## Zoho Inventory Documentation Index

Access the complete documentation index at:
https://www.zoho.com/ca/inventory/llms.txt

Use this file to discover all available documentation pages before proceeding.

# Sales Tax Automation

Sales tax is a consumption tax collected from customers at the point of sale and remitted to federal or provincial agencies. In Canada, each province has its own tax structure and rates. The tax you collect depends on where your business operates, where your customers are located, the goods or services you sell, the provinces where you’re registered, and whether your customers qualify for exemptions (such as resellers, non-profit organizations, or government entities).

Sales tax varies across provinces, with different types such as GST, PST, and HST. Some goods and services are taxable, while others are exempt or zero-rated. To simplify this, you can use Sales Tax Automation, which determines and applies the appropriate tax for your transactions.

When you enable Sales Tax Automation in Zoho Inventory and provide the required details, the system automatically calculates the correct tax and identifies valid exemptions, helping you stay compliant with ease.

**Note:** If you already have an Avalara account, you can integrate it with Zoho Inventory and use it for automated tax calculations. Learn more about [Avalara AvaTax Integration](https://www.zoho.com/ca/inventory/help/integrations/avalara-integration.html). 

## How Sales Tax Automation Works

Zoho Inventory calculates the right sales tax for each transaction based on:

*   Where your business operates and where it is registered for tax and liable to collect sales tax.
*   Your customers’ billing or shipping addresses.
*   The tax category of the goods or services you sell.
*   Any applicable customer exemptions, such as resellers, non-profit organizations, or government entities.

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## Choose the Right Sales Tax Approach

Choose how you want to handle sales tax for your transactions in Zoho Inventory. You can automate it or do it manually, based on your business requirements. To do this:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.

On the Taxes page, you can either [set up Sales Tax Automation](#set-up-sales-tax-automation) or [calculate taxes manually](#calculate-tax-manually).

### Set Up Sales Tax Automation

If you want to automate tax calculation for every sale in Zoho Inventory instead of applying taxes manually, you can enable Sales Tax Automation. This works best if you sell across multiple provinces in Canada where tax rates vary, offer goods or services with different tax treatments, want tax rates to update automatically when regulations change, or work with tax-exempt customers such as resellers, nonprofit organizations, or government entities. To enable Sales Tax Automation in Zoho Inventory:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   Click **Set Up Sales Tax Automation**.

![Set Up Sales Tax Automation](/ca/inventory/help/images/settings/sales-tax-automation/setup-sales-tax-automation.png)

*   In the next page, under _Terms and Conditions,_ read the terms and check **I agree to the terms and consent to share the necessary data with Avalara for tax calculation**.
*   Click **Enable & Continue**. Sales Tax Automation will now be enabled in your Zoho Inventory organization.
*   Under _Verify Organization Address_, check your **Address**. Ensure the details are correct, as Zoho Inventory uses your business address to determine the right sales tax. You can edit the fields directly.
    *   Once done, click **Verify** to confirm and validate the address for accurate tax calculation.
    *   If your organization’s address is invalid, edit the address and verify it again.
    *   Once verified, click **Save & Continue**.

![Verify Organization Address](/ca/inventory/help/images/settings/sales-tax-automation/verify-organization-address.png)

*   If you edit the address, choose whether you want to update it for new transactions or for all transactions in the _Update Organization Address_ pop-up.
*   Under _Tax Agency Mapping_, map your Existing Tax Agencies to System-Recognized Tax Agencies. Each existing agency can be mapped to only one system-recognized agency. Once mapped, the existing tax agency will be updated and used for new transactions, while unmapped agencies will no longer be used after tax automation is enabled.
*   Once you have completed the mapping, click **Save & Continue**.

**Note:** Ensure you map the mandatory tax agencies, as they may have tax returns recorded. 

![Tax Agency Mapping](/ca/inventory/help/images/settings/sales-tax-automation/tax-agency-mapping.png)

*   Under _GST/HST Registration Details_, Zoho Inventory will prefill the **Jurisdiction (Tax/State)** and **Tax Registration Label**. Enter the following details:
    *   **Tax Registration Number:** This is your business’s official GST/HST registration number issued by the Canada Revenue Agency.
    *   **Tax Registration Date**: This is the date on which your business became registered to collect GST/HST with the Canada Revenue Agency.
*   Click **Save and Continue** to proceed with the tax automation setup.

