Taxes

Zoho Billing makes it easy to manage taxes and stay compliant with the U.S. tax regulations. You can add tax authorities, set up sales and use taxes, manage tax exemptions and overrides, and create tax groups to handle federal, state, and local tax rules.

Enable Sales Tax

If you didn’t enable Sales Tax for your organization while setting it up, you can enable it from Settings. To enable sales tax:

Go to Settings.
Select Taxes under Taxes and Compliance.
Click ENABLE SALES TAX.

Note: If you have set up a Recurring Invoice profile or have connected your account to Stripe, you'll need to provide a default Exemption Reason and Tax Authority.

Insight: To simplify managing sales tax rates, consider integrating with Avalara. Refer to our help document to know more about Avalara Integration.

Tax Rates

You can create tax rates or tax groups and assign them to customers in your organization. Once assigned, the tax rate you set for the customer will automatically apply to the transaction when you select them.

Create a New Tax Rate

To create a new tax rate:

Go to Settings.
Select Taxes under Taxes and Compliance in the Organization Settings pane.
In the Taxes pane, click Tax Rates.
Click + New Tax in the top right corner.
In the New Tax page, fill in the following fields:
- Tax Name: Enter a name for the tax rate.
- Rate (%): Enter the tax percentage.
- Tax Authority: Enter the name of the tax authority.
Click Save.

Now, once you create the tax rate, you can associate it with a customer in your organization, and it will be automatically applied to transactions you create for that customer.

Create a New Tax Group

You can create a tax group in Zoho Billing by combining two or more tax rates. This allows you to associate the group with customers eligible for multiple taxes. For example, in the U.S., customers may be subject to federal, state, and local taxes when purchasing taxable goods or services. To create a new tax group:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Click the + New Tax dropdown in the top right corner and select New Tax Group.
In the New Tax Group popup, fill in the following fields:
- Tax Group Name: Enter a name for the tax group.
- Associate Taxes: Select the tax rates to be associated with the tax group.
Click Save.

Now, once you create a new tax group, you can assign it to customers who are eligible for multiple tax rates based on factors like their location or the type of transactions they engage in. These customers will automatically receive the applicable combined tax rates from the group.

Associate Taxes with Customers

Once you create tax rates or tax groups, you can associate them with a customer to use them in transactions. Here’s how:

Go to Customers.
Click + New in the top right corner.
In the New Customer page, fill in the necessary details, and hover over the field Tax Rate under Other Details.
Choose the tax rate or tax group from the dropdown.
Click Save.

Now that you’ve associated the tax rate with the customer, it will automatically populate in any transaction you create for them.

Other Actions in Tax Rates

Edit a Tax Rate

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Hover over the tax rate you want to edit, click the dropdown to the right, and select Edit.
In the Edit Tax page, make the necessary changes.
Click Save.

Note: If the tax you're editing has already been applied to existing transactions, you will be asked to confirm whether you want to update the new tax rate in those transactions as well.

View the Associated Records of a Tax Rate

To view all the transactions associated with a tax rate:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Hover over the tax rate you want to view transactions for, click the dropdown to the right, and select View Associated Records.

Now, in the right pane that appears, you can view the transactions where you’ve applied the tax rates. You can select the transactions and navigate to the respective transaction module in Zoho Billing.

Import Taxes

If you already have taxes set up for your business, you can import them directly into Zoho Billing as tax rates or tax groups. Here’s how:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Click the More icon in the top right corner, and select Import Taxes or Import Tax Group from the dropdown.
In the page that follows, choose the file, modify the Character Encoding (it is set to UTF-8 by default) if necessary, and change the File Delimiter (set to Comma (,) by default) if necessary, based on your preference.
Click Next.
On the next page, for the fields Tax Type, Tax Authority Name, Value Added Tax, Tax Name, and Tax Percentage, choose between Tax Authority Name, Tax Name, or Tax Percentage to match the correct field.
Check Save these selections for use during future imports if you want to keep the mapped details for importing future taxes into Zoho Billing, and click Next.
On the next page, review the fields you’ve mapped in the file and click Import.

Now, once you import the taxes into Zoho Billing as tax rates or tax groups, you can associate them with your customers or vendors and apply them to transactions.

Pro Tip: You can download and use the sample file as a reference for the format, and if needed, fill it in the data you want to import.

Export Taxes

You can export the tax rates or tax groups used in your transactions. Here’s how:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Click the More icon in the top right corner, and choose Export Taxes or Export Tax Group from the dropdown.
In the Export Taxes or Export Tax Group popup, fill in the following fields:
- Module: This field will auto fill as Tax; if not, select Tax from the dropdown.
- Export Template: Choose an existing template or click + New Template to create a new one.
- Export File Format: Select the preferred file format for download: CSV, XLS, or XLSX.
- Include Sensitive Personally Identifiable Information (PII) while exporting: Check this option if you want to include PII details in your export file. Any personally identifiable details, such as phone numbers, addresses, and custom fields, will be included in the export file.
File Protection Password: Enter a password if you want to secure the export file.
Click Export.

