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Using Tax Exemptions - How To

Mitchell Paul-Soumis Updated by Mitchell Paul-Soumis

Read Time: 2 mins

Deploying taxation in Sonar can take many forms. Whether you're charging taxes on a service-by service basis, or leveraging tax automation, managing how taxes are collected and remitted is an essential part of operating your business. When dealing with one of the many edge cases where your customers should not be taxed, using the Tax Exemption system built in to Sonar makes it a breeze.

Tax Exemptions are simple, and do precisely what their name describes. When added to an account, the exemption allows you to specify a tax that won't be applied to the customer's billable services.

Using Tax Exemptions requires an active Avalara integration in your Sonar instance. For manual taxation, use Tax Overrides.

Where To Find Tax Exemptions

Tax exemptions exist almost entirely on accounts, as each exemption needs to be tied to an existing tax that is applied against a customer's service.

  1. Access the customer's account
  2. Click on the Billing tab
  3. Select the Taxes sub-tab
  4. All Tax Exemptions, alongside other tax details, are contained on this page

Adding a Tax Exemption

An exemption can be added on an individual account and tax basis.

  1. From the Taxes sub-tab, scroll to the Tax Exemptions section and click the "Create" button.
  2. In the Tax Exemption modal, you'll need to:
    1. Provide a name for the exemption
    2. Select the Jurisdiction(s) this exemption will apply to. This allows you to exempt the account from applicable Geo Taxes.
    3. Select the Categories for this exemption. Exemption Categories are provided by Avalara, and are not configurable.

Using Tax Exemptions

Tax Exemptions are used when an individual or an organization should not be paying taxes. This can be for many reasons, whether a status exemption, charity exemption, or a government exemption. Exemptions generally reflect some legal reason for the application, and, in most cases, these exempt accounts will have some document to support their exemption status.

Holding on to and recording these exemption documents is important, as they will need to be remitted to your country and state's tax authority when filing your annual taxes.

Tax Exemptions versus Tax Overrides

On the surface, both Tax Exemptions and Tax Overrides occupy a similar function in Sonar. While they can both be used to effectively remove the taxation from a service or an account, their usage is different.

Tax Exemptions draw much of their data from Avalara, and as a result can only be used when an Avalara integration is active in your instance. Meanwhile, Tax Overrides are used when manual taxation is being leveraged in your Sonar instance, and is used to modify the tax rate for a given geo tax applied to the customer's account. Tax Exemptions and Tax Overrides exist independently of one another, and cannot conflict – Avalara-enabled instances will always use Tax Exemptions when added, and manual taxation can only use Tax Overrides.

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