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Select AvaTax System Tax Codes

This article applies to:Avalara AvaTax

Enable nexus in the jurisdictions where you're required to register and collect tax so that AvaTax calculates the full tax amount. To take advantage of the thousands of tax rules in the AvaTax engine, find your AvaTax System Tax CodesHoverTT.png in the Tax Code Search Tool. Assigning product and product categories to items gives you important jurisdictional subtlety in taxability. If you're an SST client, use the SST approved tax codes in the AvaTax System Tax Code toolkit.

Once you identify the appropriate tax code, you can map it to your product in one of 3 ways:

We recommend mapping your items to tax codes in either your accounting system or AvaTax, not both. The location where you maintain your master inventory list is the best place to perform the mapping. If you map in both locations, the mapping in the Admin Console overrides the mapping in your accounting system. If you sell an item that doesn't match an AvaTax System Tax Code, create a custom tax code that defines the taxability of a product in the jurisdictions where it's sold.

For more information, see tax codes - frequently asked questions. DailyWebinar-Blue-xs.png Attend Get Started with Product Taxability webinar for more about product taxability from a subject matter expert.

PLAY-BLUE-30px.png System tax code search video

Watch the video below to learn how to use the Tax Code Search Tool:

 

Search for your Avalara good/service type

To search for your Avalara Good/Service Type using the Tax Code Search Tool, follow the steps below:

  1. In the Search drop-down, search All Categories or filter to a specific category.
    GST-SearchDrop-Down.png
  2. Type keyword(s) into the search field and click the Magnifying glass icon to initiate the search. Up to 10 good and service types appear in the search results, with additional results paginated at the bottom.
    GST-SearchBar.png
  3. In the search results, find the Good/Service Type that most closely matches your product. If you need to further refine the search results to locate your Good/Service Type, to the left of the search results, filter by the facet.
    GST-Search-Facets.png
  4. Once you find your match, map your item to this tax code in either your accounting system or the Admin Console.
    SearchTool-BrowseforTaxCode.png
  5. To start a new search, in the search box, click Clear.

Browse for your Avalara good/service type

To browse for your Avalara Good/Service Type using the Tax Code Search Tool, follow the steps below:

  1. Click either a Category Name in the main content area or a Facet Name in the sidebar.
    SearchTool-ContentArea+Facets.png
  2. In the search results, find the Good/Service Type that most closely matches your product. If you need to further refine the search results to locate your Good/Service Type, to the left of the search results, filter by the facet.
    GST-Search-Facets.png
  3. Once you find your match, map your item to this tax code in either your accounting system or the Admin Console.
    SearchTool-BrowseforTaxCode.png
  4. To return to the main content page, in the facet sidebar, click < CATEGORIES.

How AvaTax System Tax Codes work

Each AvaTax System Tax CodeHoverTT.png has tax rulesHoverTT.png associated with it that define the taxability for that code in states and local jurisdictions. These tax rules can be thought of as a huge matrix where each row represents an AvaTax System tax code, and each column represents a jurisdiction (state, county or city). The intersection of a row and a column contains a tax rule such as taxable, exempt, reduced rate of 1%, and so forth.

The Tax Code Search Tool gets you started. You can use this search page to find the Avalara codes that determine the taxability of the goods and services you sell. You can copy and paste a code you find here. The tax codes are also available in the AvaTax System Tax Codes Toolkit. Find the AvaTax System Tax Codes that most accurately represent the products, services, and charges that you sell and use in your business.

Depending on the accounting, ERP, e-commerce, m-commerce, or POS application, a tax code either:

  • Gets passed from the accounting, ERP, e-commerce, m-commerce, or POS application; or
  • Is mapped in the Admin Console

In either scenario, the tax code is associated with an item. Most accounting, ERP, e-commerce, m-commerce, or POS applications do not allow mapping to a product category or to a general ledger account. The tax code must be mapped one-on-one to an item or SKU.

If a tax code is sent from the accounting, ERP, e-commerce, m-commerce, or POS application, AvaTax sees it as one of the fields on the line item of a document. AvaTax then looks at the address being used to tax this item, associates the address with a specific tax jurisdiction, and applies the built-in tax rule for that tax code in that jurisdiction. If the tax rule is taxable, AvaTax will use the built-in rate for that jurisdiction and calculate the tax. This built-in rate is not part of the tax rule, but is a separately stored tax rate specific to that jurisdiction. If the tax rule is exempt, a tax amount of zero is returned. If it is a special tax rule (for example, reduced rate), the tax is calculated based on the tax rule’s specifications.

