Skip to content

The Relationship of Taxable Flag and _USECODE Attribute for Avalara

Release Date: 06/21/2023
Last Revised: 03/20/2024
Version: 8.6 & Up

Q - What is the relationship of customer, ship-to and order taxable flags vs. the _USECODE? Does the system calculate sales tax based on _USECODE or taxable flag?  How is this related  if SST is used? What is tax code ON030000? How is item taxable flag related to item Tax Code attribute?

A - There are several subjects to discuss here:

Elliott Estimated vs. Avalara Taxes
Elliott limits number of calls to Avalara for performance reasons and cost.  Constantly calling Avalara when an order is created, changed,  or backordered will slow down Elliott's performance. In addition, Avalara charges a new transaction cost for every 10 calls.  So Elliott is designed to limit the number of calls to Avalara.

When a new order is first created, Elliott estimates the sales tax of the order based on its original sales tax logic. In order to use the up-to-date sales tax rate, we ask our Avalara users to download the zip code tax rate table from Avalara on the monthly basis. Elliott will calculate sales taxes based on the order taxable flag (inherited from customer and ship-to) and the item taxable flag. We recognize that the final tax amount from Avalara might be different for various reasons: such as, for example, but not limited to: (1) the zip code does not match the taxing jurisdiction; (2) item taxability may change from state to state; (3) sales tax vs. use tax.

Elliott will first call Avalara at the time of pick ticket creation because it signifies the order is ready to ship and less likely to have further changes. The tax amount is updated to Elliott so if the order is a COD or credit card that needs to be charged, it is important that we have a final amount for the order.  At time of order billing and invoicing, Elliott will call Avalara again to confirm the final sales tax amount.

It is possible that Elliott's estimated sales tax will be different from the Avalara amount.  In general, Elliott will take Avalara's sales tax amount as the final tax amount.  However, in one scenario, if an Elliott order is estimated to have zero sales tax (when customer, ship-to or the order in Elliott is flagged as not taxable), while the Avalara calculated a sales tax amount, Elliott will send tax code ON030000 to force the tax of the order to be zero on the Avalara side.  This is considered as an exception and thus an event  AVATAXDS (AvaTax Discrepancy) by customer will be triggered. The typical reason for this happening is due to SST.

What Is SST?
SST is a consortium of states (as of writing, there are 25 of them) that give certain tax benefits (rebates) to merchants who participate in this program to collect the sales tax. All merchandise delivered to these states are subject to sales tax unless there's a certificate for the buyer on file with Avalara.  On the other hand, if you do not enroll in the SST program, then whether the customer is taxable or not is determined from the Elliott side.  It is obviously easier for Elliott users to maintain taxability of a customer/ship-to on the Elliott side. On the other hand, the requirements to maintain tax exempt certificates on the Avalara side is higher. Hence states that participate in SST expect to receive more sales tax revenue. For that, states give incentives to merchants to enroll in SST. 

The typical issue will arise when the customer is set to "not taxable" in Elliott while the customer tax exempt certificate is not set up on the Avalara portal.  It is also possible that a non-taxable customer will ask to drop ship to a state for which they do not have the tax exempt certificate. As far as Elliott is concerned, we are selling to the customer, not the drop ship location.  Elliott expects the customer who has the tax certificate to collect the sales tax for the drop ship delivery, and hence Elliott does not calculate sales tax by default in this scenario. However, if you enroll in SST and this is one of the SST states, Avalara will calculate sales tax since this customer does not have a certificate in that drop ship state.

When the Elliott side is not taxable, but there's no tax exempt certificate on file with Avalara, this will cause a discrepancy.  Elliott will override the Avalara side by sending the tax code ON03000 for all items to force the tax of the order to be zero on the Avalara side. An AVATAXDS (AvaTax Discrepancy) event will be triggered by customer.  You may subscribe to this event by using the filter condition that "Elliott Est Amt" = 0 and "Avalara Calc Amt" > 0. See sample screen below:

In addition, the Used TaxCd ON030000 check box in the _AVATAXSNAPSHOT attribute will be checked. See sample screen below:

You could develop a report based on this check box value to monitor the exception.  It is possible you or your customers need to upload the tax exempt certificates to the Avalara portal to avoid this exception. Elliott also provides two reports for you to review. The Uncommitted Tax Override Report will show transactions that have not been committed to Avalara. The Committed Tax Override Report will show posted invoices that have been committed to Avalara and have used this override code.

A large number of transactions using tax code ON03000 to override the taxability of the transaction may trigger auditing from the state. So it is in your interest to minimize this exception.

What if You Are Not Using SST?
If you are not using SST, Avalara will determine whether an order is taxable or not based on customer, ship-to and the order's taxable flag. No certificates are required on the Avalara portal.  If a customer is not taxable, you should create the _USECODE attribute for the customer or ship-to.  You could also override at the order level.  The purpose of the _USECODE attribute is to advise Avalara why an order is not taxable.

If the customer is taxable, then you should not add _USECODE to the customer or ship-to.

Pseudo Codes of Avalara Sales Tax Calculation on Timing to Use Tax Code ON030000 
Below are pseudo codes to give you a better explanation on the timing of when Elliott uses ON030000 to force Avalara's sales tax to zero.
  • Elliott sends _USECODE of customer, ship-to, customer type and order hierarchy to Avalara.
  • Elliott sends Tax Code of Item, Product Category, User Defined Code and Global Setup hierarchy to Avalara.
  • Calls Avalara without passing order or item taxable information
If the entire Elliott order is not taxable
    If Avalara calculates the order to be taxable
        Set _AVATAXSNAPSHOT check box 2 to "Y"
        Trigger Exception Event
        Calls Avalara again and sets Tax Code to ON030000 to force it to be nontaxable
        Use Avalara's calculated values
    End If
Else (Elliott order is taxable)
    Use Avalara's calculated values
End If


Feedback and Knowledge Base