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Avalara Help Center

Where do I adjust the tax dependency level for Freight and Handling?

Overview

You want to adjust the Freight & Handling Tax Dependency Level on a company to change the level at which items are factored into the "tax depends" logic for freight and handling (shipping) tax.

Environment

Avalara Avatax

Resolution

  • In the Admin Console go to Organization > Select the company > Company Settings tab > Freight & Handling Tax Dependency Level
  • This option only affects taxability of Freight tax codes in states where their taxability "depends" on the physical goods (not Digital or Services) being shipped
    • Select one of the following options:
      • Entire Document (default): The taxability of freight and handling depends on all line items in the document. This is AvaTax's default method.
      • Same State: The taxability of freight and handling depends on all line items that have the same destination state as the freight or handling line item.
      • Same Tax Region: The taxability of freight and handling depends on all line items that have the same destination tax region (same set of taxing jurisdictions) as the freight or handling line item.
      • Same Address: The taxability of freight and handling depends on all line items that have the same destination address as the freight or handling line item.
  • The setting makes only items that are shipped to the same destination "level" factor into the freight tax calculation
    • Example: You make a sale sent to Buffalo, Seattle, New York City, and Miami, including one shipping charge of $10 using tax code FR
      • The destination address on the Shipping line is New York City (NYC), and at the time of the sale FR tax depends on the taxability of items shipped in New York state
      • Items sent to Seattle and Buffalo are taxable
      • Items sent to NYC are non-taxable
      • Items sent to Miami are taxed as a service (not a "physical" item)
    • The settings would result in tax as follows:
      • Entire Document (default): only a portion of shipping would have tax applied, because some items shipped were non-taxable
        • We would consider the portion of the sale that was taxable in the items sent to Buffalo, Seattle, and NYC, when determining the portion of the shipping item value to be taxed
          • If Seattle items = $100, NYC items = $60, & Buffalo items = $40 the freight would be 70% taxable, reflecting that 70% of the item value was taxable
        • We would not factor in the value of the Miami sale, since it is a service, not a physical good
      • Same State: Since only some items shipped to NY were taxable, only a portion of the Shipping item will be taxable
        • If NYC items = $60 & Buffalo items = $40 the freight would be 40% taxable, reflecting that 40% of the item value sent to NY state was taxable
        • We would not factor in the value sent outside of NY state, so the Seattle and Miami values would not be factored in
      • Same Tax Region: Since all items shipped to NYC were non-taxable, the entire Shipping line will be non-taxable
        • We would not factor in the value sent outside of NY tax districts, or to the Buffalo city tax district, so the Buffalo, Seattle, and Miami values would not be factored in
      • Same Address: Provided the same destination address was used on the NYC items and Shipping line, the entire Shipping line will be non-taxable, since the entire value sent to NYC was non-taxable

Note: Most customers consider how their system handles shipping charges when deciding which level to chose. If your invoices only include one shipping line, regardless of where the items are actually being shipped, and that charge includes the shipping fee for all items (even ones sent to different destinations) you may want to consider leaving the setting at Entire Document, to reflect that the shipping charge line is for all items in the document, not just the ones sent to the same address. This is why the setting "Entire Document" is our default.