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How do I use a tax credit I have in a state?

Overview

You have an overpayment on your Sales and Use Tax account with a jurisdiction. Avalara files for you in this jurisdiction and you want to know what your options are to use the credit.

Environment

Avatax Returns

Resolution

Request a refund from the jurisdiction

When you receive notification that the jurisdiction has a credit balance on your Sales and Use Tax account that is due back to you, you may request a refund directly from the jurisdiction. This is the suggested method as it will be easier to track that balance and the timeline needed to provide that refund to you. Most jurisdictions will follow this process but please note, for some jurisdictions, the only method available is to provide a refund of the overpayment and will require you to reach out to the jurisdiction directly to initiate that process. Those jurisdictions are:

Add an adjustment in AvaTax 

You may use any approved balance as payment towards a future return. We encourage you to verify any credit balances are still valid and available for use on future returns with the jurisdiction(s) before your returns are approved on the 10th of each month. If the state disallows the use of the credit on a return, any required amendments, associated penalties, and interest, and additional balances due would be the responsibility of your organization to resolve directly with the jurisdiction. To utilize a state-approved credit balance to reduce the amount due on your return, add the credit amount in the Tax Details and Adjustments section of your return.

  1. Once logged into your AvaTax account, navigate to Returns > Manage and Approve Returns. Find the region where you want to adjust tax liabilities and then select Manage Returns.
  2. Find the return you want to adjust and then select Tax Details and Adjustments.
  3. Select Add Adjustments and enter the Jurisdiction Issued Credit amount as a negative figure.

This feature is currently only enabled for the following forms, but we are working to add it to more forms that allow this functionality:

  • Illinois
    • IL ST1
    • IL ST1ST2
  • Florida
    • FL DR15
  • Iowa
    • IA 32022
  • South Dakota
    • SD RVSTRTNMTS
  • Tennessee
    • TN SLS450     

NOTE: The credit amount entered must not exceed the total tax liability after the discount. For example, if your tax liability is $100 and your discount is $10, the amount of the jurisdiction issued credit can be a maximum of $90.

Notify Avalara of the credit balance 

 If you have a credit for a jurisdiction that is not listed as a refund-only state or does not have the adjustment available in AvaTax (please see above sections for more information), then Avalara's Compliance team can document your provided credit balance and apply it towards future filings until the credit has been exhausted. We encourage you to verify any credit balances are still valid and available for use on future returns with the jurisdiction(s) before your returns are approved on the 10th of each month. In the event that the state disallows the use of the credit on a return, any required amendments, associated penalties, and interest, and additional balances due would be the responsibility of your organization to resolve directly with the jurisdiction. If any changes were made to the credit balance, such as being refunded to your company or being applied to past balances, it is your responsibility to notify us so we can update our information accordingly.

In order to report these credit balances to us, please log your notice of a credit balance in your AvaTax account by navigating to Returns > Tax Notices.

Formal request required 

It is important to note that some jurisdictions require approval of using a credit balance as payment towards a filing. This is so they can move the credit to the appropriate period. Those jurisdictions are:

If you are planning to add your credit balance in AvaTax as an adjustment, or need Avalara to document the credit internally, please make sure to call the jurisdiction before reporting the credit to Avalara so they can make the appropriate changes. If this process is not completed and a credit is used on a return, you may be charged penalties and interest. If the credit balance would apply to multiple periods, this process will have to be completed for every period you would like the credit to be used in.

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