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Avalara Help Center

Most Common Liability Reconciliation Issues

Overview

When reconciling your returns in the Schedule and Approve Returns section of the Returns menu, you have found that the figures displayed do not match your expectations or reports in AvaTax.

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Reconciliation helps you see any difference between the tax we calculated and what your business application calculated (sometimes known as the variance).

 

Environment

AvaTax Update

Returns

Resolution

While you have calculated tax for a state, there are several variables that would cause those taxes to not be due for your return in AvaTax.

Tax Type Mismatch

When setting up a state for tax calculation, and selecting a return to be filed by Avalara on your behalf, it is important to make selections that match your registration. For example, if you are registered to file a Seller's/Vendor's/Retailer's Use tax return but have selected to calculate Sales Tax in your nexus tax type, those calculated taxes will not be filed on your Use tax return.

A simple way to verify what taxes you are calculating would be to run the Sales and Sellers Use Tax Summary report. Compare this with the tax type listed on your registration and your scheduled return with the jurisdiction. You can also check the tax type listed in Where you collect tax.

For home rule states with multiple locals being filed, such as Alabama, the Sales and Sellers Use Tax Jurisdiction Detail can be used to match to the liability worksheet breakout. This will help you see the differences between what is being filed and what was collected

No Existing Returns

If you are calculating tax for a jurisdiction but do not have a scheduled return setup for Avalara to file those taxes on your behalf, you will see the amount due as 0.00. If you would like Avalara to file a return on your behalf, you can a scheduled return in All Scheduled Returns under the Returns tab.

Filing Frequency

If you have a multi-month frequency (Quarterly, Semi-Annual, Annual) and it is not the end of that period, you will see tax calculated but the amount due will be 0.00. If it is the end of the period, that Tax Calculated amount would reflect the tax amount specific to the month selected on the Manage and Approve Returns page but the amount due will take into account the entire period's liability minus any prior payments that were made in that period. You can check what filing frequency is selected for your return by navigating to Returns > All Scheduled Returns.

Carry-Over Credits

carry-over credit is a transaction with negative liability that is excluded from its intended filing period. This is due to the positive tax liability not being great enough to apply the credit without filing a negative tax return. The credit will continue to roll over to future periods until it can apply without making a negative return. If a carry-over credit is applied, the amount due will decrease. If a carry-over credit is excluded, the amount due will increase.

You can check to make sure if any carry-over credits were applied or excluded by running the Carry-Over Credit or Return Detail report. You can also view them on your returns by navigating to Returns > Manage and Approve Returns > click Manage Returns on the applicable state > click Tax details and adjustments for the applicable return.

Location Code

If your return is set up with a location code, only the transactions with this code will be added to your return for filing. You can check your location code settings for your return by navigating to Returns > All Scheduled Returns. Clicking the pencil icon of any return will take you to edit mode where you are able to see the location code setting. Here you can choose:

  • A location that is already created
  • Add another location
  • All transactions for this collection authority that don't have a location code
    • This will add all transactions that do not have a location code to your return. Any transactions with a location code will be omitted from the filing.
  • Clear the selection
    • This will allow all transactions for the applicable jurisdiction, regardless of location codes, to be filed on your return.

Backdated Transactions

A backdated transaction is a transaction added to a period that has already been filed or approved to be filed. These transactions will not be included on your return. If you are reviewing a prior period where the return has already been filed, any backdated transactions will require an amended return to be filed. If you added transactions to the current period's return but have already approved, you can request the unlock service to include those transactions. To identify a backdated transaction, you can review the Last Modified date found on the Transactions page. This date indicates the last time the transaction was adjusted in AvaTax. If you have a quarterly return with monthly prepayments, transactions added after the prepayment has be reported would not have been included on that prepayment but will be reported on the quarterly return.

Recent Transaction Changes

If you recently made changes to your transactions, it is possible that your returns have not been updated with those changes yet.

Adjustments

Some forms have adjustments that would affect the amount due for your return but are not included in the Tax Calculated amount. You can find these adjustments by navigating to the Tax Details and Adjustments page of any return on the Manage and Approve Returns page.

Adjustments that affect both Amount Due to Avalara and Remittance to Tax Authority

  • Prepayment
    • An accelerated payment for the next cycle’s return that increases how much is paid.
  • Prior Payment
    • The accelerated payment that was made in the prior cycle that reduces how much is paid.
  • Adjustments specific to a jurisdiction such as:
    • WA Business and Occupation tax (B&O)
    • CAN Input Tax Credit (ITC)
  • Jurisdiction Issued Credit
    • An overpayment balance due to overpaid taxes, paid Penalties and Interest that was abated, credit created from an amendment, etc. Please note that this is different from a Prior Payment.
  • Marketplace Remits Tax
    • Adding an online marketplace as a location in Avalara lets you view and sort transactions made for each marketplace. These locations allow you to label whether the marketplace is going to remit tax or you are. When you have selected that the marketplace will remit, Avalara is still required to report the sales from those transactions but has to reduce the tax amount on your return. Please see Review and reconcile marketplace transactions on how to identify these transactions.

Adjustments that affect Remittance to Tax Authority

  • Current Period Vendor Discount
    • Credits are awarded at the time of filing. This takes place after reconciling, approving, and the liability pull for the current period. This means that when a credit is applied, Avalara is now in possession of funds that are due back to you. These amounts are rolled over to the next period and will be listed under Remit to Avalara to reduce the amount due to you of the next return. These are tied to the specific form that is being filed.
  • Current Period Rounding
    • When filing a return, some returns round the amount due and will not accept payment if the liability is not a whole dollar. This causes the return to be under- or over-funded, depending on if the Remittance to Tax Authority is increased or decreased due to this adjustment. These amounts are rolled over to the next period and will be listed under Amount Due to Avalara. These are tied to the specific form that is being filed.

Adjustments that affect Amount Due to Avalara

  • Prior Period Vendor Discount
    • When the current period discount is carried forward to the next period, it is listed under Amount Due to Avalara as Prior Period Discount. This ensures that we refund you the amount that is owed to you. This amount is available before reconciling, approving, and the liability pull for the current period.
  • Prior Period Rounding
    • When the current period rounding is carried forward to the next period, it is listed under Amount Due to Avalara as Prior Period Rounding. This ensures that any under- or over-funding is resolved. This amount is available before reconciling, approving, and the liability pull for the current period.
  • Credit due to Company; contact Tax Administering Jurisdiction for refund of over-payment 
    • If your liability is negative due to a prior payment being larger than the tax liability, a negative amount due on your return will be filed so you may claim a refund from the jurisdiction. To ensure that Avalara also does not also refund you, this adjustment is added to the Amount Due to Avalara amount, effectively zeroing out the amount that would be pulled from your account. 
  • Offset vendor discount due to lack of remit
    • This adjustment is added to avoid refunding a vendor discount or rounding when the Amount Due to Avalara is negative or zero and when the return itself is negative. In this scenario, you would not have remitted any funds to Avalara and we would not have made a payment to the jurisdiction. This means that the vendor discount either would not have been applicable or would have been included in your refund from the jurisdiction. This adjustment is added to prevent a duplicative refund or reduction in your liability.