![GST/HST Registration Details](/ca/inventory/help/images/settings/sales-tax-automation/gst-hst.png)

*   Under **QST/PST Registration Details**, Zoho Inventory will check whether your business requires a separate registration to collect QST (Quebec Sales Tax) or PST (Provincial Sales Tax) based on the province linked to your organization’s address. If your organization is registered to collect these provincial taxes, Zoho Inventory will prefill the **Jurisdiction (Tax/State)** and **Tax Registration Label**.
    *   **Tax Registration Number:** This is the registration number issued by the respective provincial tax authority for collecting QST or PST.
    *   **Tax Registration Date:** This is the date on which your business became registered to collect the provincial tax.
*   Once done, click **Complete Setup** to finish the tax automation setup.

![QST/PST Registration Details](/ca/inventory/help/images/settings/sales-tax-automation/qst-pst.png)

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## Configure Address Preferences

When Sales Tax Automation is enabled in Zoho Inventory, it calculates sales tax using the customer’s billing address by default. You can change this to use the shipping address instead. Here’s how:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   Navigate to **Tax Automation Settings** under the _Taxes_ pane.
*   In the _Tax Automation Settings_ page, click the **Edit** icon under _Address Preference._
*   In the _Address Preference_ pop-up, choose either **Use Billing Address** or **Use Shipping Address** based on your preference.
*   Click **Save**.

The address preference will now be applied automatically when calculating sales tax for all new transactions.  

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## Configure Fallback Tax Rates

You can configure fallback tax rates to ensure taxes are applied to transactions generated from recurring profiles when tax automation is unavailable, especially for provinces where you have tax registrations. To configure:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   Navigate to **Tax Automation Settings** in the _Taxes_ pane.
*   In the **Tax Automation Settings** page, click the **Gear** icon next to _Fallback Tax Rates_.
*   In the _Manage Fallback_ page, select the **Province** and **Tax Name** for which you want to create a fallback tax rate.
*   Click **\+ Add Fallback Rate** to add another province’s fallback rate.
*   To remove a fallback rate, click the **Delete** icon next to it.
*   Click **Save**.

![Fallback Tax Rates](/ca/inventory/help/images/settings/sales-tax-automation/manage-fallback.png)

Once configured, the fallback tax rates will be automatically applied to recurring transactions when tax automation is unavailable.

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## Configure Exemption Certificates

An exemption certificate is a document provided by a customer to show that they are not required to pay sales tax on certain purchases. Customers such as resellers, non-profit organizations, or government agencies may qualify for this exemption under tax regulations. You can configure exemption certificates for customers so that eligible transactions can apply tax exemption based on jurisdiction rules.

To configure exemption certificates for a customer:

*   Go to _Sales_ on the left sidebar and select **Customers**.
*   Select the customer for whom you want to configure the exemption certificate.
*   On the customer’s details page, click the _More_ icon and select **Exemption Certificates**.

![Exemption Certificates](/ca/inventory/help/images/settings/sales-tax-automation/exemption-certificate.png)

*   Click **Add New** in the top-right corner.

![Add New Exemption Certificate](/ca/inventory/help/images/settings/sales-tax-automation/add-new.png)

*   In the _Create Exemption Certificate_ page, fill in the following fields:
    *   **Exemption Category:** Defines the reason for the tax exemption.
    *   **Province:** Specifies where the exemption applies.
    *   **Tax Agency:** Identifies the agency responsible for the tax.
    *   **Tax Exemption:** The specific tax exemption applicable to this customer.
*   Enter the other necessary details and click **Save**.

![Create Exemption Certificate](/ca/inventory/help/images/settings/sales-tax-automation/create-exemption-certificate.png)

Once the certificate is saved, it will be validated and applied to transactions based on the jurisdiction rules.

**Note:** Tax may still be applied if the item’s Tax Category is not eligible for the exemption according to the jurisdiction rules. 

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## Automate Sales Tax Calculation

### Create Items

When you create an item, the **Tax Category** field lets you categorize goods and services that you sell. When you include an item in a transaction, the tax category associated with it determines the right sales tax based on your customer’s billing or shipping address and your tax registrations.

