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Product, Business Partner, and Freight Taxability with Avalara in SAP Business ByDesign

Business ByDesign has been integrated with external US taxation software, Avalara to determine the tax rates for all the transaction documents. The integration makes a synchronous call to Avalara’s web service for Avalara configured systems.

Taxes returned by these integrations are default ones. The system performs standard tax calculation, irrespective of the business partners involved in the transaction or the products used. The customers can get more accurate taxes for a transaction using the features of Product, Business Partner, and Freight taxability. For instance, there are certain products/product categories which attract reduced tax rates or business partners which are exempt from taxes or freights are not completely taxable in certain jurisdictions of the United States.

The integration of Business ByDesign with Avalara leads to more accurate tax determinations using the following: –

  1. Products Taxability,
  2. Business Partner Taxability, and Tax Exemptions,
  3. Taxability of Freights.

Product Taxability

The sale or purchase of goods and services that businesses do can be fully taxable, partially taxable or non-taxable depending upon the rules established by taxing jurisdictions, for a specific category of products. For instance, food products like salt, sugar may attract reduced tax rates or zero tax rates in some jurisdictions of the United States.

Solution Proposal

To achieve the product taxability, a customer is supposed to configure or map the “Product Ids” of products within the Avalara system (for e.g. if a product is a clothing product, the customer has to map that product as a clothing product within Avalara). When the ByDesign system passes a “Product Id” used within the transaction, to the third-party software, it (Avalara) takes into consideration the tax code to which the product is mapped within their system and accordingly determines the taxability of the product at any jurisdiction. The configurations are described below.

Avalara Configuration for Product Taxability

Before starting with the configurations, one should be aware of the Tax codes available in Avalara services and what exactly a tax code defines in their web service.

Avalara Tax codes are a set of predefined tax codes representing different products and services. These codes are associated with tax rules for the United States and mapping the products used within a transaction with these codes will help in determining the product-specific tax rules applicable in jurisdictions.

For example, Avalara Tax code PC040100 is used for General Clothing Product. When this tax code is mapped to an item and sent to Avatax, their built-in tax rule returns 0% for locations of Pennsylvania because general clothing products are non-taxable in the state.

The mapping is done in the Avalara’ Admin console as shown below :

Admin Console URL: https://admin-development.avalara.net/

Steps:

  1. Click on Organization tab and then click the “Items” subtab of already configured company “SAPBYD”.
  2. Products in ERP have to be mapped to tax codes within Avalara system as in the following screen (Items screen).
  3. Product Ids can also be uploaded with mapped tax codes to the system using the file upload tool.

Once the products used within the ByDesign system are mapped to the Avatax tax codes, Avalara will start evaluating the product-specific tax rates and rules as per the taxation rules of that jurisdiction. ByDesign will be sending the “Product Id” within the web service request to Avalara software, which will lead to more accurate taxes.

Business Partner Taxability

Transactions can be taxable or exempt based on customers involved. For instance, a transaction involving a Healthcare organization or an NGO can be considered as non-taxable.

Determining the taxability of a transaction based on the Customer/Business Partner involved is Business Partner taxability.

Solution Proposal

In order to achieve Business Partner taxability, SAP ByD will be sending the Customer code within the request call made to the Third party taxation software. ByD customers have to maintain certain configurations/taxability rules within the third party software, based on which Avalara will be evaluating the taxes.

Business Partner Configuration for Business Partner Taxability

Customer specific exemptions have to be maintained within the Avalara system.

Login to the Avalara admin console and follow the steps mentioned below:

Admin Console URL: https://admin-development.avalara.net/

Steps:

  1. Enable the Exemption Certificate Management System, a built-in service from Avalara.
  2. Click on Organization tab and then click the “Exemptions” subtab of already configured company “SAPBYD”.
  3. Maintain all Exemptions specific to the customer code.
  4. Exemption Certificates can also be uploaded in the system by using the File Import tool.

Once maintained, Avalara web service considers these exemptions for all the transactions involving the mentioned customer i.e. once the customers used within the ByDesign system are exempted in Avalara system, it will start considering the Customer specific tax rates as per the taxation rules of that jurisdiction. We will be sending the Customer Id within the web service request to Avalara software.

Freight Taxability

Not all sales involve taxable freights. Freights can be taxable, non-taxable or partially taxable depending upon the locations and other details of the sales, such as amount, quantity, etc. For example, Freights are always non-taxable in the state of California but taxable in the state of New York.

Solution Proposal

To achieve the taxability of freights, a customer is supposed to configure or map the item “Freight” within their Avalara system. This particular tag “Freight” signifies, that the details being sent with this tag intact to Avalara from ByDesign are the details of the freight involved in a transaction. This tag is to be mapped to a tax code within the Avalara system, which corresponds to the taxability rule that is to be taken into consideration by the external tax provider while determining the freight taxability.

Avalara Configuration for Freight Taxability

Before starting with the configurations, one should be aware of the Freight specific Tax codes available in Avalara services and what exactly a tax code defines in their web service.

Avalara freight relevant tax codes are a set of predefined tax codes representing different rules on which freights can be taxed. For example, Freights can be taxed according to the ship-to location of the sale or according to the ship-from location of the sale. Mapping the tag “Freight” with these codes will help in determining the freight-specific tax rules applicable in jurisdictions.

For example, Avalara Freight Tax code FR020100 is used for “Shipping Only common carrier – FOB destination”. When this tax code is mapped to the item tag “Freight” and sent to Avatax, their built-in tax rule returns 0 for freight in locations of California because freights are non-taxable in the state.

The mapping is done in the Avalara’ Admin console as shown below :

Admin Console URL: https://admin-development.avalara.net/

Steps:

  1. Click on Organization tab and then click the “Items” subtab of already configured company “SAPBYD”.
  2. An item has to be configured with item name “Freight” and mapped to the required tax code relevant to freights.
  3. Save the mapping.

Once this mapping is done, the system calculates taxes on freights in a transaction depending upon the rule the “Freight” item tag is mapped to. Currently, the freight taxability is only supported on sales side documents of the system and not on purchase side documents.

For more details, on recent enhancements made in the integration with external tax vendors, have a look at the Release Highlights video.

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