Tax Compliance — AvaTax (US)

What is this page about: How Light works with Avalara's AvaTax to calculate US sales tax: what Light sends and when, how tax codes reach your invoice lines, how exemptions and returns are handled, and which parts of compliance stay in your Avalara account. Read it if you sell into US jurisdictions.

On this page

• Understanding US sales tax
• Setting up AvaTax integration
• AvaTax transaction processing
• Configuring AvaTax entity mapping
• Tax codes and item types
• Customer exemption certificates
• Shipping and delivery
• Returns, refunds, and credit notes
• Filing and remittance
• Nexus management
• Multi-entity AvaTax configuration
• Audit trail and compliance
• Troubleshooting AvaTax errors
• Related articles

Sales tax in the United States runs across more than 10,000 taxing jurisdictions, covering states, counties and cities, each with its own rates, rules and requirements. AvaTax is Avalara's automated tax determination service, and Light integrates with it to calculate and report US transaction tax.

# Understanding US sales tax

US sales tax is a consumption tax applied at the point of sale. Key characteristics:

• Origin vs. Destination: Most states use destination-based sales tax (tax rate of buyer's location)
• Multiple jurisdictions: Federal, state, county, city taxes combine
• Variable rates: Sales tax ranges from 0% (some states) to 10%+ depending on location
• Nexus requirements: You must collect/remit sales tax in states where you have economic nexus
• Exemptions: Resellers, certain industries, and specific items are exempt from sales tax

AvaTax determines the correct tax treatment across those jurisdictions, which is impractical to maintain by hand.

Good to know: Economic nexus means you must collect sales tax in any state where you have significant sales, even without a physical presence.

# Setting up AvaTax integration

Light's team sets up AvaTax for your company:

1. Contact your Light representative or support to enable AvaTax
2. Tell Light which of your entities should calculate tax with AvaTax
3. Light configures your Avalara credentials on Light's side and maps each entity to its Avalara company code
4. Light activates the mapping once the entity is ready to calculate tax
5. Configure your nexus (the states and jurisdictions where you must collect tax) in your Avalara account

Everything on the Avalara connection stays with Light, so the only thing to decide up front is which entities to enable. Light maintains the integration and validates AvaTax connectivity.

Once an entity is activated for AvaTax, invoices for US-based customers of that entity automatically use the AvaTax tax engine (instead of Light's built-in tax engine).

# AvaTax transaction processing

When you create an AR (accounts receivable) invoice with AvaTax enabled:

1. Light sends transaction details to AvaTax:

   • Customer location (the customer's shipping address, or billing address if no shipping address is set)
   • Item description and type
   • Gross amount
   • Line item details

2. AvaTax determines applicable tax:

   • Looks up jurisdiction for customer location
   • Applies tax rates for that jurisdiction
   • Accounts for any exemptions

3. AvaTax returns the calculated tax

4. Light displays the tax on the invoice and posts to the ledger

Light runs this on every AvaTax invoice automatically.

Good to know: While an invoice is in draft, Light requests a tax preview from AvaTax without creating a permanent record. When the invoice is posted, Light creates and commits the transaction in AvaTax under the invoice's document number. If a posted invoice is archived, Light voids the corresponding AvaTax transaction.

# Configuring AvaTax entity mapping

AvaTax requires each Light entity to be mapped to an AvaTax company profile:

1. Light creates the mapping between your entity and the corresponding AvaTax company code during setup
2. Light activates the mapping when the entity is ready to calculate tax with AvaTax
3. To add or change a mapping, contact Light support

Light then uses the correct AvaTax profile when calculating tax for transactions of that entity.

# Tax codes and item types

AvaTax classifies transaction items using Avalara tax codes. Set them on your products in Light:

1. Navigate to Products
2. For each product, set Default tax code. To use an Avalara code, open the Enter Avatax Code dialog and enter it there
3. When you add that product to a line on a document that uses the AvaTax tax engine, Light applies the product's tax code to the line

On AvaTax-engine documents, each line displays its Avalara code as a read-only badge, so the code always follows the product. To change the code on a line, update the product's Default tax code and add the product again.

A document that uses the AvaTax tax engine carries Avalara codes on its lines, and Light's own tax codes apply to documents that use the Light tax engine.