To add a tax category for an item:

*   Go to _Items_ on the left sidebar and select **Items**.
*   Click **\+ New** in the top right corner.
*   In the _New Item_ page, enter the required details.
*   Click the **Search** icon next to the _Tax Category_ field.

![Search Tax Category](/ca/inventory/help/images/settings/sales-tax-automation/create-search-item.png)

*   In the _Search Tax Category_ pop-up, search and select the appropriate tax category based on the item type.

![Select Tax Category](/ca/inventory/help/images/settings/sales-tax-automation/tax-category-popup.png)

*   Enter the other necessary details and click **Save**. The item will be created, along with the tax category.

### Record Transactions

When you create a sales transaction in Zoho Inventory, the sales tax is automatically calculated based on your business’s tax registration in the respective province, the customer’s billing or shipping address, and the tax category of the line items. Here’s how:

*   Go to _Sales_ on the left sidebar and select the transaction you want to create (for example, **Invoices**).
*   Click **\+ New** in the top right corner.
*   In the _New Invoice_ page, select the required customer. Their billing or shipping address will be displayed. If you haven’t verified the address while creating the customer, click **Verify Address**.
    *   If the address is invalid, click the **Edit** icon and update the billing address. Once done, **Verify Again**.
*   In the _Tax Mode_ field, select whether you want to automate tax calculation or handle it manually.
    *   In the _Item Table_, select the items to include in the transaction. If a line item already has a tax category and **Automated** is selected in the _Tax Mode_ field, the tax will be calculated automatically.
*   If the selected item does not have a tax category, add one. You can also update the tax category of the line item, if required.
*   Enter the other required details.
*   Click **Save and Send** or **Save as Draft** and send it to your customer later. The transaction will be created.

### View Tax Calculation Details

When you create a transaction, sales tax is automatically calculated based on your business’s tax registration, the customer’s billing or shipping address, the tax category of each item, and whether the item is taxable. This ensures accurate tax calculation on every transaction.

To view this information:

*   Go to _Sales_ on the left sidebar to create a transaction (for example, **Invoices**).
*   Click **\+ New** in the top right corner.
*   In the _New Invoice_ page, fill in the required details.
*   In the _Total_ section, click **Tax Calculation Details**.

In the right pane that appears, you can view how taxes are calculated for the respective transaction.

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## Manage Tax Registrations

### Add Tax Registration Details

Once sales tax is set up, taxes are applied automatically based on your active registrations. You can add any additional registrations as needed, and a tax agency will be created or an existing one will be used accordingly. To add tax registration details:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   In the _Taxes_ pane, click **Tax Registration**.
*   Click **\+ New Tax Registration** in the top right corner.
*   In the _New Tax Registration Settings_ pop-up, fill in the following fields:
    *   **Jurisdiction Tax/State**: This indicates the province where your business is registered to collect tax.
    *   **Tax Registration Label**: This is the label used to identify your provincial tax registration in Zoho Inventory.
    *   **Tax Registration Number**: This is the registration number issued by the respective provincial tax agency for collecting tax.
    *   **Tax Registration Date:** This is the date on which your business became registered to collect the provincial tax.
*   Click **Save**.

![Save Tax Registration](/ca/inventory/help/images/settings/sales-tax-automation/add-tax-registration-details.png)

The tax registration details will be recorded.

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### Deregister Taxes

If you no longer conduct business in a province, or if you’re no longer required to collect taxes there, and have deregistered taxes there, you can mark it as deregistered in Zoho Inventory. This prevents sales tax from being automatically calculated for your transactions in that province in Canada. Here’s how:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   In the _Taxes_ pane, click **Tax Registration**.
*   Hover over the required tax registration, click the dropdown icon next to it, and select **Edit**.
*   In the _Edit Tax Registration Settings_ page, click **Mark as Deregistered** in the top right corner. The tax will be marked as deregistered.

![Mark as Deregistered](/ca/inventory/help/images/settings/sales-tax-automation/deregister-tax.png)

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### Undo Tax Deregistration

If you resume your business in a province, or if you’re required to collect taxes there, you can undo the deregistration to ensure that sales tax is calculated correctly. To do this:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   In the _Taxes_ pane, click **Tax Registration**.
*   Hover over the required tax registration, click the dropdown icon next to it, and select **Edit**.
*   In the _Edit Tax Registration Settings_ page, click **Undo Deregistration** in the top right corner.

![Undo Deregistration](/ca/inventory/help/images/settings/sales-tax-automation/undo-deregistration.png)

The tax details will now be included in your transactions, and the sales tax will be calculated accordingly.

* * *

### Mark Tax Registrations as Inactive

If you want to temporarily prevent a specific tax registration from being applied to transactions, you can mark it as Inactive. Here’s how:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   Navigate to **Tax Registration** in the _Taxes_ pane.
*   In the _Tax Registrations_ page, hover over the required tax registration, click the dropdown icon next to it, and select **Mark As Inactive**.
*   In the confirmation pop-up, click **Mark As Inactive** again.

The tax registration will be marked as **Inactive**. To mark it as active again:

*   In the _Tax Registrations_ page, hover over the inactive tax registration, click the dropdown icon next to it, and select **Mark As Active**.
*   In the confirmation pop-up, click **Mark As Active** again.

The tax registration will be marked as **Active**.

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## Disable Sales Tax Automation

If you no longer want to use Sales Tax Automation, you can disable it and manage taxes manually. Next, create tax rates in the **Taxes** module and apply them to your transactions. Once disabled:

*   You can still view your existing tax registrations, but they will not apply to new transactions.
*   You must manually ensure that the correct taxes are applied to your transactions.
*   For recurring transactions recorded before switching, ensure that the correct sales tax is applied to any child invoices generated.

To disable Sales Tax Automation:

*   Go to **Settings**.
*   Select **Taxes** under _Taxes & Compliance_.
*   Navigate to **Tax Automation Settings** in the _Taxes_ pane.
*   Click **Disable** next to _Sales Tax Automation_.

![Disable Sales Tax Automation](/ca/inventory/help/images/settings/sales-tax-automation/disable.png)

*   In the confirmation pop-up, click **Disable**.

Sales Tax Automation will now be disabled in your Zoho Inventory organization.

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## Limitations

Sales Tax Automation handles most common tax scenarios automatically, but there are certain cases it does not support. Understanding these limitations helps you identify when to apply taxes manually.

*   **Partial exemption:** Sales Tax Automation applies tax at the line-item level, treating each item as either fully taxable or fully exempt. It does not support partial taxation within a single line item. For example, under the Massachusetts clothing sales tax rule, if an item costs more than $175, sales tax applies only to the amount above $175, not the full price.
*   **Exemptions based on business type:** Exemptions are not applied based on the customer’s business type. You should review exempt transactions manually before saving them to ensure the correct exemption is applied. For example, when a textile manufacturer purchases cotton, it may be exempt since it is used to produce goods for resale. However, if the same manufacturer purchases CCTV equipment for its own use, the transaction is taxable, as the goods are consumed directly and not resold.
*   **Multi-country registrations in a single organization:** Each Zoho Inventory organization is configured for a single country. If your business collects taxes in more than one country (for example, in both the United States and Canada), you cannot manage tax registrations for both countries within the same Zoho Inventory organization.
*   **Slab-based tax rates:** Some jurisdictions apply different tax rates to different portions of the taxable amount. For example, the Tennessee Single Article Tax applies a standard rate to the first 1,600 of a single article’s price, a reduced rate to the next portion up to 3,200, and no tax beyond that. Sales Tax Automation calculates tax at a single rate per line item and cannot break a taxable amount into slabs to apply multiple rates.

* * *

## Calculate Tax Manually

If you know which tax applies to every sales transaction, you can choose to apply taxes manually. To do this, you need to add the required tax rates in the **Taxes** module, and then apply them to your transactions. This works best when:

*   You sell limited goods or services in a few provinces in Canada where the tax rate is the same.
*   You rarely handle tax-exempt customers.
*   You prefer to update tax rates yourself whenever the laws or regulations change.

If you choose to manage taxes yourself, click **Manage Taxes Manually** at the bottom of the _Taxes_ page.

![Calculate Tax Manually](/ca/inventory/help/images/settings/sales-tax-automation/manage-taxes-manually.png)