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About Tax Types

This article applies to:Avalara AvaTax

AvaTax uses sales tax or seller use tax when processing transactions. Match the tax type to the way your business is registered in a state. These tax types apply only to region jurisdictions in the United States. Read about adding nexus to learn more about how nexus and jurisdictions impact tax requirements.

We strongly advise you to contact Avalara Professional Services, an accountant, a tax attorney, or other qualified tax professional to conduct a nexus jurisdictions analysis for your US-based business. Avalara Professional Services offers nexus jurisdictions analysis only for US-based businesses at this time.

Definitions

Sales tax - A transaction tax collected and remitted by an in-state seller with an economic requirement to collect tax in the taxing jurisdiction. 

Seller use tax - A transaction tax collected and remitted by an out-of-state seller with an economic or affiliate requirement to collect tax in the taxing jurisdiction. 

A recent Supreme Court ruling in South Dakota v Wayfair, Inc. changed the requirements for when tax should be collected in a given jurisdiction when a seller does not have a physical location in the state. Learn more about new economic nexus rules for collecting sales tax and then check requirements for your state.

  • Intrastate transaction - A transaction in which the origin and destination are located in the same state.
  • Interstate transaction - A transaction in which the origin and destination are located in different states.

Select tax types

Tax types give you one way to control how AvaTax processes transactions. Use tax types, and AvaTax conforms to the tax decisions and policies of your business. If your business requires the application of a seller use tax rate for any U.S. state or territory, you must use tax types.

In many states, the sales tax rates and seller use tax rates are identical. In those states, there's no difference between an intrastate transaction and an interstate transaction.

In some states, local jurisdictions (counties, cities, and/or special tax jurisdictions) have seller use tax rates that differ from sales tax rates, or they don't have a seller use tax rate at all. If no seller use tax rate exists, AvaTax can appear to omit the local jurisdiction. However, AvaTax is processing the transaction correctly. For more information about states and their tax types, see States and Tax Types.

Review tax permits, registration, and tax return forms to help you determine which tax type to select. The tax type selected should match the tax return you need to file, especially in AL, AR, CO, IL, KS, MS, MO, OK, VA, and WV. For more information about local jurisdictions in these states, see About Local Jurisdictions

When adding a state or territory to your region jurisdictions for the United States, select from two tax types:

  • Sales Tax
    • Processes both intrastate and interstate transactions using sales tax rates
    • Is a more conservative approach to processing transactions
    • Is the default tax type for all states and territories
  • Sales or Sellers Use Tax
    • Processes intrastate transactions using sales tax rates
    • Processes interstate transactions using seller use tax rates

AvaTax simplifies tax type issues by:

  • Examining the origin and destination addresses to determine sourcing
  • Determining whether a transaction is intrastate or interstate
  • Deciding which tax rate (sales or seller use) to apply
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