Tip: Different states have different tax treatments for services and digital products. AvaTax handles these state-specific rules automatically.

# Customer exemption certificates

Resellers and non-profit organisations often hold tax exemption certificates. If a customer claims exemption:

1. Obtain their exemption certificate
2. Record the exemption against the customer in your Avalara account (Avalara manages exemption certificates)
3. Light sends the customer's code to AvaTax with every transaction, alongside the usual transaction details
4. AvaTax matches that customer code against the certificate on file and applies the exemption to future transactions with this customer

Exemption certificates are stored in your Avalara account for audit purposes.

# Shipping and delivery

AvaTax considers ship-to address when calculating tax (destination-based sales tax). In Light:

1. Set the customer's Shipping address on the customer record (if no shipping address is set, the billing address is used)
2. Light sends this address to AvaTax as the ship-to location
3. AvaTax calculates tax for that location
4. If shipping costs are invoiced, AvaTax determines if shipping is taxable (varies by state and destination)

Ensure accurate customer addresses to get correct tax calculations.

# Returns, refunds, and credit notes

When you issue a customer credit for returned goods or services:

1. Create a customer credit in Light
2. Reference the original invoice
3. Light automatically treats the document as a return
4. When the customer credit is posted, Light sends it to AvaTax as a return transaction
5. AvaTax records the reversal, reducing your tax liability by the returned amount

This maintains accurate tax accounting and prepares accurate tax return reporting.

# Filing and remittance

Filing and remittance are handled in your Avalara account, using the transactions Light commits to AvaTax:

1. When invoices are posted in Light, the transactions are committed in AvaTax
2. In your Avalara account, AvaTax calculates total tax owed in each jurisdiction
3. Use Avalara's returns services (such as AvaTax Managed Returns) to prepare and file the returns
4. Avalara can also remit tax directly to jurisdictions

Light's role is to keep AvaTax supplied with accurate, committed transactions, and Avalara handles the preparation and filing itself.

Good to know: Different states have different filing frequencies (monthly, quarterly, annually). AvaTax manages these different schedules and reminds you when each return is due.

# Nexus management

As your business grows, you may establish nexus in new jurisdictions (which requires collecting/remitting sales tax):

1. Register the new jurisdiction in your Avalara account (nexus is managed in AvaTax, not in Light)
2. AvaTax automatically applies that state's tax rates to customers in that state
3. AvaTax includes that jurisdiction in future tax filings and remittances

If you establish nexus in a new state, activate it immediately to ensure accurate tax collection going forward.

# Multi-entity AvaTax configuration

For companies with multiple entities (subsidiaries, branches):

1. Create separate AvaTax company profiles for each entity
2. Light maps each of your entities to its AvaTax profile
3. Light calculates tax using the correct profile for each transaction
4. Each entity can have different nexus and exemptions

This is useful when subsidiaries operate in different states or have different tax characteristics.

# Audit trail and compliance

Light and AvaTax maintain complete audit trails:

• All transactions and tax calculations
• Tax returns filed with each jurisdiction
• Payments remitted
• Exemption certificates (stored in your Avalara account)
• Communications with Avalara

For Light-side records, export the relevant reports individually as CSV:

1. Navigate to Planning & Reports → Reports
2. Select period and jurisdictions
3. Open the report you need and use its Export action to download it as CSV

Combine the individual CSV exports as needed for your auditor. Filing records and remittance details live in your Avalara account. Together these support audit procedures and provide evidence of tax compliance.

# Troubleshooting AvaTax errors

Tax calculation failed: Verify a customer and currency are set on the invoice, and that the customer's shipping or billing address is complete and accurate. Incomplete addresses prevent accurate tax calculation.

Missing tax code: Check that the products on the invoice have a Default tax code set with their Avalara code.

Exemption not applied: Verify the exemption is recorded in your Avalara account for the customer, and that the certificate is still in date. AvaTax applies current certificates only.

Wrong tax rate: AvaTax uses shipping address to determine tax. Verify the ship-to address is correct.

Good to know: Test AvaTax connectivity by creating an invoice with AvaTax enabled. Light immediately sends the transaction to AvaTax and displays the calculated tax.

# Related articles

• Tax compliance — HMRC (UK) and VAT
• Audit-ready record keeping
• AvaTax integration (US)