AvaTax overview

AvaTax for Sage Intacct is a web-based tax service that provides several tax functions.

• It calculates the amount of sales tax owed on the sale of goods and services.
• It monitors and manages tax rates based on location and item type, and ensures sales tax compliance.

About sales tax

Most of the United States, plus the District of Columbia, impose a sales tax on retail sales and services, and use taxes on sales and services. There are approximately 8,000 state, county, and city jurisdictions in the U.S. that charge a sales tax. Some states, such as Florida, Texas, and California, tax services in addition to tangible items.

Businesses are required to collect sales taxes in the following cases:

• The customer is in the same state
• The business has economic nexus in the customer's state

The regular presence of a single sales person can be enough to establish an economic nexus requiring the collection of sales tax.

Depending on the state, different items can be taxed at different rates. In some states, for example, food is not taxed. Clothing can have a lower tax than other items. In some states, the rates can vary by city and/or county, so businesses must keep records of sales in each city, county, and each state in which they do business.

AvaTax reduces this complexity by automatically calculating the sales tax owed, based on the ship-from location, ship-to location, and the type of item being sold.

How does AvaTax work?

For each transaction, AvaTax works with Intacct to calculate the tax for a sale or purchase.

You can enable AvaTax for Intacct Accounts Receivable, Order Entry, and Purchasing. This allows you to calculate the tax paid by customers for sales and the tax paid to vendors for purchases. When you select Calculate in the Subtotals section of the transaction or save the transaction, Intacct sends the following data to Avalara to determine the correct tax to apply:

• The line item amount
• The Ship To address
• The Ship From address
• The tax code, if any, for your item or product
• The exemption use code, if any, associated with the customer or contact
• The item name and description (for ease of filing purposes if Avalara does your sales tax return)

The Avalara system determines the taxability and tax rates, computes the tax amounts, and sends the rates, jurisdictions, and amounts to Intacct.

To implement Avalara AvaTax in Intacct, create an account at Avalara.com and configure your Avalara account to determine the economic nexus, taxability, reporting, and filing profiles unique to your business. 

Avalara offers services in the following areas:

• Jurisdiction assignment

• Rate research

• Calculations

• Maintenance

• Reporting

• Tax returns

• Remittance

AvaTax includes more than 700 active tax codes that address the separate tax calculations required for goods in different tax jurisdictions.

AvaTax details

Here are a few details about how AvaTax works.

Jurisdiction determination

AvaTax calculates taxes based on several factors, including the origin of the goods and their destination. Consequently, Intacct sends both the Ship From and Ship To addresses to Avalara to compute taxes.

You must have valid Ship From and Ship To addresses to compute taxes. The Ship To address is typically the address of the ship-to contact for the customer. However, the ship-to address can vary by line item if line-level ship-to contacts are enabled. The Ship From address can vary by line item (if you ship from multiple locations) or can be the address of your Intacct entity or company. Learn more about how Intacct determines the ship-from and ship-to addresses.

Customer taxability

By default, Intacct sets the customer as taxable. Only taxable customers are passed to Avalara for tax determination.

If you have customers who buy from you for resale, Avalara provides exemption certificate management. All customers are taxable unless they have exemption certificates.

Even if the customer is marked taxable, AvaTax will not apply sales tax to this customer's transactions in the following circumstances:

• You file a tax exemption for this customer on the Avalara dashboard

• The item on the transaction is not subject to tax
  

Mark taxable goods

AvaTax uses an Avalara tax code to determine the taxability of the goods. Tax codes ensure that Avalara makes the correct tax determination for a particular jurisdiction.

For example, a company that sells food, liquor, and cigarettes can have multiple tax codes to consider. There can be different tax rates for liquor and cigarettes, and no tax at all on food. Associate the appropriate food, liquor, and cigarette tax codes to these account labels or items to instruct Avalara how to calculate sales tax for each item.

You can enter an Avalara tax code either on the account label in Intacct Accounts Receivable or on an item in Intacct Order Entry. Also, if no Avalara tax code is provided, by default your goods will be deemed taxable.

Exemption use codes

You can enter exemption use codes in the Additional Information tab of customer and contact records. Intacct applies the default code to Avalara AvaTax transactions for that contact.

For Accounts Receivable transactions, Intacct uses the exemption use code from the customer’s ship-to contact.

For Order Entry transactions, Intacct uses the exemption use code from the line level ship-to contact. If the line-level does not have a ship-to contact, it uses the exemption use code from the customer’s ship-to contact.

Document numbers

Invoice numbering is mandatory. If you subscribe to AvaTax, confirm that you're using invoice number sequences. You can do this in your Accounts Receivable configuration and your Order Entry and Purchasing transaction definition setup.

Duplicate numbers generate an error, and you cannot save a duplicate transaction.

Reporting location

Reporting location allows you to identify which reporting location applies for tax submissions, enabling location-based tax reporting for entities that use the Avalara AvaTax solution.

For top level Order Entry and Purchasing transactions, Intacct uses the parent of the warehouse location entered in the first transaction line. If no warehouse location is entered, the reporting location defaults to the parent location.

For entity-level transactions, Intacct uses the entity location.

Commit tax amounts and accrued taxes

AvaTax uses the Commit function to track whether tax liability has been created for a specific order.

When you make a sale, you're entering into a contract with your customer to incur a tax liability. Therefore, when you save and post an invoice, your transaction status in Avalara is set as committed and tax is deemed liable. Avalara uses the sales transaction for accrual and reporting purposes to show the total amount of tax you owe. The transaction is stored in both Intacct and Avalara.

You can view the transaction on the Avalara dashboard by going to the Transaction tab. You can also view the transaction in Intacct either by retrieving the sales document or generating a Sales Tax report in Accounts Receivable. You can also edit the sales invoice in Intacct, and any change you make will be reflected in Avalara. However, if a sales transaction has been filed on a return, Intacct does not recommend making any changes to that invoice. Rather, to remove the impact of a sales transaction, create a negative sales transaction or sales return (go to Refund sales tax). In this way, the two sales transactions cancel each other out.

AvaTax examples

Here are some examples that illustrate the sales tax workflow:

1. Save or post a sales transaction: Intacct sends the sales record to Avalara as a committed transaction, and the tax is deemed liable.
2. Pay a sales transaction: There are no changes in the Avalara system. The status of the transaction remains committed.
3. Reverse a payment after a sales transaction has been paid: The sales transaction remains committed in Avalara (because after a sales contract has been entered, tax is deemed liable).
4. Reverse both payment and the sales transaction after a sales transaction has been paid: Intacct creates a negative sales record and sends it to Avalara with a status of committed. The two sales records cancel each other out.
5. Delete a sales transaction: Intacct triggers Avalara to void the transaction.

About setting up sales returns in Intacct Order Entry

You can manage sales returns and credit memos by converting directly from sales invoices. Taxes will be calculated using the invoice date on the sales return or credit memo. Intacct uses the Original invoice date listed on the sales return or credit memo page to calculate the sales tax.

If you did not convert from a sales invoice, you must provide an original invoice date for the sales return or credit memo to calculate sales tax.

A sales return or credit memo will display as a Return invoice on your Avalara dashboard. If you enter a positive sales return or credit memo amount in Intacct, AvaTax converts it to a negative return invoice amount in Avalara.

Process sales returns in Accounts Receivable

To revert the sales tax liability for a returned product or item, you must create a negative invoice for it in Accounts Receivable. Manually manage your document date to ensure that the tax is calculated in the same way that it was calculated for the original invoice.