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Tax Rules - Frequently Asked Questions

This article applies to:Avalara AvaTax

Here are the answers to some of our frequently asked questions about tax rules.

What is a tax rule?

A tax ruleHoverTT.png is a combination of jurisdictions, tax codes,HoverTT.png tax typesHoverTT.png , and dates. Tax rules control how AvaTax processes transactionsHoverTT.png for items.

What are tax rules used for?

AvaTax assumes all transactions in a jurisdiction are taxable at standard rates. Tax rules alter this default behavior.

Use tax rules to:

  • Comply with a sales tax holiday
  • Exempt a product, service, or charge from tax
  • Exempt a customer from tax based on who they are or how they use a product or service
  • Tax only part of the sale amount of an item
  • Override a tax rate for a jurisdiction

Who uses tax rules?

You benefit from thousands of predefined tax rules for each AvaTax System tax codeHoverTT.png . These tax rules power the tax engine to correctly process transactions for each jurisdiction in the United States. Once you map an item to an AvaTax System tax code, AvaTax properly process transactions for that item.Typically, you don't need to add any custom tax codes.

If you can't find an AvaTax System Tax code that matches a particular product:

  • Create custom tax codes
  • Create custom tax rules using custom tax codes

These tax rules specify how an item mapped to a custom tax code is taxed in a jurisdiction.

What types of tax rules are there?

The Admin Console supports four tax rule types:

  • Taxability: Identifies a tax code as non-taxable for a particular taxing jurisdiction.
  • Exempt Entity: Determines how and where an entity use code associated with a particular customer is considered exempt from tax. An entity use tax rule can be applied only to an entity use code or a combination of entity use code and tax code.
  • Base Override: Identifies the percentage of the base (sale) amount that is considered taxable.
  • Rate Override: Overrides a standard tax rate returned by the AvaTax service and instead uses a specified tax rate for a particular taxing jurisdiction.

When should I add a custom tax rule?

Add custom tax rules to address rare cases and obtain the desired transaction processing. Before adding a new custom tax rule, please contact Avalara Support to confirm a new tax rule is needed, and to learn how to correctly add a tax rule to gain the desired outcome.

Why does "none" display in the name column for a tax rule?

"None" displays in the name column of the Tax Rules List if the name of a tax ruleHoverTT.png is left blank in Step 2: Details when adding a tax rule.

What value should I use in the rule type column?

The values in the Rule Type column of the Tax Rules List indicate the different tax rule types:

  • BO is base override
  • EE is exempt entity
  • RO is rate override
  • TX is taxability

What value should I use in the value column?

The values in the Value column of the Tax Rules List indicate the rate override or base override for the tax rule:

  • 0 is a placeholder for taxability and exempt entity tax rules as they do not use this field
  • % is the rate override % or the base override % for those rule types

What value should I use in the tax type column?

The values in the Tax Type column of the Tax Rules List indicate the different tax types:

  • B
    • For the United States, B indicates both sales and sellers use tax.
    • For all other countries, B indicates both input and output tax.
  • I is input tax
  • O is output tax
  • S is sales tax
  • SU is sellers use tax