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The Relationship of Taxable Flag and _USECODE Attribute for Avalara

Release Date: 06/21/2023
Updated: 1/26/24
Version: 8.6 & Up

Q - With Avalara set up for the customer, if I understand correctly, you could have a customer set up as non-taxable but have the _USECODE attribute to TAXABLE, and that would charge tax on items that are taxable.  That is the difference of doing that versus just having the customer set up as taxable in the customer file. Is this correct?

A - If the customer is set up as taxable in the customer file, you do not need to set up a _USECODE for the customer. This includes the TAXABLE _USECODE. Adding a TAXABLE _USECODE to the customer will indicate that every line item on the order is taxable even if it is not. Avalara advises against this setup.

If the customer is set to non-taxable in the customer file, we do the following:
  1. The _USECODE assigned at the customer, customer type, or ship-to level is always passed to Avalara. This is important if tax exemption status is determined by the information stored in Elliott and the user is maintaining tax exemption certificates outside of Avalara.
  2. If there is no _USECODE assigned at the customer, customer type, or ship-to level, taxability will be determined  based on the exemption certificate information on file in the Avalara portal.
  3. If the customer or ship-to are set as non-taxable, Elliott estimates taxes with a zero tax percentage. 
  4. When the Avalara is called to calculate taxes, Elliott will look for the _GOODSERVICES attribute at the item, user-defined code, and product category level. If found, we pass this code on to Avalara for them to determine if the item is taxable even though the customer is non-taxable. If we don’t find the _GOODSERVICES attribute, we pass the default tax code from Global Setup.
  5. If Elliott estimates the total tax amount to be zero but Avalara returns tax amounts to be collected, Elliott will call Avalara a second time and override the _GOODSERVICES attribute setting all of the line items to non-taxable. This situation can occur if the Avalara portal is configured to run Streamlined Sales Tax (SST) but the customer's exemption certificate has not been added to the Avalara portal. If the override code has been sent with the order, the "Used TaxCd ON030000" option will be checked in the _AVATAXSNAPSHOT attribute and an event will be triggered to notify the user of the situation. This event should be monitored and the situation remedied since the use of the override code can trigger an audit at the state level.

Note: There are situations where a non-taxable customer is still required to pay taxes. For example, if the customer orders an item through their company but the item is for personal use. In this case, a _USECODE with the value TAXABLE can be added to the order header. If found, all line items will be marked as taxable to override the exemption certificate that is on file for the customer.

In summary, the purpose of the _USECODE attribute is to determine the nature of tax exemption. For taxable customers, we do not recommend adding the _USECODE to the customer or ship-to. Instead, use the taxable flags for the customer or ship-to and set them to "Y." However, if you set the customer or ship-to taxable flag to "N," we recommend adding the _USECODE so that Avalara can determine the nature of their tax exemption.

See the following KB article for more details on _USECODE: 

EMK/CLS

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