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How do I use AvaTax / Avalara for tax calculation?

This document explains step by step how to set up Avalara’s service, AvaTax, within your shop. All steps need to be considered to ensure that the AvaTax integration is working properly.
 

1. Country and currency settings

There are two settings within your shop that need to be consistent for AvaTax to calculate the right tax rates: The shop’s address needs to be located within the USA and US Dollar has to be the only visible currency in the shop.

Editing the shop address
If the shop address is already located within the USA, this step can be skipped.
 
1. In the administration area in the main menu, select Settings and then General settings.



2. Select Address.



3. Change the shop’s address to an address located within the USA.
 
4. Save the changes.


Currency settings
1. In the administration area in the main menu, select Settings and then Country settings.



2. Select Currencies.



3. Set the currency US Dollar to Visible and Default.
 
4. If other currencies are listed in the table, deselect their status Visible.



5. Save the changes.
 
 

2. Tax settings in your shop’s administration area

Tax matrix

1. In the administration area in the main menu, select Settings and then Tax calculation.



2. If you already edited your tax matrix some time before, you can jump to step 5. Otherwise select Customise.
 
3. An alert message appears. Select again Customise.
 
4. Select Tax model.


 
5. For Prices are calculated and displayed in the shop based on, select net prices (Prices exclude VAT).


 
6. For Calculation of the tax due occurs after address entry, select Yes.


 
7. For Entry of prices in administration section is done based on, any option can be selected.


 
8. Save the changes.
 
9. Select Automatic tax calculation.


 
10. In the left column, select AvaTax.


 
11. Select Activate.


 
12. Select AvaTax in the column Default selection.


 
13. Save the changes.
 
14. Select Complete it.


 
15. If you are not already registered with AvaTax, register under http://www.avalara.com/products/avatax.

16. After registering with AvaTax, the respective settings within the shop can be conducted. Under Access data, enter your Avatax account number, your license key and your company code.


 
17. Under Settings, for Commit sales invoice to AvaTax, select Yes.


 
18. For Use address validation, select Yes.


 
19. For Operational mode, you can select Test or Live. We strongly recommend to first select Test. This way you can test the integration before activating it. The settings can be changed to Live at any moment in the future.


 
20. Save the changes.

 

3. How AvaTax works

This part explains how the AvaTax integration works with your shop after a successful activation.
 
Tax calculation within the shop
The calculation of the tax rate happens after the customer has entered his address. Therefore, the shop displays net prices to the customer first. That means that prices within the shop are displayed without VAT until the customer enters his address during the checkout.
 
For the customer, it works like this:
 
  • The customer enters his address during the checkout.
  •  A pop up window appears and lets the customer choose if he wants to change his address or not. This address check from AvaTax will always appear since it serves to crosscheck the address within AvaTax.
  •  The customer follows the steps until they come to the last step of the checkout. There the full price with the right tax rate calculated by AvaTax is displayed.
 
Order status
The orders within the shop administration are synchronised with AvaTax in dependence to the order status. For more information on the order status, read What is the status of an order and how do I use this function?
  • If the order status is set to Paid, the order data is transferred to AvaTax and added as a document of the type “sales invoice“ to the AvaTax console.
  • If the order status is set to Returned, the order data is transferred to AvaTax and added as a document of the type “return invoice“ to the AvaTax console. Only if the orders status has been set to Paid before, and thus a sales invoice has been created.
  • If the order status is set to Rejected, the existing sales invoice for this order is set to “void” in the AvaTax console. Only if the orders status has been set to Paid before, and thus a sales invoice has been created.
 
Other order statuses are not considered by AvaTax.
 
Adjusting an existing order / AvaTax sales invoice
If you edit an existing order in your shop’s administration area (e.g. adding or deleting products from the order), the taxes for this order are recalculated. When the order’s status has already been set to Paid, the changes are transferred to AvaTax and this order’s sales invoice is updated. 
 
Tax exceptions
For parties that are exempt from taxation such as governmental authorities and tribes, tax settings can be adapted in the shop.
 
1. In the administration area in the main menu, select Customers and then Customers.


 
2. In the table you can see your shop’s customers. Select the customer no. of a customer that requires different tax settings.


 
3. Select Attributes.


 
4. Under Customer tax rate Avatax, select the respective tax rate to the customers’ requirements. For example: If the customer is a governmental authority, select Governmental Authority.
 
5. Save the changes.
 
With these settings, the shop will calculate net prices for each order this customer places. If the customer already placed an order with the tax rate included but the order status has not yet been set to Paid, AvaTax will consider the changes and calculate net prices.
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