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What is the difference between Document and Line level rounding?

Overview

Comparing line-level and document-level rounding methods.

Environment

AvaTax

Rounding Methods

Your rounding method changes how AvaTax handles tax amounts during a tax calculation, and, depending on the transaction, may lead to a slightly different total tax.

Find your rounding setting in Settings > All AvaTax settings > Advanced Company Settings

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Does your state use a bracket system?

Some states use a bracket system for tax calculations. Calculations in those states may ignore your rounding setting. Florida recently passed legislation replacing their bracket system with modern rounding requirements that are more compatible with AvaTax. 

Line-level rounding

  • New AvaTax companies uses this rounding method by default
  • The tax amount is calculated for each line. If the tax amount value exceeds two decimal places, AvaTax rounds it up
    • Example: 2.6584 becomes 2.66
  • If your transaction has multiple tax jurisdictions, AvaTax adds up the rounded tax amounts for each jurisdiction
  • If your transaction has multiple lines, AvaTax adds up the tax amount for each line to get the final tax amount

Here's an example transaction containing three items with two taxing jurisdictions – one at 6.5% and the other 2.5%.


Price

Tax amount

(Tax rate of 6.5%)

Tax amount

(Tax rate of 2.5%)

Round each tax amount, and then add them

 


Final tax amount

 $40.80

2.652000

1.020000

2.65 + 1.02 =

3.67

$1.98

0.128700

0.049500

0.13 + .05 =

0.18

 $14.99

0.974350

0.374750

0.97 + 0.37 =

1.34

 

 

 

 

Total tax amount:

3.67 + 0.18 + 1.34

$5.19

Document-level rounding

  • The tax amount is calculated for each line. AvaTax doesn't round the tax amount
  • If your transaction has multiple tax jurisdictions, AvaTax adds up the full tax amount for each jurisdiction
  • If your transaction has multiple lines, AvaTax adds up the total tax amount for each line and then rounds up two decimal places

Here's the same example transaction from above, containing three items with two taxing jurisdictions – one at 6.5% and the other 2.5%.

Notice how rounding later (after the unrounded tax amounts have been added up) leads to a penny difference in the final tax amount, compared to the transaction outlined above. States are aware of the possible one penny difference in these scenarios. Avalara is certified to use either rounding method when reporting tax amounts.


Price

Tax amount

(Tax rate of 6.5%)

Tax amount

(Tax rate of 2.5%)

Add each tax amount (don't round yet)


Final tax amount

 $40.80

2.652000

1.020000

2.652000 + 1.020000 =

3.6720

$1.98

0.128700

0.049500

0.128700 + 0.049500 =

0.1782

 $14.99

0.974350

0.374750

0.974350 + 0.374750 =

1.3491

 

 

 

 

 

 

 

Total tax amount:

Add tax amounts for each line

3.6720 + 0.1782 + 1.3491 =

5.1993

Round the final tax amount

$5.20

 

Can the rounding method lead to variance between two transactions with the same total amount, but a different number of lines?

When applying document-level rounding, AvaTax keeps track of rounding errors and adjusts the tax when the rounding error accumulates beyond a specific threshold. In certain situations, this process may lead to minor differences depending on the number of lines involved. For example, if one transaction has twenty lines, another transaction only has two lines, and the tax rate and total price are the same for both, the accumulated rounding error adjustment may lead to minor differences in the total tax amount.

Why change the rounding method?

  •  Line-level: 
    • The component sum will always match the total tax, and customers will end up paying a penny less when it is different 
    • Cash register totals may disagree by a penny
  • Document-level
    • The total tax quoted will match cash register totals published by the state DOR
    • The sum of the component taxes will sometimes be one penny less than the total tax for the document