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Helpful Cross-Border and Item Classifaction terms

This article applies to:AvaTax

International sellers use AvaTax Cross-Border and Avalara Item Classification to automate customs duty and tax calculations. These terms come up often when working with international transactions.

Ensures that customs duties and import taxes are accurately calculated at the time of checkout to mitigate compliance risks and avoid negative customer experiences with surprise costs at the time of delivery.

Classification occurs when a product is assigned a harmonized system tariff code based on its physical properties. Avalara can assign tariff codes to customer products as part of the Item Classification service.

Value Added Tax (VAT)
A general and indirect transaction tax applied to nearly all commercial activities involving the production and distribution of goods and the provision of services. Known as a form of consumption tax, VAT is calculated based on the value added to goods and services as they proceed through the production and supply chain, all the way through to the point of sale. While VAT is calculated throughout the supply chain, it is ultimately passed on to the end consumer as part of the final purchase price of the goods or services.

Delivered Duty Paid (DDP)
The seller pays the duties and taxes during online checkout. This is the preferred customer experience.

Delivered At Place (DAP)
The buyer pays duties and taxes at delivery. This is easiest for the seller.

De Minimis thresholds
The minimum threshold an international sale must meet before a country charges a customs duty or import tax. De minimis thresholds are country-specific and usually differ for customs duty and import taxes. 

Tariff codes
Countries use unique harmonized system (HS) tariff codes to calculate tariff rates for most internationally traded products. AvaTax uses the fully qualified tariff code and destination country to determine the most accurate tariff rate for that product. In the case of multiple product variants, parent products are classified with a tariff code and any child SKUs inherit that classification.

Fully qualified tariff code
To ensure AvaTax calculates customs duties, your transaction must use a fully qualified code. The first six digits are universal for all countries that observe the Harmonized System and the final four or six digits are country-specific.