Mark a Tax Rate as Inactive

Prerequisite: You cannot mark a tax rate as inactive if it has been associated with any transactions. To mark the tax rate as inactive, you must first disassociate it from all transactions.

To mark a tax rate as inactive:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Hover over the tax rate you want to mark as inactive, click the dropdown to the right, and select Mark as Inactive.

Now, the tax rate will be marked as inactive and can no longer be used in transactions.

Note: To mark the tax rate as active, follow the steps above and click **Mark as Active**.

Delete a Tax Rate

Prerequisite: You cannot delete a tax rate if it is linked to any transactions in Zoho Billing. To delete it, you must first disassociate it from all transactions.

To delete a tax rate:

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Hover over the tax rate you want to delete, click the dropdown to the right, and select Delete.
In the following popup, click OK to confirm.

Delete Tax Rates in Bulk

Prerequisite: You cannot delete tax rates if they are linked to any transactions in Zoho Billing. To delete these tax rates, you must first disassociate them from all transactions.

Go to Settings.
Select Taxes under Taxes and Compliance.
In the Taxes pane, click Tax Rates.
Select the tax rates you want to delete, and click Delete in the top left corner.
In the following popup, click OK to confirm.

Tax Exemptions

Tax exemptions apply when customers are not required to pay sales tax due to the nature of the item or their status, such as for resale, nonprofit organizations, or specific goods. These exemptions usually vary by state, and some counties or cities may have their own rules. To create a tax exemption:

Go to Settings.
Select Taxes under Taxes & Compliance.
In the Taxes pane, select Tax Exemptions.
Click + New Tax Exemption in the top right corner.
In the New Tax Exemption popup, fill in the following fields:
- Exemption Reason: Enter the reason for the tax exemption.
- Description: Provide a description of the exemption.
- Type: Choose whether the exemption applies to a Customer or an Item.
Click Save.

Now that you’ve created the tax exemption, you can associate it with a customer or apply it to transactions for items.

Tax Authority

A tax authority is a government agency that enforces tax laws and collects taxes from people and businesses in its area. In Zoho Billing, associating a tax authority with a specific tax rate helps you track and apply the correct taxes while creating transactions for customers and vendors. To create a new tax authority:

Go to Settings.
Select Taxes under Taxes & Compliance.
In the Taxes pane, click Tax Authorities.
Click + New Tax Authority in the top right corner.
In the New Tax Authority popup, fill in the following fields:
- Tax Authority: Enter a name of the tax authority.
- State: Select the state where the tax authority is located.
- Description: Add a description if needed.
Click Save.

Now, after creating the tax authority, you can add it to a new tax rate when setting it up in Zoho Billing.

Tax Settings

This page lets you enable use tax and set up tax overrides for transactions. You can easily modify these settings here.

Use Tax

Use tax is a tax on goods purchased outside of your state but used within it. If you buy items from out-of-state sellers who don’t charge sales tax, you’re responsible for paying use tax directly to your state. This ensures that purchases made online or in other states are taxed similarly to local purchases, helping protect state revenue. The tax rate is usually the same as the sales tax rate in your state.

Scenario: Alex lives in Texas, where the sales tax rate is 8%. He buys a $400 bicycle from a shop in another state while on a trip. Since the store doesn't charge Texas sales tax, Alex must pay $32 in use tax when he brings the bike back to Texas. This makes the total cost $432, the same as if he had bought it locally with sales tax.

Enable Use Tax

To enable Use Tax in Zoho Billing:

Go to Settings.
Select Taxes under Taxes & Compliance.
In the Taxes pane, click Tax Settings.
Check the option Enable Use Tax in Purchase transactions under Use Tax.

Now, with this option enabled, you can track and apply use tax in purchase transactions.

Apply Use Tax to Transactions

Insights:

Once use tax is enabled, all transactions with use tax will appear in the Use Tax column of the Sales Tax Liability Report.

To apply use tax to transactions:

Go to Expenses.
Click + New in the top-right corner to create a new transaction.
Enter the transaction details, and check This transaction is applicable for Use Tax.
In the Items table when associating the tax, select the appropriate tax percentage from the dropdown.
Once you’ve added all the necessary details, click Save.

Now, the use tax will be applied to the selected transaction.

Tax Override in Transactions

You can adjust the total tax amount in sales transactions in Zoho Billing by enabling the tax override option. This feature allows you to edit and override the system-generated tax amount based on the specific county and state, as tax rates may vary. Here’s how:

Go to Settings.
Select Taxes under Taxes & Compliance.
In the Taxes pane, click Tax Settings.
Mark Enable Tax Override for sales transactions.

Now that you’ve enabled tax override for sales transactions, you can modify the taxes at the transaction level.

Disable Sales Tax

Prerequisite: Sales tax should not be associated with any existing transaction.

To disable sales tax:

Go to Settings.
Select Taxes under Taxes and Compliance.
Click Disable Sales Tax at the top of the page.
In the popup that follows, click Yes to confirm.

Now, sales tax will be disabled for your organization.

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