Avalara for Shopify Vs Third Party Accountancy. Which is better for your eCommerce business?

As an eCommerce business looking to expand into different markets, sell through different channels, and generally ensure a sustainable level of growth whilst ensuring compliance, you’ll need to dedicate additional time and effort into both tax compliance and financial management overall. As the complexity of tax regulations and the volume of transactions increase, you will need to begin considering robust solutions for tax management. Traditional wisdom would dictate employing dedicated accountancy services to handle compliance and other aspects of your business’ finances, some more recent FinTech innovations have emerged as legitimate options for eCommerce business owners too, with one of the most popular choices being Avalara Avatax.

With 37% of eCommerce business owners stating that they’re struggling with managing Cash Flow, deciding on whether to hire third party help in the form of a dedicated financier, or invest in the cost of a FinTech service like Avalara is a weighty decision. With Shopify recently releasing a more tailored version of the software to Shopify Plus merchants, we want to weigh up the pros and cons of Avalara and compare it to traditional financial assistance services to see which will have more of a positive impact on your eCommerce business.

What is Avalara Avatax?

Avalara AvaTax is a sales tax software produced by the American FinTech company Avalara. The company offers multiple services, including a full stack of solutions for tax compliance and automation, returns, and licensing, under the umbrella of Avalara, as well as a version of their tax compliance service as a third party app to be integrated with other SAAS platforms such as Shopify Plus, Sage, Magento, and Salesforce Commerce Cloud, under the name Avalara Avatax (Avatax). Avatax is typically used for automating tax calculations and the tax filing process for eCommerce businesses. For American businesses, Avatax allows them to easily manage the different tax considerations in each state, and for other businesses who sell in multiple countries, Avatax allows them to easily manage the international regulations. 

In May of 2024, Shopify partnered with Avalara to produce a more optimised version of the AvaTax software for Shopify Plus merchants, Avalara for Shopify, which is available through the Shopify Tax Platform. This new software replaced the Avalara Avatax software that was previously available for download within the Shopify app store, however merchants who had previously downloaded the prior version of the software can still use it as standard. Although not available to Shopify merchants on Shopify Basic, Shopify, or Shopify Advanced, Avalara for Shopify does unearth a ton of benefits to merchants looking to grow their business through the opportunities offered by Shopify Plus, so we can understand why merchants may be interested. 

‍What does Avalara for Shopify do?

The standard version of Avatax allows eCommerce businesses to… 

• Get accurate and up-to-date tax codes from more than 12,000 jurisdictions worldwide.
• Set up tax rules to meet your business needs.
• Set unique tax rules per product. 
• Create accurate reports of your business’s taxes.

The Avalara for Shopify partnership made the following improvements, better tailoring the service to Shopify merchants. 

• The synchronising of product and item catalogue information between Shopify and Avalara to allow for tax code mapping across products.
• Enhanced the ease of use of the Avalara service. Both the onboarding and integrating of the service, and managing your ongoing tax profiles.
• Gave merchants increased accuracy of tax determination based on product taxability, including exempt products, partially exempt products, and tax holidays.
• Removed the need to manually upload products to map to tax codes, instead doing it automatically. 
• Implemented end-to-end tracking across the complete transaction lifecycle, meaning that merchants can track and edit transactions from the cart all the way to order fulfilment.
• Removed the need to make manual adjustments for reporting

How much does Avalara for Shopify cost?

Although Shopify will not directly charge you for using Avalara For Shopify, nor will they make changes to the sales tax for selling your products on Shopify, Avalara is not a free plugin. In fact, the licence for installing Avalara for Shopify is advertised as $250 per month.

For businesses not on Shopify Plus, who want to implement Avalara for Shopify, currently, the only way to do so is to upgrade to Shopify Plus, which is likely off the table. If your eCommerce business is not on Shopify Plus but is looking to implement a financial management tool, it’s likely you're undergoing a high level of digital change and employing third party financial help is undoubtedly the best solution.

What considerations need to be made when using Avalara?

Whilst Avalara for Shopify undoubtedly has the capacity to be an extremely beneficial tool for your eCommerce business, it is by no means a do it all solution and you will have to consider the drawbacks when deciding on whether or not to implement it as a key component of your business. 

The drawbacks of using Avalara for Shopify.

• Partial refunds aren't reported in Avalara for Shopfy. Meaning that, if you issue a partial refund, then you must manually adjust your reporting.
• If you have omnichannel sales set up across multiple platforms, it’s important to note that some third-party services report to Avalara, while others do not. 
• Avalara functions only in the Shopify checkout, and will not work with third party apps that replace the checkout.

Is Avalara better than hiring a management accountant for your business?

An experienced and well travelled Bookkeeper and Accountant can bring a whole other world of advice and tailored-to-you oversight to your specific eCommerce business and its needs. Whilst Avalara for Shopify has never been marketed as an alternative to human-led financial services, it is important to weigh up whether you need a third party tool if you already have an experienced financier within your business and are merely looking to speed up some processes.

This is to say that a hybrid approach is likely the best way forward. Avalara for Shopify clearly presents multiple benefits to eCommerce store owners looking to grow their business online. 

Considering that Avalara for Shopify is only available as a paid-for service for Shopify Plus merchants, which we would only recommend if your business is doing £1 million in annual turnover anyway, if you are in a position to consider it for your business, you are likely a relatively successful eCommerce business looking to grow overall.

So, whilst Avalara for Shopify will likely save you time in certain areas, you will still have to spend significant time managing certain aspects of your business’ financial records and tax compliance. To this end, you are likely to need outside help and human expertise in order to save yourself time in the higher level financial management areas of your business such as tax strategy and advisory.

And if those are services you would like to learn more about, contact us today.

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