Now that you’ve learned all the ins and outs of a transaction, let’s discuss how to handle more complex types of tax. When certain types of products get taxed at different rates, how does AvaTax know which rate to use?

In AvaTax, we represent different types of products using a taxCode. This taxCode is a short string that uniquely identifies a type of product and helps to classify it for tax purposes. Here are a few sample tax codes:

TaxCode PF050112 represents carbonated soft drinks

TaxCode PC040413 represents ski boots

TaxCode SB070700 represents boat repairs

You can find many more examples through Avalara’s online tax code website. Try searching through to find something you like to buy - Avalara has a full list of tax codes covering nearly all variants on the products and services you purchase every day.

Inside AvaTax, these taxCodes have built-in logic to represent the applicable sales tax regulations for each state. This means you can get the correct tax rates for boat repairs by adding an invoice line item with the property "taxCode": "SB070700" within the transaction. The tax code helps to identify what tax rules and rates apply to the transaction. Our content team monitors governments around the world and tracks whenever the tax rate changes and taxability rules for each particular type of product or service.

Specifying a taxCode isn't required. If you don't include a tax code for an item, AvaTax considers the item as taxable by default.

Item classification