Tax compliance provider Avalara has made many connections within the payments industry to respond to merchant demand for built-in tax reporting functions at the point of sale.

"Payment providers are trying to differentiate. Instead of just the grand total and payment authorization...merchants are asking for additional things including tax help and integration with shipping and handling providers," says Webb Stevens, head of product at Avalara.

Avalara works with a number of payment providers who have either made the company their default tax system for merchants or allow merchants to opt in to use it.

In May, in an effort to make it easier for e-commerce merchants to expand to other countries, BlueSnap added Avalara's cloud-based compliance system that calculates sales tax, value-added tax (VAT) and other taxes for more than 100 countries.

PayPal allows its merchants to opt in to use Avalara's system, and Square uses Avalara to calculate sales tax. Playspan, BlueSnap, InnerFence and Intuit's GoPayment have all integrated its AvaTax compliance product, Avalara says.

Many of Avalara's clients use the company's location-based tax rate feature, which shows merchants the tax rate in the jurisdiction they're accepting payments in. With more than 12,000 tax jurisdictions around the world, Avalara's system helps merchants wade through a complicated process, Stevens says.

The company recently launched a Bitcoin module to AvaTax to help merchants manage their taxes in the digital currency.

"Really it's more of a philosophical reason we got into the Bitcoin market," Stevens says. "It wasn't necessarily because of pervasive demand...but there were enough customers asking about Bitcoin and we want to stay ahead of the curve."

To create the Bitcoin module, Avalara had to apply several new items to its engine, including taking transactions out to eight decimal places, says Stevens.

The launch comes several months after the U.S. Internal Revenue Service (IRS) announced it would treat Bitcoin as a property.

Stevens wonders how the IRS ruling on Bitcoin will affect merchant behavior. Many merchants use a processor such as Coinbase or BitPay to immediately convert bitcoin payments into a local currency to mitigate the risk of price volatility.

"Rather than having to compute a capital gains tax on every transaction, it might be more advantageous to hold onto bitcoin," Stevens says. "Merchants may hold onto a bucket or keep a part of their balance sheet in bitcoin the same way many organizations hold onto cash reserves in Canadian dollars or euros if they're operating there."

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