Advanced Tax Automation with Tax Rules

Advanced Tax Automation in Zoho Books lets you create tax rules and define the tax rate in a transaction based on the contact or the item. When you create a tax rule and associate it with a contact or an item, the tax rate specified in that tax rule will be applied to all transactions that are created for them. Here are a few scenarios where tax rules will help you automate selecting taxes in a transaction:

Scenario: Roy owns a computer store and supplies computer parts and peripherals to an NGO at zero tax. Instead of selecting the tax rate every time he creates a transaction for them, Roy creates a tax rule for the contact in Zoho Books, which automatically applies zero tax to all the items in a transaction created for them.

Scenario: Oscar runs a SaaS company in Germany and sells his product worldwide. Instead of creating tax rules and associating them to all his customers living outside Germany or outside Europe, he can create a single tax rule with different tax rates for different countries and states and assign it to an item. Now, every time he creates a transaction for a customer and adds that item to it, Zoho Books automatically applies the tax rate specified based on the country or state of the customer.

Enable Advanced Tax Automation

To enable Advanced Tax Automation for your organization:

Go to Settings > Taxes > Tax Settings
Mark the checkbox Enable Advanced Tax Automation to manage location-specific tax rates and automate tax applied on transactions.

Click Save.

Once you enable this, you’ll be able to see a new section, Tax Automation under Taxes.

Create a New Tax Rule

Prerequisite: Before you create a tax rule, you need to add tax rates. Learn how to create a new tax rate.

Here’s how you can create a new tax rule:

Go to Settings > Taxes.
Click Tax Rules under Tax Automation.
Click + New Tax Rule on the top-right corner of the page.

Now, you can associate a tax rule to a contact or a product. Here’s how:

Create Tax Rules for a Contact

Tax rules that are assigned to specific customers or vendors are categorized as Contact based Tax Rules. When you create a transaction for the customer or vendor who has a tax rule assigned, the tax rate will be fetched automatically and applied.

In the tax rule creation page, fill in the following details.

Field	Description
Tax Rule Name	Enter a name for the tax rule.
Association Type	Select Contact based as the association type
Transaction Type	Select the transaction type as Sales for sales transactions and Purchases for purchase transactions.
Tax Rate (%)	Select the tax rate that should be associated with the tax rule.

Note: Tax rules created for sales transactions cannot be applied to purchase transactions and vice versa.

Click Save.

Create Tax Rules for a Product

Tax rules that are assigned to specific items are categorized as Product based Tax Rules. Using this, you can set the tax rates for different states in a country for sales transactions.

In the tax rule creation page, fill in the following details

Field	Description
Tax Rule Name	Enter a name for the tax rule.
Association Type	Select Product based as the association type
Transaction Type	Select the transaction type as Sales for sales transactions and Purchases for purchase transactions.
Tax Rate (%)	Select the tax rate that should be associated with the tax rule.

For tax rules in sales transactions, you can assign different taxes based on the country or different states in a country. Here’s how:

In the tax rule creation page, click +Add New Country

Field	Description
Country	Select the country you want using the drop-down menu.
State	Select the State/Province using the drop-down menu. You can add multiple states by clicking the Add New State
Tax Name	Select a tax rate for the state(s) you have added.

If the location of a contact matches with the state in the tax rules, the tax rate specified will be applied automatically.

Assign a Tax Rule to a Customer or a Vendor

You can assign tax rules to new contacts or existing contacts. Here’s how:

Assign a tax rule to new contacts:

Click the Customers or Vendors module under Sales or Purchases on the left sidebar.
Click + New on the top-right corner to create a new customer.
In the Other Details section, select the Tax Rule from the drop-down menu.
Click Save.

Assign a tax rule to existing contacts:

Click the Customers or Vendors module under Sales or Purchases on the left sidebar.
Select the contact and click Edit.
In the Other Details section, select the Tax Rule from the drop-down menu.
Click Save.

All transactions you create for these contacts will have the tax rate specified in the tax rule applied to them.

Assign Tax Rules to an Item.

You can assign tax rules to new items or existing items. Here’s how:

Assign a tax rule to new items:

Go to the Items module under Items on the left sidebar.
Click + New to create a new item.
In the item creation page, use the drop-down to assign a Sales Tax Rules under Sales Information and Purchase Tax Rules under Purchase Information.
Click Save.

Assign a tax rule to existing items

Go to the Items module under Items on the left sidebar.
Select the item you want and click the Pencil icon in the items details page.
Use the drop-down to assign a Sales Tax Rules under Sales Information and Purchase Tax Rules under Purchase Information.
Click Save.

All transactions in which you add these items will have the tax rate specified in the tax rule assigned to them.

Note: In a transaction, when both the contact and the items have tax rules associated with them, the tax rule associated with the contact will override the tax rules associated with the items.