This article explains the reason why the 'Auto Look Up' function that Xero offers doesn’t work with A2X, and in that context, is not a viable tax rate.
Sales Tax is complicated and it is great to have a way to ease this pain and automatically calculate it. As a Xero user, you have the option to do that with their 'Auto Look Up' tax rate option, but is that the best way to automate using A2X?
When you are in the "Accounts and Taxes" section of A2X, it is tempting to choose Xero's 'Auto Look Up' option from the Tax Rate drop-down, which should automatically calculate sales tax (see below).
Please read further to learn why it cannot really be used as a tax rate in A2X.
“Auto Look Up” tax rate function further explained
'Auto Look Up' function needs some basic information for it to work, and that information is not supplied in Amazon settlements fetched by A2X.
The screenshot below shows an explanation from Xero:
As stated in the bullet points above, 'Auto Look Up' function needs two addresses: the business owner’s and the customer’s in order to work. However, you will notice that your Amazon settlements in A2X do not contain address details in any of the transaction lines.
Therefore, there is no basis for 'Auto Look Up' function to calculate the sales tax, and thus it is not a viable tax rate to use in A2X.
What will Xero do if 'Auto Look Up' is set as a Tax Rate?
When the Sales Tax basis cannot be determined, Xero will change 'Auto Look Up' rate to a 'Tax Exempt' rate by default for any transactions.
If you actually need to calculate tax using Xero tax rates, such as businesses in the UK at a certain threshold of sales, using Auto look up is not the way to automate tax calculation.
To understand how you can apply correct tax rates in A2X, please check our other articles by going to Help > Support Centre in your A2X account or contact us through the chat.