Handling Tax Exemption with TaxCloud/AvaTax

Retailers sometimes need to exempt one of our customers from paying sales taxes on their orders. For instance, in the United States of America, non-profit organisations are entitled by state law to sell merchandise without sales tax. Another scenario arises when you would like to set an item tax free in all your nexus states. These are the states where you would like to collect sales taxes.

This post will show you how to solve these two problems. It is therefore structured in two parts: exempting customers from paying taxes and flagging an item as tax free. The latter section applies to AvaTax customers only.

1. Exempting customers from paying taxes
The first part of the process consists of flagging the customer as exempt from taxes. In RMS, this option is available from the Store Operations Manager → Database → Customers. Locate and open the target customer. In the Customer Options, click on the Customer is exempt from taxes box as illustrated in the next screenshot. Having done that, you should synchronize your store by running NSc Sync.

The next part of the process depends on your tax provider.

  • TaxCloud Customers

When a customer that you have flagged as tax exempt visits your store, the following requests are sent on your behalf:

  • A request is made to TaxCloud to add a certificate for this particular customer. The details on the certificate are as follows:
  • The exempt states which are essentially the state where the customer lives;
  • The reason for exemption which is set to CharitableOrganization;
  • The purchaser personal details such as first name, last name, address are provided as given in RMS;
  • The purchaser Tax ID is made of the tax type which is StatedIssued and the issuing state is your state;
  • The purchaser business type is equal to NonprofitOrganization.
  • Having added a tax certificate for this transaction, we now send the request for tax calculation to TaxCloud using that certificate.

  • Assuming that those requests were successful, you should be able to view the tax exemption certificate. A sample tax certificate is shown in the next screenshot.

  • AvaTaX Customers

AvaTax handles this situation in a completely different way. There is no more need to manage tax certificates. Having set a customer as tax exempt, we inform AvaTax by simply adding the generic value ‘L’ which stands for Other in the customer usage type field.

2. Setting merchandise as non taxable

Tax providers compute the applicable using the shipping and the billing address of the order as well as the tax code assigned to each line item. In related blog posts (http://www.nitrosell.com/blog/feature-spotlight-automated-tax-calculation-with-taxcloud-2661.html and http://www.nitrosell.com/blog/feature-spotlight-automated-tax-calculation-with-avatax-4131.html), we previously explained that when no tax code was assigned to a line item, then the generic tax code will be used. That code is 00000 for TaxCloud and P0000000 for AvaTax.

AvaTax customers can actually avail of this feature to set merchandise non taxable. Indeed, there is a special tax code called NT which stands for Non Taxable that you can assign to a category for which you would like that all items belonging to it be non taxable. This means that regardless of your nexus states, these items will always to be non taxable. In an ideal world, you should be assigning the actual tax code and let AvaTax handle its sales tax on your behalf.

We hope you like this post. Should you have any related question, please feel free to get in touch with us!

We are having issues with tax exempt customers getting taxed. We are using Tax Cloud. The settings in RMS are correct. Is there more or updated info on how to handle tax exempt customers.

Hi @scott2
Thanks for reporting this issue to us. The easiest way to achieve that would be to map your item as non-taxable in RMS. The corresponding field in the product table is product_taxable. Any item with a value set to 0 in that field will not be sent to TaxCloud and therefore not be taxed.

Hope this helps.
Regards,
Franclin

The items we have setup as non-taxable work fine.

We have customers that are tax exempt and should not be charged taxes on any items. If they shop in store, they are not charged tax. When they place an order online, I need that to also happen and it is not.

Hi @scott2

There are two ways to do this: set those customers as tax exempt in RMS or provide a tax exemption certificate to TaxCloud for those customers. The former is by far the easier option. If it is not working for you then I would urge you to open a ticket and provide further details so that we can investigate the matter further.

Kindest regards,
Franclin