was completely online only. Customers who were able to adapt to huge peaks in online shopping were able to continue transacting or continue to sell, and those that couldn't really struggled during those first few months of the pandemic.

Jeremiah Owyang (17:22): Pete, I had a wonderful chat with your colleague Robin, and she really instilled in the conversation how important it is for IT professionals to partner with the business side and really empower business. What recommendations do you have to IT professionals to work with their tax counterparts when it comes to their software needs?

Peter Olanday (17:42): The biggest thing and the biggest challenge we see with working with the customers (because we start to see that disconnect) between the business and you know, in our case, it would be most likely the tax department. And they come with the requirements, and they come with a certain set of need-to-haves, and some want-to-haves as well. And then you have IT who's tasked with executing on those, delivering functionality to support those requirements. And a lot of times, there are disconnects.

Peter Olanday (18:08): I think the biggest advice I would give is to identify and then clarify and then be as specific as possible about every possible scenario. A customer walks in with a merchandise return. Can they return that item and purchase another item in the same transaction? What if I come in with a merchandise return into a store that I bought online? Can I support that type of scenario? Promotions and discounts and the buy-one, get-one free. You have to really cast a wide net and think about everything that could possibly happen in my brick-and-mortar store, everything that could possibly happen on my website, and really kind of flesh out the details of what those scenarios means (in the context of how does IT have to deliver on that). Like how is IT, what is the expected result? How do we get there?

Peter Olanday (18:54): So, you know the “buy online, pick up in store”, “buy online, return in store”, these mixed transactions and those types of things. Sometimes if there's not good communication between the business and IT, those don't pop up until later in the project. Sometimes not until testing, when they're testing the scenario, like, "Oh, we didn't even think about that one," and it fails. And they're like, "We need to go back to the drawing board." So, really critical to identify all of those upfront. And then subsequent to that is understanding of all those challenges. Understanding which ones are the biggest pain points, which ones are the sort of the biggest sources of friction, and then prioritize that first. That would be my last piece of advice is prioritization because you can't boil the ocean. What's the highest priority? Which ones do we attack first, and we focus on, and make sure that those are right? And then we can start to address some of those lower priority issues.

Jeremiah Owyang (19:44): Pete, how can Vertex help?

Peter Olanday (19:46): That's another great question. We provide automated solutions to talk about all these things that we just talked about. You know when we talk about legislative changes, we have the content. A team of researchers is dedicated to just keeping up with legislation. And this means working with states Department of Revenue to identify where rates will change, new taxes are imposed, [and] different taxes on certain types of products. Like we mentioned environmental fees and all these other things. So, that's their job, is to just keep on top of the content itself.

Peter Olanday (20:17): Vertex provides ways to deliver that content. It has a host of different solutions that customers can use in different combinations and be very flexible to offer the best of a SaaS solution coupled with maybe that local fail over we talked about. How do you deploy it? We provide a variety of on premise versus hosted solutions. [It] really is tailored to how the customer wants to use it, and again, multiple products you can kind of mix and match to come up with a hybrid solution that best fits your needs.

Jeremiah Owyang (20:51): A big thank you to Pete Olanday for joining us today on the show to educate IT experts on what happens when tax technology is (and is not) right. Join us next time as we hear from a retail organization who was successful in reducing friction. Subscribe now so you don't miss it. I'm Jeremiah Owyang and this has been Achieving Frictionless Commerce from Vertex. Thank you all for listening.

About the Podcast Series

Are you a retail IT professional who is looking to learn more about frictionless commerce and how you can achieve that within your organization? If so, check out the Achieving Frictionless Commerce podcast series! Hosted by technology analyst and entrepreneur Jeremiah Owyang, experts from Vertex discuss what frictionless commerce means today, how you can discover and overcome roadblocks, and what you should do to prepare for future retail growth.

Featured Speaker

Pete Olanday

Pete Olanday

Director, Field Consulting

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Pete Olanday is Director, Retail Consulting, responsible for the integration of Vertex's Indirect Tax solutions in the retail space, specifically with Point-of-Sale systems and e-commerce platforms. Prior to joining Vertex, Pete worked for IKEA and EY. Pete has a B.S. in information and decision sciences from Carnegie Mellon University.

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