## Documentation Index

Access the complete documentation index at:
https://www.zoho.com/us/books/help/llms.txt

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

# Taxes

Zoho Books 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](/us/books/help/integrations/avalara-integration.html#content).

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## Tax Rates

You can create tax rates or tax groups and assign them to customers and vendors in your organization. Once assigned, the tax rate you set for the customer or vendor 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 _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, vendor, or item in your organization, and it will be automatically applied to transactions you create for that customer or vendor.

### Create a New Tax Group

You can create a tax group in Zoho Books by combining two or more tax rates. This allows you to associate the group with customers or vendors 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_ pop-up, 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 and vendors who are eligible for multiple tax rates based on factors like their location or the type of transactions they engage in. These customers and vendors will automatically receive the applicable combined tax rates from the group.

### Associate Taxes with Customers and Vendors

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

*   Go to _Sales_ or _Purchases_ on the left sidebar, and select **Customers** or **Vendors**.
*   Click **\+ New** in the top right corner.
*   In the _New Customer_ or _New Vendor_ 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 or vendor, it will automatically populate in any transaction you create for them.

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## 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 Books.

### Import Taxes

If you already have taxes set up for your business, you can import them directly into Zoho Books 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 Books, 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 Books 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_ pop-up, 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 Books. 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 Books. 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.

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## 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_ pop-up, 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.

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## 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 Books, 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_ pop-up, 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 Books.

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## 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 Books:

*   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 Purchase 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**.
*   Taxes from purchase transactions recorded as use tax will be tracked in the **Tax Paid Expense Account**.

To apply use tax to transactions:

*   Go to the transaction’s creation page.
*   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** below the _Due Date_.
*   In the _Items_ table when associating the tax, select the appropriate tax percentage from the drop-down.
*   Once you’ve added all the necessary details, click **Save**.

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

### Tax Override in Transactions

You can adjust the total tax amount in sales or purchase transactions in Zoho Books 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**.
*   Choose **Enable Tax Override for sales transactions** or **Enable Tax Override for purchase transactions** depending on which module you want to adjust.

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

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## 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.