Overview

Address details are crucial for calculating tax on your transactions, particularly when dealing with varying tax rates across different jurisdictions. When you’re just starting to collect sales tax, you might have some questions about the address information you need to calculate tax on a transaction.

We encourage you to provide as much address information as possible for each transaction. While we can calculate tax with less address information, providing more address details leads to more accurate tax calculations. Common address fields include street address, city, state/region, ZIP/postal code, and country code.

While basic address information enables tax calculations, additional details can often impact the tax determination. For instance, in the US, a 5-digit ZIP/postal code provides basic jurisdiction info, but a 9-digit ZIP+4 enables more precise tax calculations, especially in areas with special tax districts or local regulations. In Spain, a standard VAT rate applies, but the Canary Islands have different tax requirements. Some countries, such as India, have specific reporting requirements that benefit from detailed address information for compliance.

Having limited address information may affect the following:

• Tax calculation precision
• Compliance with jurisdictional reporting requirements
• Documentation for tax audits
• Tax reporting capabilities

We expect you to have more invalid addresses at the historical onboarding step of the journey. Finance leaders may not have previously understood that collecting addresses was necessary for compliance. Onboarding to Anrok typically occurs when users want to improve their data hygiene retrospectively and correct addresses in past transactions.

Tips for determining the appropriate address

If a portion of your records is missing address information, you’ll need to decide whether to attempt to correct the issue for these past transactions. You may choose to overlook them, determining that you’ll address the issue if you are audited and pay any assessments at that time. However, whether you can feel confident in that decision will likely depend on your risk tolerance and the extent to which your records lack information.

If you’d like to try a best-effort assessment of your tax obligations, here are some options for guessing what and where you owe for your unknown addresses: 

• Check that the country is indicated —  If you used a payment gateway, check to see if the system collected and stored the customer’s country name from their credit card charge.
• Check whether you have zip codes — If you used a payment gateway, verify if the system collected and stored the customer’s zip code from their credit card charge, which is often stored as “postal_code” on the charged object. 
• Take a business-specific pro-rata approach — conduct a best-effort estimate based on your sales distribution. Let’s assume $7M of your transactions have known addresses and $3M have unknown addresses, and let’s assume 50% of the known addresses are in New York, where you have nexus. You might then claim 50% of the $3M with unknown addresses as New York transactions. Since New York taxes software, you would take 50% of $3M and calculate the tax on the remaining $1.5M. You could take the statewide average rate or pick the aggregate sales tax rate of the most populated city in New York to calculate the tax rate.
• Take a generic statistical approach — Similar to the option above, this approach would involve distributing your unknown transactions across jurisdictions based on population density or contribution to GDP. Let's say you choose the GDP approach with the UK, where you have met the registration threshold. Since the UK accounts for 2.1% of global GDP, you would attribute 2.1% of your $3M of unknown address sales to the UK. 

FAQ

We understand you may have questions related to how Anrok uses address information to calculate tax. Many of these questions are common, so let's work through some of these commonly asked questions together: