How to set up US sales tax in Zoho Books

Before you start

• The states where you have sales tax nexus (physical presence or economic thresholds)
• Your sales tax permit numbers for each state
• Which items and services are taxable, and any exempt customers
• Whether you want automatic rates from Avalara or manual rates

Step 1: Turn on sales tax and add your nexus states

In Zoho Books, enable sales tax for your organisation, then add each state where you are registered to collect. Only collect where you have nexus and a permit; collecting without a permit causes problems of its own.

Step 2: Choose manual rates or Avalara

Small sellers in one or two states often set manual rates: state rate plus county, city and district rates combined in a tax group. Sellers in many states, or with many local rates, usually connect Avalara AvaTax so the rate is calculated from the ship-to address.

Step 3: Set up items and customers

Mark each item or service as taxable or non-taxable. For exempt customers such as resellers or nonprofits, record the exemption and keep the certificate on file. A wrong item or customer setting is the most common cause of wrong tax on invoices.

Step 4: Test before going live

• Raise a test invoice for an in-state customer, an out-of-state customer and an exempt customer
• Check the tax amount against your accountant's expectation
• Run the sales tax report and confirm it groups by state and jurisdiction correctly

Step 5: File and reconcile

Use the sales tax liability report to prepare each state's return, record the payment in Zoho Books, and reconcile the liability account monthly.

Common mistakes

• Collecting tax in states where you have no permit
• Forgetting local district rates
• Marking services taxable or non-taxable without checking the state rule
• Not storing exemption certificates

Frequently asked questions