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Why do the sales on a return not match my liability worksheet or reports?

Overview

You have found that your sales, taxable sales and/or nontaxable sales that were filed on the return do not match the amounts listed on your liability worksheet.

Environment

Avalara Returns

Resolution

When filing returns, Avalara makes sure to report and remit the amount of tax that our customers collect. There are scenarios where the sales amount does not calculate to the taxes collected. In order to ensure that the return is filed without calculation errors, this will cause gross, taxable and/or nontaxable sales to be adjusted. The following are the most common scenarios that would require sales adjustments on a return.

Tax Type Mismatch

While many states have one tax return that can report multiple tax types (Sales, Sellers Use, Consumers Use, etc), some have a separate return for each tax type. In these states, if you are calculating a different tax type than the return that you have set up, this tax will not be reported. If you discover that you have a tax type mismatch, you should:

  • Make sure that your “nexus tax type” for the state in question is correct (either “Sales Tax” only or “Sales or Sellers Use tax”) so that AvaTax is calculating the tax type you are expecting.
  • Make sure that the origin addresses on your transactions are accurate, as tax types are generally differentiated by where they originate.
  • After you have corrected the settings above, resave the transactions calculated with the incorrect tax type after you have updated your nexus settings.
  • Make sure as well that you are registered for the correct account with the state, and that you have selected the Avalara filing calendar associated with that return.

Tax Overrides

Tax overrides are used to adjust the tax on a transaction but not the sales amount. When tax is provided on transactions rather than AvaTax calculating the amount, this may cause a variance. The most common example of this would be a Tax Only transaction. This type of transaction is created with zero sales and a tax amount. Another would be a a custom tax rule that overrides the tax rate used for calculation. When attempting to prepare a return with these overrides, the return will reflect a calculation error as the return is expecting specific rate. It is best to avoid using tax overrides whenever possible and allow AvaTax to calculate the tax amount.

Negative Amounts

While AvaTax will always allow you to enter a credit, some DOR websites will not allow you to input a negative tax value, regardless of its legitimacy. It’s common in most jurisdictions that their preference is to amend the return with the original sale rather than report a credit in the current period. If a negative value is present when filing one of these states it may be necessary to net this value against a separate, positive value in order to ensure that the total tax on the return matches what was approved.

Transactional Rounding

Sales tax is calculated at the transactional level, so Sales and Tax will accrue separately. Given enough transactions (with each rounded to two decimal places) these combined amounts may not tie out perfectly at the top line level. Sometimes due to this rounding it is necessary to adjust the return to ensure that the tax reported on the return is correct. Avalara Returns will always attempt to ensure that the tax that you approve for each return is reported and paid. 

Carry-over Credits

Make sure that no carry-over credits have been applied or excluded from the return in question. AvaTax return reports will show all committed transactions for a given period, but if a carry-over credit was applied from a prior period or excluded from the current period, this will not be reflected on the report. You can run a Liability Worksheet Carry-over credit report in order to see if anything has been applied or excluded.

Backdated Transactions

When transactions are added a prior period or after you have already approved the current period, those transactions will be reflected on reports but will not be included on a return. To file on any transactions added to a locked period, it is preferred by most jurisdictions to have the return amended. 

Next Steps

To learn how to view the tax overrides and variances, please view Which report shows the Tax Override and Tax Variance amount?

To learn how to adjust the tax type in nexus selections, please view Edit Nexus Jurisdictions

For further questions, please contact Support.

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