Tax collection in bills

Payers can use the "Tax Collection" feature, which relies on tax codes, to keep track of whether they are being charged tax on bills and vendor credits. You can create tax codes in Tipalti and link the codes to payer entities so when an entityAn entity can be a subsidiary, division, business unit, brand, etc. of your organization. Entities can have similar or different AP processes and workflows. is added to a bill, the relevant codes are available to select on the bill.

Currently, tax codes can only be created as part of our ERP integrations or directly via the CreateOrUpdateTaxCode API function.

What are tax codes?

Tax codes refer to the type of tax codeA code for the type of tax applied to a bill line (e.g., VAT-UK) and its rate—e.g., VAT-UK (20%), VAT-Israel (17%). In Tipalti, you can assign these codes an "Active" or "Inactive" status. Only active tax codes will appear on bills (at both the bill and bill line level) for payer entities using tax codes. If the entity is not using tax codes, the codes will not appear on bills.

Tax code fields

• Tax code - The type of tax that was applied to the bill line and its rate—e.g., VAT-UK (20%)
• Tax amount - The tax amount for the bill line. If this field is completed on bills, then the tax code is mandatory. Otherwise, the tax code field can remain empty (indicating no tax was charged for the bill line).
• Total - The sum of the net amount and tax amount for the bill line. This field is read-only, as the value is calculated automatically based on the net amount and tax amount.

If you select a tax code on a bill, you do not need to enter a tax amount, as Tipalti will automatically calculate the tax amount based on the net amount and tax code.

Tax code fields display in the following places:

• "Bill details" screen
• "Invoice review" screen
• Invoice PDF
• Approval email
• Bills CSV
• Bill Details report
• bill_updated IPNAn Instant Payment Notification (IPN) is a messaging service that enables you to receive notifications from Tipalti. IPNs are triggered when defined events occur (e.g., updating payee details).
• CreateOrUpdateInvoices and GetPayeeInvoicesListDetails API functions

Tax code fields can be used in all bill flows except PO matchingThe process of matching goods and services from purchase orders to invoices (2-way matching), and receipts (3-way matching).

How to use tax codes in each bill flow

Invoice processing

For payer entities using tax codes

• If an invoice has a tax amount on it, that amount will be captured during AI Smart ScanAI Smart Scan is a tool that reads scanned invoice images or PDFs and extracts the details, which are used to populate the fields on a bill. and MSManaged Services. In addition, if the payer entity has only one tax code with the same tax rate as what is implied on the invoice (based on the net amount and tax amount), the tax code will appear automatically on the bill.
• After AIArtificial Intelligence Smart Scan/ MS, payers can add the tax code if it’s missing and verify that the captured tax amount is correct.

For payer entities not using tax codes

During AI Smart Scan/ MS:

• If the payer captures bill lines and the invoice has a tax amount, then that amount is shown as a separate bill line.
• If the payer does not capture bill lines and the invoice has a tax amount, then that amount is shown at the bottom of the bill, under the "Total net amount" field.

Self-billing and Tipalti bills

For payer entities using tax codes

If bills are created via CSV or API, payers can provide both the tax code and the tax amount for every bill line, or provide only the tax code and Tipalti will automatically calculate the tax amount.

Whether entities use tax codes or not, bills can still be created without any tax.

For payer entities not using tax codes

• A separate bill line needs to be created to account for the tax (if applicable).
• Self-billing flow - if a bill has tax on it, the tax code, tax amount and total of every bill line are shown automatically (in that order) on the invoice PDF. For these values to display, payers need to add three columns at the end of the bill lines table in their Invoice - Generated template (they can name the column headers as they wish).

What happens to existing bills if tax code settings change?

If an active tax code becomes inactive:

• The tax code remains on bills that are in a "Pending payment" status or later.
• The tax code is removed from bills in any other status. Bills that are pending approval are sent back to AP so that a new tax code can be assigned.

If the rate of an existing tax code is changed:

• The tax amount remains as is on bills that are in a "Pending payment" status or later.
• The tax amount on bills in a status earlier than "Pending payment" is updated accordingly based on the new tax rate.

If the name of an existing tax code is changed, the name is updated on all bills linked to the tax code. Bill status is not affected.

If you update an entity linked to a tax code so that the entity is no longer available for existing bills, the bills are treated the same as when tax codes become inactive.

Sync tax codes from the ERP

QuickBooks Online

QuickBooks Online payers in the UK, Australia, France and Canada can enable tax code sync on the Sync Settings page during QuickBooks Online setup. Tax codes sync from QuickBooks Online to Tipalti during the initial sync and on every subsequent sync.

Intacct

Intacct payers in the UK can sync tax codes (Tax Details) to Tipalti, and map Tax Solutions (an object in Intacct indicating the country to which the tax codes belong) to Tipalti entities.