This article explains how to associate your Avalara tax codes with your products' rate plan charges, and set a charge's tax mode to inclusive or exclusive.
Specify Tax Codes in a Rate Plan
To set a tax code for a rate plan:
- View a product in the product catalog.
- Add a rate plan and rate plan charge. Enable Taxable on the rate plan charge, which causes the Tax Mode and Tax Code fields to appear.
- Select a Tax Mode, either
Tax Inclusive or
- Select an active Tax Code Name. (To be taxable, the charge must be associated with an active tax code.)
- Click save.
Add Tax Codes to Products in Existing Subscriptions
Once a product is added to a subscription, this product has a connection with the product in the product catalog. Any changes made on the product in the product catalog affect the product in the subscription. You can add the tax code to your products in the product catalog and apply the tax code to the products in existing subscriptions.
Set Inclusive and Exclusive Tax Modes
Zuora supports two tax modes, tax exclusive and tax inclusive.
- Tax exclusive: The tax is not included in the quoted charge price. Tax is calculated and added to the charge. This is the default tax mode.
- Tax inclusive: The tax is included in the quoted charge price. Tax is calculated as a "carve out" from the charge price.
To use an inclusive model, select the Tax Inclusive option from the new Tax Mode list before you select an option from the Tax Code list.
When using tax inclusive, the tax engine calculates the "included" tax portion from the whole price and displays that by tax code/rate on the invoice. This can help you collect and report on taxes.
- If you are using Tax Exclusive and a 5% tax rate:
- If the charge is $10, then the invoice shows a $10 charge, plus $0.50 tax. The total charge is $10.50.
- If you are using Tax Inclusive and a 5% tax rate:
- If the charge is $10, then the invoice will show a $10 total that includes a $9.52 charge and a $0.48 tax that has been "carved out" of the total amount.
Limitations when using the tax inclusive option
You can have multiple taxes for each tax code. However, the following limitations apply:
- When using inclusive tax, you can have only one tax rate within your tax code.
- When using inclusive tax, your tax codes cannot include flat taxes.
- The Avalara integration does not currently account for customers who are tax exempt when invoicing for charges that use the inclusive tax mode. If a taxable product rate plan charge is set to inclusive mode, all customers who are invoiced for this charge will pay tax, regardless of whether they are tax exempt or not.
Set Tax Codes and Tax Modes through API calls
It is also possible to set tax codes and tax modes for rate plan charges via calls to the Zuora SOAP API. This is particularly useful if you wish to change the tax code or mode for a large number of product rate plan charges. For more information see create() and ProductRatePlanCharge.