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Inline Taxation for Invoices and Credit Memos

Zuora

Inline Taxation for Invoices and Credit Memos

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This feature enables the syncing of taxes inline with invoice and credit memo line items in NetSuite instead of the default behavior of syncing tax line items separately. This enhancement facilitates better tax reporting in NetSuite by ensuring taxes are synced inline for both invoices and credit memos. It addresses various user personas and their specific needs in terms of tax synchronization and configuration. Here’s a detailed explanation of the key points:

Synchronize Inline Taxes with Default Tax Code

You can set up a default tax code to be used for all invoice and credit memo line items to consolidate the taxation line item. This feature can be enabled regardless of the tax engine in use within Zuora. For external tax engines like Avalara, where tax regions and rates are not set up within Zuora, the external tax engine handles tax calculations and provides the necessary tax amounts, rates, and related information, allowing this feature to still be utilized in such scenarios.

Sync Logic

To execute this synchronization, adhere to the following steps:

  1. Configure the default tax code in Zuora’s connector UI under the NetSuite Default Tax Code section.
  2. If a default tax code is specified, the connector will automatically assign it to each invoice or credit memo line item when processing invoices or credit memos from Zuora to NetSuite. The tax code in NetSuite will then apply the appropriate tax rate, sourcing the tax amount from Zuora’s invoice line item or credit memo line item.
  3. To activate the feature, go to the Zuora Connector UI and turn on the Sync Tax Amount with Line Items option.

Region-specific Tax Code setup for Zuora Tax Engine

The focus of integrating Zuora’s Tax Engine with NetSuite is to map tax codes by region and ensure accurate tax amount synchronization. This integration will enable the transmission of region-based tax codes to NetSuite.

To execute this, adhere to the following instructions.

  1. Setup in Zuora:
    1. To set up the Tax Code, go to Billing > Setup Tax Code in Zuora > Zuora Tax engine setup.
    2. Add the internal ID of the tax code for each region in the tax rate description field.
    3. Ensure that every tax rate setup has the appropriate internal ID for the region, as the sync process in the integration layer does not verify this.
    4. When multiple tax rates are in a single tax region in Zuora, the internal ID must be included in all levels of tax rate setup.
    5. Ensure all tax line items on an invoice match the tax codes and rates set up in Zuora and NetSuite when multiple tax line items exist.
    6. Choose to activate Sync Tax Amount with Line Items and Region-Based Tax Code from the Netsuite connector UI page. 
  2. Setup in NetSuite:
    1. Configure tax codes in NetSuite to align with Zuora’s tax rates by region.
    2. To account for multiple tax rates within a single tax region, the tax code in NetSuite should reflect the combined total of these rates, including state and county taxes.

Sync logic

  • When transmitting tax codes based on tax description, if the internal ID of the tax code is found in Zuora’s tax rate setup, send this tax code and its corresponding taxation amount to NetSuite without including tax rates in the payload.
  • If the internal ID of the tax code is not provided, check if a default tax code is set in the settings UI page. If the default tax code is available, use it; otherwise, an error message gets logged.
  • NetSuite ensures accurate tax information for US or Canadian subsidiaries by aggregating and displaying tax amounts at the invoice level rather than per line item. The total tax amount on the invoice will include the sum of taxes for each line item. NetSuite does not allow tax amounts to be displayed for individual line items on invoices and credit memos.
  • The connector uses the Tax Rate Description field to retrieve tax codes. For historical invoices or invoices generated before the tax rate description was populated, tax codes will not be available, as taxation items do not retroactively update historical invoices. This may also affect credit memos generated from historical invoices or prorated charges. It is recommended that this feature be thoroughly tested before being enabled in production.
  • Before enabling the feature, ensure that either your existing invoices are synced or historical data is excluded by setting cutover dates.

Integration with Multiple Tax Engines: Avalara and Zuora

Integrating Zuora with multiple tax engines involves handling scenarios where invoices may contain tax items generated from different tax engines, such as Avalara and Zuora. In such situations, the connector can handle region-based tax codes for Z-Tax engine-based invoices and utilize default tax codes for Avalara or other external tax engine-based invoices.

Netsuite configuration for inline taxation

  • Ensure proper integration in NetSuite by navigating to Advanced Taxes under Setup > Company > Enable Features.
  • Ensure correct configuration of subsidiaries, nexus, and tax codes in NetSuite for tax compliance.
  • To support the inline tax, ensure that PER LINE TAXES ON TRANSACTION is enabled in the US Nexus setup.
  • Invoices may contain tax items from multiple tax engines, determined by specific logic like region-based rules.