Introduction
Sourcing refers to the process of determining which jurisdiction's tax rates and rules apply to a specific transaction. There are two types of sourcing:
- Destination-based sourcing — Looks to where the customer receives the product or service and applies the tax rate of that jurisdiction, requiring sellers to collect and remit tax based on their customers' locations.
- Origin-based sourcing — Sales tax is collected based in whole or in part on the seller's location, meaning the tax rate of the jurisdiction where the business is physically located applies to all sales made by that business. The origin of the sale could be the ship from address of a product, or the location where the sale was consummated. Origin sourcing only applies to intra-state transactions.
Most states use destination-based sourcing, meaning that the shipping address or billing address of the customer determines the tax rate for the transaction. Consistent with state laws, the default hierarchy in Anrok for destination sourcing is shipping address → billing address → payment method metadata.
Origin sourcing may apply when you have a business location in a state with origin sourcing rules. The states with origin sourcing rules are: Arizona, California, Illinois, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Utah, and Virginia.
How origin sourcing works
Origin sourcing only applies when you have a business location in a state with origin sourcing rules, and you make a sale to a customer in that same state. In this case, the tax rate will be determined by the location of your business, rather than the destination location of the customer.
For example, if your business is based in Utah and you make a sale to a customer in Utah, the tax rate applicable to your business location will apply to the transaction. If you make a sale to a customer in California from your business location in Utah, the tax rate will be based on the customer's address in California, as origin sourcing only applies to intrastate transactions.
Anrok's use of origin sourcing rules
Anrok utilizes cascading address logic to accurately apply origin sourcing rules to your sales, in which it looks at:
-
Ship-from address — This is an input on your invoices
through
your billing system. If this address is populated, it will be used to
apply
applicable origin sourcing rules if the address is located in an origin
state.
- Physical goods — The warehouse address from which a good was shipped is commonly used as the default ship-from address. If you sell through a distributor or drop ship and the ship-from address is not available or known, origin sourcing will use the location from which the sale was made, usually a company's headquarters address.
- Services, software, and other digital or cloud products — The HQ address is commonly used as the default ship-from address.
For example, if your ship-from address is in Ohio, and you make a sale to an Ohio customer, the ship-from address will be the origin location, and the rate for that location will be applied to the transaction.
Note
Anrok currently only supports ship-from logic on QuickBooks, Stripe, and NetSuite integrations.
- Business address — The business address you input into your Anrok Settings will be the fallback origin sourcing address used by Anrok if the ship-from address on your invoice is left blank or Anrok does not support the ship-from address on your integration.