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About Tax Types

This article applies to:Avalara AvaTax

AvaTax uses one of two tax types, sales tax or seller use tax, when processing certain 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 a "substantial physical presence" in the taxing jurisdiction. Typically chosen by an in-state taxpayer whose official business address is in the state.
  • Seller use tax - A transaction tax collected and remitted by an out-of-state seller with no physical location, but with a "substantial physical presence" in the taxing jurisdiction. Typically chosen by out-of-state tax payers.
  • 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.

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