Taxing jurisdictions, Geo Codes, and location codes

An address usually belongs to several taxing jurisdictions: a country, a state or province, a county, a city, and a district jurisdiction. In Tax Determination, a Geo Code represents a unique combination of these jurisdictions. As location is one of the defining factors of tax determination, Geo Codes play a key role in assigning the correct tax rate.

Taxing jurisdiction limits are not always the same as county or city limits, so it is important to provide complete addresses with street numbers and ZIP codes that include the four-digit extensions. To ensure accurate addresses, we recommend using an address quality tool. If an address is inaccurate or incomplete, it may result in an inaccurate tax calculation.

Location codes are codes you create for both your organization and your customers or vendors. You can assign location codes to specific addresses to save time during the tax calculation process, as you can enter the location code instead of typing the full street address. You also have the option to link a location code to the Geo Code assigned to that address.

Geo Code structure

Geo Codes list taxing jurisdictions in order from broadest to narrowest.

Not all jurisdictions have tax rates. If a location (state, county, city, or district) has no tax, Tax Determination leaves that field blank. In the following example, Geo Code 6276 has no county tax:

Selecting Geo Codes

Different addresses within the same ZIP code or city can have significantly different tax rates because of local jurisdictions such as special taxing districts for transportation or parks. Selecting the most accurate Geo Code ensures that Tax Determination applies the correct state, county, city, and special district taxes to each transaction.

When you enter an address, you can either select a Geo Code or let Tax Determination select the Geo Code for you:

• If you enter the address and click Get Geo Codes, Tax Determination will give you a list of codes that map to the address you entered. You can then select which Geo Code you want Tax Determination to use when calculating tax.

• If you enter the address and do not click Get Geo Codes, Tax Determination will use the most appropriate Geo Code when calculating tax.

Tax Determination first tries to match the most specific address to a Geo Code. If it can't determine a Geo Code, it uses broader geographic areas until it can match the address to a Geo Code. The order in which addresses are used for Geo Code selection varies based on address type and jurisdiction:

Streamlined Sales Tax addresses (United States)

1. Full address (state, city, ZIP code, street)

2. Nine-digit ZIP code (ZIP code with ZIP+4 extension)

3. ZIP code

4. State

Non-Streamlined Sales Tax addresses (United States)

1. Full address (state, city, ZIP code, street)

2. Nine-digit ZIP code (ZIP code with ZIP+4 extension)

3. ZIP code and street

4. State, city, and street

5. ZIP code, county, and city

6. ZIP code and city

7. State, county, and city

8. ZIP code

9. ZIP code and street (second attempt)

10. State

11. Country

Non-US addresses

1. Country, state/province, and city

2. Country and state/province

3. Country

Note:

Geo Codes for non-US addresses are typically mapped at the state/province or country level, so the Geo Code matching hierarchy is often simpler than it is for US addresses.

When multiple Geo Codes match an address, Tax Determination selects the one with the highest tax rate. If there is a tie, it selects the highest numerical Geo Code, which indicates the most recently created, and likely most accurate, match.

Best practices

Enable address enhancement

Enhanced addresses lead to more accurate Geo Code selection. Ask your Sovos administrator to enable address enhancement for your organization if it isn't already active.

Provide complete addresses

Include the street name and number, city, state, and ZIP code for all addresses. Include the ZIP+4 extension when possible.

Remove unnecessary address information

Do not include the following information when submitting addresses to Tax Determination as it can interfere with Geo Code selection:

• Suite numbers, apartment numbers, business units, or other secondary address information

• PO Boxes

• Military mail addresses (Army Post Office/Fleet Post Office)

• Rural routes

Review addresses before submission

Check your addresses for incomplete or incorrect location information before submitting them to Tax Determination.

Run transaction reports

Review the address information in your transaction reports to find patterns that could point to issues with your original address data. For example, a large number of transactions where different cities have the same ZIP code may indicate a problem with your transaction source.

Test address processing during integration

During setup, submit addresses that reflect your real transactions, including static locations such as stores and warehouses, and run test calculations to confirm that addresses are enhanced correctly (if address enhancement is enabled), mapped to the expected Geo Codes, and returning appropriate tax amounts.

Keep Geo Codes up to date

If you use the tax calculator or the REST API to pre-determine Geo Codes for your store or warehouse locations and save them in your system for later use, you should update these codes at least once a month to ensure accurate tax calculation, as Geo Codes for specific addresses can change due to jurisdictional boundary updates.

What if I disagree with the tax rate in Tax Determination?

If the tax rate provided by Tax Determination is not what you were expecting, use the tax calculator to make sure that the Geo Code's associated jurisdictions are correct.