Tax Codes are configured in Setup / Finance / Taxes / Tax Codes
Tax codes are used to apply taxes to transactions. For native (LogiSense) taxation the taxes that are applied are determined by one or more tax rates configured on the tax code. For third party tax integrations (e.g. AvaTax) tax rates applicable to a tax code are determined when transaction details are passed to the third party vendor to be taxed. Tax codes are automatically selected by the system based on the service contact's physical address on the account being taxed and the account and service tax categories configured on the account and account-service. This guide will cover the variety of ways that tax codes can be configured.
Note: Taxes applied to transactions are summed and rounded when displayed on invoices. This rounding means that the invoice total may be off by a small amount if you attempt to validate the taxed amount using the invoice total value. This result is expected and does not mean that the tax calculated is inaccurate.
When applying tax to a transaction the system is configured to select a tax code based on the best match found. When a tax code is being selected the system will check tax code settings (the categories and location settings shown on this screen) and compare those settings to the account and account-service configuration to choose the proper tax code to use. The system will not select a tax code which does not match the account/account-service settings which the transaction relates to. For example, if an account is configured with an account tax category of 'Enterprise' the tax code selection logic will not consider tax codes which are configured with an account tax category setting of 'Partner' when attempting to tax a transaction on the account. Using this same example, if more than one tax code is found with an account tax category value of 'Enterprise', the system will choose the best match amongst those tax codes in relation to the account/account-service settings.
Tax Scenario: Applying a single VAT tax to all transactions and an additional service specific tax to distinct transactions for all accounts within a particular country:
Note: This example is applicable to a tax code setup with the native LogiSense tax vendor. For this example to apply to third party tax integrations (e.g. AvaTax) you would not configure tax rates on the tax codes (as the third party solution will determine the proper rates to apply based on the categories and location details configured on the tax codes).
For this example you would create two tax codes. The first tax code would be setup with the single VAT tax rate and the country desired. The second tax code would be configured with a service tax category, the country, the VAT tax rate and the service specific tax rate.
Tax Code 1:
Service Tax Category: unset
Tax Rates: VAT
Tax Code 2:
Service Tax Category: Mobile Device
Tax Rates: VAT, Mobile Device Tax
In the example above taxes applied to accounts in Ireland would be determined by only two tax codes. If the transaction to be taxed relates to an account-service with its 'Service Tax Category' set to 'Mobile Device' then Tax Code 2 would be used, applying both the VAT tax and the mobile device specific tax to the transaction. If the account-service does not have a service tax category set then Tax Code 1 would be used, applying only the VAT tax to the transaction (as both Tax Code 1 and the account-service being taxed have no service tax category defined). In the latter scenario Tax Code 2 would also be considered an invalid tax code to use as its service tax category is specified but the account-service being taxed has no service tax category set (i.e. Tax Code 2 is a mismatch in relation to the account-service configuration and therefore invalid).
Tax codes can be selected during taxation in several ways, this section describes the tax code configuration options available.
Account Tax Categories: account tax categories are useful when you need to tax accounts differently based on an account categorization scheme (e.g. residential, business). In order to apply taxes using account tax categories the account tax category must be set on one or more tax codes and accounts must be configured to be under the account tax category (Account > Overview > Settings > Taxes screen)
Service Tax Category: service tax categories are similar to account tax categories except that they are configured on services in the product catalog vs. being set at an account level. Service tax categories are also configured on tax codes in order to specify that the tax codes (and therefore the tax rates) are only applicable to a particular service or services
Contact Addresses: addresses on account contacts are evaluated when determining a tax code to use. Specifically, the service contact's address, followed by the billing contact's address (if the service contact address does not exist and the billing contact has been configured for taxation). The contact's address details are compared to location details in tax codes to find the best matching tax code to use
Child accounts, like parent accounts, will determine the tax code to use based on their service/billing contact addresses and tax categories configured. If a child account does not have contact addresses configured, then the address of the parent account's service or billing contact will be evaluated to determine which tax code is applicable when attempting to apply taxes to a child account transaction.
