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About Sales and Use Tax Types

This article applies to:Avalara AvaTax Update

AvaTax Update 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 where you collect and remit tax 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

Tax Types

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.

Transaction Types

  • 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 Update processes transactions. When you use tax types, AvaTax Update 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 Update can appear to omit the local jurisdiction. However, AvaTax Update is processing the transaction correctly. For more information, 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 you add a US state or territory that has sales tax and seller use tax to Where you collect tax, select a tax type:

  • Sales Tax
    • Processes both intrastate and interstate transactions using sales tax rates
    • Is a more conservative approach to processing transactions
  • Sales or Sellers Use Tax
    • Processes intrastate transactions using sales tax rates
    • Processes interstate transactions using seller use tax rates

AvaTax Update simplifies tax type issues by:

Changing tax type

To update which tax type you're using in a jurisdiction, go to Settings > Manage where you collect and remit tax and click the pencil icon next to the jurisdiction you want to change. Adjust the Tax type dropdown, and then click Done to save your changes.

Tax Type can't be changed for states that only collect one type of tax. See Pick the Right Tax Type for a list of states with multiple tax types.

Other tax types

AvaTax Update can calculate many different kinds of taxes for your business, ranging from international tariffs to specific local taxes. Learn about other tax types and contact your Customer Account Manager (CAM) for more information.

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