United States Taxation System

Like in any taxation system, businesses are subject to taxes based on what they earn, buy, or own. In the United States, those taxes are levied on Federal and State levels, having respective authorities charging the taxes. This means the federal government cannot interfere with how a state implements its tax system.

Important Tax Facts

The leading sources of different types of tax:

• Federal tax revenue: Payroll and Corporate Income taxes
• State revenue sources: Sales and Income Taxes

Regarding Sales Tax, an important concept companies have to keep in mind is Nexus, which is a threshold that defines if you are subject to pay taxes in a specific state. Different states have different thresholds, and it can vary based on the number of transactions or their value.

Your Business, Tax and Odoo

With so many details and intricacies, the United States’ taxation system can be hard to follow while managing a business. Luckily, innovative solutions like Odoo can automate the whole process and reduce the necessity of human input. As a result, businesses can save both time and money which they can deploy in more critical areas of the company’s activity.

What is Odoo?

Easy Odoo Setup

Linking AvaTax to Odoo’s ERP system is simple and requires just a few steps to start automating tax calculations on your company’s everyday activities.

Having said that, it’s essential to properly set up this connection so every detail can follow the tax rules of a state or even another country where relevant.

Step 1: Accounting Settings

The first step is to access Odoo’s Accounting Settings and search by TaxCloud and AvaTax, as shown in the picture below. This section is where the AvaTax credentials will be inserted, integrating its functionalities with Odoo’s ERP system. Make sure your company code matches the one in Avalara too.

Step 2: Confirm Contact Details

Also, confirm that your company and your customers’ addresses are correct so every transaction can be rightfully managed by AvaTax. This is vital because the state where you are selling from and to determines what can be taxed, as well as tax rates.

Step 3: Set Categories

A relevant and helpful characteristic is how products can be taxed according to the category they are in (to manage Product Categories go to Accounting Configuration in Odoo).

Different categories have different tax rates, and some can even be exempt from sales tax. Therefore, setting this up correctly can save a lot of time in calculating the taxes applied to every sale your company makes.

Remember, even if all the products your company sells belong to the same category, shipping always has a different category.

As you can see below, Avalara provides Odoo’s users with a list of categories they can allocate to their products, making it easier to manage.

Step 4: Fiscal Positions

When using AvaTax or TaxCloud, Odoo automatically creates a fiscal position for each system. A fiscal position allows the user to configure rules to automatically adapt the taxes and accounts used for a transaction according to the customer’s or provider’s localization and business types.

Just like product categories, you can check the fiscal positions tab under the Accounting Configuration menu on Odoo. You’ll be able to:

• Check which ones have already been created
• See which ones are being applied
• Create new ones manually if the need arises

Step 5: Tax Exemptions

To correctly apply taxes according to the transaction details, there are fields under the Contacts section of Odoo where you can specify if the customer or vendor is exempt from sales tax. Here you can choose from a set of options regarding the nature of your client’s business.

AvaTax and Odoo in Action

After all these configurations, AvaTax should be ready to use when registering transactions in Odoo. Whenever you’re creating a new quotation, the option to compute taxes with AvaTax should appear at the bottom of the screen. If the details regarding the customer and the product are set up correctly, AvaTax will calculate the sales tax rate and provide the information to finish the transaction.

Note:

• You don’t need to manually choose to compute taxes, as this is automatically done the moment you confirm the quotation you are creating.
• The features also apply to invoices, where the option to compute taxes with AvaTax is shown on the upper part of the screen instead, but with the same functionality.

So, as you can see, AvaTax is simple to set up in Odoo and, if done correctly, can save your company a lot of time which will be better spent in more demanding areas of your business.

View Odoo Case Study: Real Time Accounting

Choose Odoo for the Benefit of Your Business

If you choose to implement Odoo, it allows you to run your company as you prefer to, while also making it easier to plan ahead and avoid unnecessary burdens that can compromise the good management of your business.

Let’s talk about how we can help you change the way you manage your company for the better.

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