Sales tax lookup

Use the sales tax lookup in Xero to calculate and add tax automatically to invoices for your US-based customers.

Avalara, a third-party, provides the sales tax lookup service.

How it works

You'll need to turn on the lookup using one of the following ways

Use the lookup when you add a one-off invoice

Add the details to your invoice, then use the sales tax lookup - it calculates and adds the tax to the invoice, so you don't need to.

You can't use the sales tax lookup on repeating invoices.

How tax is calculated

Standard state tax rates are used

The sales tax lookup automatically calculates standard state tax rates based on:

  • The states where you've indicated your organization has a physical presence and is registered to collect sales tax
  • The physical address of the customer you're invoicing

If your customer isn't based in one of the states you've added in the Tax Rates screen, the sales tax rate will default to Tax Exempt (0%).

What is physical presence?

A physical presence can mean many things, including having an office, employee, or warehouse.

If you have a physical presence in a state (often referred to as sales tax nexus), then you must collect sales tax from customers in that state.

You must be registered with your state authority to collect sales tax.

What do standard state tax rates exclude?

Standard state tax rates exclude the following rates and settings:

  • Tax rates based on product or service type, including products or services that are free from tax, or have extra tax
  • Tax treatment of shipping and handling costs
  • Tax treatment of discounted products or services
  • Bracket systems, banded taxes, or capped taxes

Tax is recalculated

The sales tax lookup checks for new tax rates each time an invoice is approved or edited.