Merle Norman Cosmetics prevents sales tax wrinkles with Avalara

For more than 90 years, Merle Norman Cosmetics has provided transformative beauty and self-care essentials including makeup, skin care products, and expertise. Founded in Santa Monica by Merle Nethercutt Norman, the company today boasts more than 850 studios throughout the United States and Canada — each independently owned and operated.

Until 2017, Merle Norman Cosmetics ran its business on a 40-year-old IBM mainframe computer. While that wasn’t always ideal, it was sufficient to support the business model at the time, which was almost exclusively wholesale to franchisees. “The sales and use tax requirements for the business were fairly small,” says COO/CFO Michael Cassidy, “which was a good thing, since our tools were a mainframe, pens, paper, and Excel.”

When the company decided to augment its wholesale business with a consumer ecommerce site, they implemented a modern ERP system in 2017 and launched its ecommerce business in 2019. “This was maybe twelve months after the (U.S. Supreme Court’s) South Dakota v. Wayfair, Inc., decision in which economic nexus became a huge issue,” Michael remembers. “Suddenly our sales tax situation was very complex … we were crossing nexus thresholds pretty quickly in a lot of states, and every state is different

“When the SYSPRO team was discussing solutions for sales tax compliance, they immediately recommended Avalara,” Michael recalls. “We really relied on the SYSPRO team to give us guidance, so when we acquired SYSPRO, we also acquired Avalara products. It was a seamless integration — which is itself a huge win in terms of data integrity.”

Just a few months after Merle Norman Cosmetics launched its website, the COVID-19 pandemic impacted retail businesses of all kinds. As Merle Norman Cosmetics studios began to close in large numbers, the ecommerce business became the company’s lifeline. The investment in an automated solution for sales tax — tightly integrated with its ERP system — suddenly looked like a genius move.

“We’re selling in all fifty states plus the District of Columbia,” explains Michael. “We’re filing in 37 states on a monthly, quarterly, or annual basis. That includes some of the largest states in the union, with lots of cities and lots of counties, so the compliance requirements are pretty onerous. There’s no way we could manage that in-house. Thankfully, we already had Avalara in place.”

Michael marvels at how much time they save and confidence they have with automation and integration, especially from filing returns with Avalara Returns. “It used to be such an arduous process, literally filling out a tax return, downloading information from SYSPRO, and spending a bunch of time making sure it was accurate. We have about eight hundred active stock codes, and the taxability for each varies from jurisdiction to jurisdiction. All of that has been properly mapped, which makes things easier. My controller’s life is phenomenally better now that the solution is so streamlined because now he’s really in review mode.”

“The other big part of our business is the wholesale side,” Michael adds, “and I immediately was like, okay, let’s use this automated solution.”

The wholesale side of the business is once again thriving and a significant portion of Merle Norman Cosmetic’s revenue is coming from these sales, many of which are tax-exempt.

“Acquiring and managing the resale certificates used to be a real struggle for us,” says Michael. “Our Avalara rep introduced me to (Avalara) Exemption Certificate Management, and now that process is completely automated. We set up several campaigns that immediately started to generate the resale certs coming from the studio owners, instead of me trying to bird-dog eight hundred phone calls to get these certs in. And, of course, (Avalara) AvaTax pulls that data so that exempt wholesalers don’t get taxed for resale items. They would go bananas if that happened.”

“The biggest way Avalara has helped us on our tax journey is by automating an extremely complex process,” Michael concludes. “Compliance is non-negotiable, but there’s not enough time in the day unless you want to build out a tax team. Most accounting departments are trying to do more with less, and Avalara enables us to spend our time working on business issues. That’s how I want my team to spend time and that’s what Avalara has allowed us to do.”