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What Is Tax Depends?

Overview

You want to know how freight is taxed depends in certain states. 

Environment

Avalara AvaTax

Resolution    

  • For most states, freight is taxed based on the percentage of taxable amounts on the invoice.
    • When an item is shipped that is non-taxable the freight will also be non-taxable, and if the item shipped is taxable the freight is also taxable.
    • This situation can become complex if multiple items are on an invoice, where some are taxable and some are non-taxable.
    • Only shipped items are considered in this taxability, services, for example, do not affect freight taxability.
  • Example:
    • Item 1: $100 (Taxable)
    • Item 2: $100 (Non-Taxable)
    • Total: $200
    • Freight: $10
    • Freight Taxable: $5
    • Freight Non-Taxable: $5
    • The total amount on the invoice is $200 and 50% of that total is taxable. Therefore 50% of the freight is taxable and 50% is non-taxable.

Note: Taxability will be based on the tax code used in the transaction and the tax dependency level for Freight and Handling you have selected for your company.  Tax Depends is only for Product tax codes, services will tax at the Destination address.