AvaTax for AP and consumer use tax concepts

This section describes some terms and features that you'll encounter when configuring and using AvaTax for Accounts Payable.

Vendors

A vendor refers to a supplier, provider, or a seller. AvaTax recognizes several types of vendors when calculating consumer use transactions:

Trusted Vendors: Trusted vendors are those who charge the right amount of sales tax. In this case the buyer doesn’t need Avalara to calculate the additional tax rate. If the vendor is marked as trusted, then AvaTax ignores the transaction from that vendor. AvaTax accrues zero tax for Trusted vendors.
Vendors with a default exemption number: If a vendor has a default exemption number, then AvaTax exempts the transaction and accrues zero tax from that vendor.
Accrual Vendors: If a vendor is marked as "accrued," then the transaction tax is calculated. AvaTax accrues the calculated variance (the difference between the tax calculated by AvaTax and the vendor-charged tax).

When adding vendors, you specify whether:

Tax on the vendor's transactions is accrued after you review them.
Tax will be accrued on the vendor's transactions without first reviewing them.
The vendor is trusted; accept their tax calculations and don’t calculate consumer use tax on their transactions.
Purchases from the vendor are exempt from sales tax. Also supply an exemption certificate.

For more information about adding vendors in AvaTax, refer to the AvaTax for Accounts Payable guide in the Knowledge Center.

Cost centers

A cost center is a unit or division within a business that incurs operating expenses but doesn't generate revenue, such as Human Resources. Purchases made by cost centers are exempt from sales tax.

When running purchase transactions, AvaTax allows users to specify an optional CostCenter parameter at the document or line level.

When specifying the CostCenter parameter at the document level, the exemption rule for that specific cost center is applied to all lines of that document, and the document review status is set to Ignored.
When specifying the CostCenter parameter at the line level, the exemption rule for that specific cost center is applied only to that particular line. Because this scenario only covers the partial lines and ignores the other lines, the document status can be set to InReview.

Cost centers aren’t required for calculating use tax or for certification. If your business or use cases include cost centers, you can manage those in the AvaTax UI or using the cost center endpoints in the AvaTax API.

Items

An item represents an individual or group of products, services, or charges. Map the items that you purchase to Avalara tax codes so that AvaTax calculates the most accurate sales tax rate for your customers. In AvaTax for AP, you can add items that are always exempt from tax when purchased by your company.

Thresholds

AvaTax for AP allows you to configure several thresholds to determine when you want tax to be accrued, ignored, or marked for manual review.

Amount threshold to ignore: This represents a transaction amount. If the total amount of a transaction is less than this value, then AvaTax for AP will accept the vendor's calculated tax without comparing it to Avalara's calculated tax.
Variance threshold: This represents the difference between the Avalara-calculated tax and the vendor's calculated tax. Specify a de minimis tax amount to accept automatically the vendor's tax with no additional accrual. AvaTax for AP won't accrue tax if the tax variance is less than this threshold.
Accrual threshold: This represents the threshold resulting in a manual review and can be either a number or a percentage. Used with the variance threshold, any variance less than this accrual threshold is accrued without manual review, unless it's also below the variance threshold.