Tax Codes can be setup as needed, there are no prerequisite configuration steps. However, for tax codes using the native (LogiSense) tax vendor tax rates need to be setup in order to apply taxes to transactions.
The Tax Codes panel on the left of this screen allows you to select existing tax codes to view and edit on the Edit Tax Code panel to the right. Actions are also available in this panel which are shown as icons above the Filter text box. The available actions are described below.
Deletes the tax code
Adds a new tax code
The information in this panel reflects the currently selected tax code. From here you can change tax code details (fields will display a red left border if a value is required and purple text if the field is read-only and cannot be modified).
Tax Code Fields:
Name: a descriptive name for the tax code. Typically this name indicates the area where the tax applies and/or the type of accounts it applies to
Tax Vendor: specifies whether taxing is handled entirely by the local system or if a third party tax vendor will be used to determine the tax rates that apply and calculate taxes
Only Report Tax: when enabled the tax rates that the tax code applies will be calculated and displayed as transactions, but will not be charged to the account. In addition to appearing as transactions on accounts, reported only taxes can also be displayed in reports and on invoices. Reported only tax charges are the account holders responsibility to pay
Service Tax Category: allows you to configure the tax code to be used for service specific taxing (e.g. an environmental fee or similar device specific tax). Services will need to have the same service tax category configured on them in order to utilize the tax code. If this field is left empty it will function as a catch all, matching any configured service tax category configured on a service. Should no tax code exist with a service tax category set that matches an account-service's service tax category, then a tax code with no service tax category specified can be used to apply taxes to a transaction (provided the other settings configured on the tax code match the configuration of the account being taxed, e.g. the service contact address on the account is in 'Norway' and the tax code's configured country is also 'Norway')
Account Tax Category: configures the tax code to be used by accounts that are setup with the same account tax category. For instance, if you apply specific taxes to corporate accounts you could create a 'Corporate' account tax category, set the corporate category on the tax code and configure the same corporate account tax category on corporate accounts in order to tax account transactions at the desired corporate tax rates. This field can also be left empty in order to match up against any account tax category set on an account. During tax code selection if an exact match cannot be found between an account's account tax category and a tax code's account tax category then a tax code with no set account tax category can be used (provided the other settings on the tax code match the account/account-service settings of the account being taxed)
Country: this value will be compared against the address of the account's service contact, or if no service contact address exists the account's billing contact can be configured to have its address used for taxation. Country will be used in combination with other tax code settings to determine the tax code to tax with (e.g. a tax code configured with a country and account tax category will be used by an account that matches those two settings instead of a tax code which matches only the country value on an account contact's address). If this field is left empty it will match against any country value entered on the service/billing contact's address
State/Province: facilitates taxing at a state/provincial level. Like the Country field above this value is compared against an account's service/billing contact address. If this field is left empty then it will match against any state/province value entered on a service/billing contact's address. If taxation is required at a city or lower level then you will need to use an integrated third party tax vendor (e.g. AvaTax)
Note: this tab will not be displayed when an external tax vendor (e.g. AvaTax) is selected in the 'Tax Vendor' field on this screen. The tax rates used in this case are applied by the external tax vendor when charges are passed to the vendor to be taxed.
On this tab you can view, add and remove the tax rates that are applied when this tax code is used.
On this tab you can view, add and remove usage classes that can be taxed or reported as taxed. By default the tax rates related to a tax code are applicable to any type of service related charge except usage charges. If you need to tax usage in addition to one time and recurring charges you can add the usage classes to tax on this tab.
When performing usage taxation through AvaTax the terminating and originating identifiers in the usage record (e.g. originating phone number, terminating phone number) are also passed to Avalara in order to determine the taxes that are applicable. This can result in different tax rates being applied to the usage charge than the taxes applied to non-usage based charges.