# Step 5: Item classification and Tax Code assignment

Source: https://developer.avalara.com/ai-onboarding/npg6914902784732/

# Step 5: Item classification and Tax Code assignment

Classify ERP items and assign AvaTax tax codes based on attributes and grouping.

This step classifies ERP items and assigns appropriate AvaTax tax codes based on item attributes and grouping.

## When this step occurs

This step occurs after tax profiles and nexus are configured and before transactions are processed using AvaTax.

## What the AI agent does

During this step, the AI agent classifies ERP items and guides the user through tax code assignment and storage decisions.

The following workflow illustrates how the AI agent evaluates ERP items, assigns tax codes, and determines where tax codes are stored.

![Item classification workflow](https://knowledge-be.avalara.com/bundle/fuh1905384702210_fuh1905384702210/page/vvu1264106213966.image?_LANG=enus)

Based on this workflow, the AI agent performs the following actions:

1.  **Item group mapping (default)**: When the ERP system uses item groups, the AI agent groups items accordingly and assigns 1 tax code to each group.

    For example, an item group such as _Electronics_ may be mapped to the tax code _PC030000_.

    The user reviews and confirms the suggested group-level mappings.

2.  **Individual item mapping (optional)**: If item groups are not available, the AI agent presents tax code suggestions for each item individually.

    The user reviews and confirms item-level mappings.

3.  **Storage destination selection**: The AI agent prompts the user to choose where tax codes should be stored. The following options are available:

    -   **Store in ERP only (default and recommended)**

        Tax codes are written to ERP item master records. AvaTax reads tax codes from transaction data at calculation time.

        This option establishes a single source of truth and doesn’t require ongoing synchronization.

    -   **Store in AvaTax only (optional)**

        Items are uploaded to the AvaTax Items table with assigned tax codes. ERP item records remain unchanged.

        This option centralizes tax code management but requires ongoing synchronization.

    Important

    Tax codes are never stored in both ERP and AvaTax simultaneously during this workflow. The user must select 1 destination to avoid conflicts.

## Outcome of this step

After the user confirms the storage destination and approves tax code mappings, the system immediately uploads items using: `[POST /api/v2/companies/{companyId}/items/upload](https://developer.avalara.com/api-reference/avatax/rest/v2/methods/Items/BulkUploadItems/)`.