If a tax code is mapped in the AvaTax Admin Console, AvaTax looks at the item code that is sent from the accounting, ERP, e-commerce, m-commerce, or POS application, finds the tax code to which that item is mapped, and then applies the built-in tax rule as described above.

AvaTax System vs. custom tax codes:

Tax codes are classified as either AvaTax System or custom. Up to this point, the discussion revolved around AvaTax System tax codes – those provided by AvaTax. However, you also have the ability to set up your own tax codes, with their own tax rules.

For instance, if you sell a specialized device that doesn't match an AvaTax System tax code, you can create a custom tax code and create custom tax rules that specify the taxability of a product in the jurisdictions where it is sold.

Don't enter an AvaTax System tax code as a custom tax code. Because AvaTax System tax codes are ‘built-in’ to AvaTax, as are tax rules for each state, adding an AvaTax System tax code in the Admin Console will confuse AvaTax and disable the built-in tax rules.

AvaTax System vs. custom tax rules:

As with tax codes, tax rules can be either AvaTax System or custom. System tax rules are those that work behind-the-scenes for each AvaTax System tax code. Custom tax rules can be created not only for custom tax codes, but also to override the built-in taxability of AvaTax System tax codes. For instance, earlier we noted that the tax rules for shipping in Florida can fall into a gray area – some businesses might qualify as exempt, but AvaTax defaults to taxable for freight code FR020100. If your business qualifies as exempt, you can create a custom tax rule that makes FR020100 nontaxable in Florida.

Decode the tax codes

All AvaTax System tax Codes (with two exceptions noted below) are comprised of eight characters. The first two are alpha characters followed by six digits. The first character indicates the tax code type and the second character is normally the first letter of the Tax Code category. For instance, DB is for Digital - Books, PC is for Products – Clothing, and SI is for Services – Installation. The numerical portion of the tax code keeps each category sorted alphabetically. Thus the clothing category PC040101 represents aprons, PC040105 represents bandanas, and PC040111 represents coats and jackets.

Header codes:

There are generic tax codes ending in a series of zeroes, and generally have tax codes beneath them. Whenever possible, choose a tax code that is not a header code. Header codes do have taxability tax rules associated with them, but because they are meant to be used generically, they assume the most taxable tax code they head.

For example, tax code DC010000 is for Computer Software – Business-to-Business, but does not describe the type of software (custom vs. prewritten) nor its method of delivery. That is what the tax codes beneath the header code are for. DC010100 is for custom software delivered on a CD, DC010200 is for custom software delivered electronically, etc. There are six tax codes beneath DC010000. The use of DC010000 rather than one of the tax codes beneath it, taxes products, services, or charges along the lines of DC010400 (pre-written software on physical media), which is the most taxable of the six tax codes.

Header codes should only be used when you are:

  • Unable to find an appropriate tax code beneath the header code
  • Unable to map multiple SKUs to the different uses of a tax code (for example, a SKU for software that does not differentiate whether it is delivered electronically or on physical media)

Two-character codes:

As noted above, the AvaTax System tax codes are comprised of two alpha characters followed by six digits. There are two exceptions to this: FR and NT.

  • FR is the equivalent of the freight code FR020100 (Shipping Only - common carrier - FOB destination).
  • NT is a tax code that is nontaxable in all states.

These tax codes only exist because some accounting, ERP, e-commerce, m-commerce, or POS applications do not accept eight-character codes in key areas where freight and item taxability are triggered.

Example

The ABC Company is a retailer of sports equipment in several states. Their product line consists of sports equipment for in-line skating, bicycling and skateboarding.

Tara in Accounting prepares a report on all the products ABC Company sells, listing the product name, SKU and description. The first product on the list is a bicycle helmet.

Tara opens the AvaTax System Tax Codes and reviews the five Tax Code Types. She recognizes a bicycle helmet is Tangible Personal Property. Expanding the rows below Tax Code P0000000, she reads the descriptions and finds "Clothing & related products (Business-To-Customer)". Expanding the rows below this entry she finds a description for "Clothing & related products - Protective equipment". Within this group of Tax Codes, she locates a description for "Clothing & related products - Helmets (bicycle)". The AvaTax System Tax Code for this description is PC040307.

Tara reviews the other descriptions and finds none that more accurately represent this product. She records PC040307 for this and all other bicycle helmets sold by ABC Company.