No tax charged on shipping even though Avalara says otherwise

[DenizT]

We use Avalara Avatax for tax calculations. 39 US states are set up, and freight (shipping) is also taxed. However, some Shopify orders do NOT include the tax on shipping, and come up short  on the tax amount. When I contacted Shopify support, they pointed fingers at Avalara. Avalara's help page links right back to Shopify. 

However, Avalara calculates the tax correctly with shipping included. Since I did not write the actual integration there is now way for me to see why Shopify is not getting the shipping portion of the tax.

Example: 

Order subtotal: $12.50

Shipping: $7.00

Tax in Avalara: $1.72 (CORRRECT - tax rate applied to $19.50)

Tax in Shopify: $1.10 (INCORRECT - tax rate only applied to $12.50)

To avoid issues, our finance department have to manually enter a line item in AvaTax "Tax Discrepancy"  (in this example -$0.62) to balance the transaction.

In Shopify, apply tax to shipping setting is turned on. 

How can we fix this?

[Emilie_Jalie]

In tax settings, there is an option to charge tax on shipping rates.

That being said, I noticed that Shopify calculates taxes on products and rounds it up, then, taxes are calculated on shipping and rounded up.

The proper way to calculate would be to calculate taxes on the total (products+shipping) OR not to round up for each calculation.

The current result is that pretty much all tax calculations are off by a few cents. Not the end of the world, but annoying for accountants dealing with the paperwork at the end of the month! I contacted Shopify about this issue and hope they will fix the behavior.

[kgarvey]

It is incredibly annoying, and so frustrating that Shopify locks AvaTax integration behind the $2,000+ per month Plus tier. Plenty of small businesses use AvaTax to calculate taxes! We have to deal with similar small discrepancies between Shopify and our ERP system. There doesn't really seem to be an actual fix aside from switching to a car that allows AvaTax integration (seemingly every other cart out there).

Edited to add: it's also really irritating that, in my experience, Shopify indeed acts like Avalara is the problem/wrong. I can tell you which of these two companies I put my trust in when it comes to calculating sales tax...

[rgerick44]

We ran into the same issue and was able to get the support albeit it took us going directly to Avalara which was a nightmare. The solution is to remove FR0000000 from your tax codes and the freight will be taxed.

[Argh]

Hi. This is still an issue. Why am I not surprised. Can you give me more details on how to do this? I keep getting the run around from Avalara. Their support ticket system doesn't even let you reply to them with follow-up questions.

[Lawson_Thalmann]

I actually have the opposite issue. In Illinois, we should NOT be charging taxes on shipping, but when we onboarded to Avalara, it started charging taxes on shipping. How did you guys get Avalara to NOT charge taxes? I'd like the same setup as you. I agree though Avalara's support is almost non-existent and their help articles are outdated referencing fields and settings in Shopify that no longer exist. 

[Argh]

No one can tell us!!! Not Shopify. Not Avalara. We also have a 3rd party shipping app in the mix. They're saying the app doesn't do anything with the tax. Everyone is saying "not it". Lots of point back and forth. There's a report on Avalara that will show you the tax code that the product and freight is using. Maybe yours is coming across as different freight codes. There's an Avalara report Reconcile Document Line Detail that will show you the codes. Was a dead end for us.

[Lawson_Thalmann]

There's something seriously wrong with my Avalara account. I ran the AvaTax in Shopify for hundreds of orders, but no transactions are actually appearing in my account. I tried the Reconcile Document Line Detail report and "No records were found". It doesn't make any sense. Their support is laughably bad. They basically said "you'll want to do a test to make sure it works" but when you do a test, there's nowhere to add a shipping line. 

[Argh]

Another thought for your situation. Did you try your Shopify tax override? https://help.shopify.com/en/manual/taxes/tax-overrides#override-the-taxes-on-a-collection-or-on-ship.... Set your shipping override to 0% for Illinois.

[Lawson_Thalmann]

I have used overrides in general, but this would mean using Shopify for all the tax calculations in lieu of Avalara, right?

[Argh]

There's also shipping tax settings in Settings > Taxes and duties > Regional settings > Illinois > Edit sales tax information > Show advanced options. Not all the states show this advanced option.