Tax Exempt Fiscal Position or AvaTax Fiscal Position? Understanding Which Takes Precedence

The Quick Answer

Manually setting fiscal positions is not necessary with AvaTax integration. The AvaTax system is designed to handle tax calculations automatically, including exemptions, without requiring manual fiscal position assignments in most cases.

However, if you do assign a fiscal position directly to a customer on their contact form, it will override AvaTax's determinations. Additionally, the sequencing of fiscal positions affects which one takes precedence.

How AvaTax Integration Works in Odoo

AvaTax simplifies tax management by handling calculations automatically:

1. When a transaction is processed in Odoo, the AvaTax module intercepts during calculation
2. Odoo sends transaction details to AvaTax
3. AvaTax returns the appropriate tax determination
4. This determination replaces Odoo's manually configured taxes

With proper configuration, AvaTax handles all tax calculations, including exemptions, without manual fiscal position assignments.

Understanding the Precedence Hierarchy and Fiscal Position Sequencing

While manual fiscal positions aren't necessary, it's important to understand the precedence rules and how fiscal position sequencing affects them:

Precedence Order:

1. Contact-Level Fiscal Position (if manually assigned): Takes highest precedence
2. Auto-Applied Fiscal Positions: Applied based on sequence number
3. AvaTax Determination: Applies when no overriding fiscal positions exist

The Critical Role of Fiscal Position Sequencing

Odoo applies fiscal positions based on their sequence number, with lower numbers taking precedence (fiscal position from top to bottom of the list). The AvaTax fiscal position mapping is typically set with the lowest sequence number (e.g., 1) to ensure it's applied first, unless specifically overridden.

When configuring fiscal positions:

• Navigate to Accounting → Configuration → Fiscal Positions
• Note the "Sequence" field for each fiscal position
• AvaTax fiscal position should typically have sequence = 1
• Any fiscal position that should override AvaTax should have sequence = 0

If you do manually assign a fiscal position on a customer's contact form (Sales & Purchase tab), it will override any AvaTax calculation regardless of sequencing. This can be useful in certain edge cases but is generally unnecessary with proper AvaTax configuration.

Manually assigned fiscal position:

Avatax fiscal position:

Recommended Approach for Tax Exemptions

Let AvaTax Handle Exemptions (Recommended)

For most scenarios, let AvaTax handle exemptions:

1. Configure exemption certificates in the AvaTax portal
2. In Odoo, on the customer form:
3. • Go to the Sales & Purchase tab
   • Do not assign a fiscal position manually
   • Enter the Avalara Exemption information if applicable

This approach leverages AvaTax's automated tax determination without manual intervention.

Only If Necessary: Override with a Contact-Level Fiscal Position

Only in special cases where you need to override AvaTax:

1. Create a tax-exempt fiscal position in Odoo
2. Assign it directly on the customer's contact form

Remember, this manual approach is generally unnecessary when AvaTax is properly configured.

The "Automatic Tax Mapping (AvaTax)" Fiscal Position

Odoo automatically applies the "Automatic Tax Mapping (AvaTax)" fiscal position to documents like subscriptions. This happens without manual intervention, further demonstrating that manually setting fiscal positions isn't necessary with proper AvaTax integration.

Fiscal Position Sequence for AvaTax

The "Automatic Tax Mapping (AvaTax)" fiscal position is usually configured with sequence = 0 in the system. This ensures it's applied before other automatically-determined fiscal positions (which typically have higher sequence numbers), but after any manually assigned fiscal position on the contact.

Troubleshooting Tips

If AvaTax Isn't Applying Exemptions Correctly:

• Verify the exemption certificate is properly configured in AvaTax portal
• Confirm the customer address matches exactly between Odoo and AvaTax
• Try using the "Compute Taxes" button to recalculate taxes

Only If All Else Fails:

If AvaTax still isn't properly applying exemptions after thorough troubleshooting, only then should you consider manually assigning a tax-exempt fiscal position at the contact level.

Conclusion

To directly answer the original question: Manually setting fiscal positions is not necessary with proper AvaTax integration. The system is designed to handle tax calculations and exemptions automatically.

While a manually assigned fiscal position will override AvaTax determinations, this should be viewed as an exception rather than standard practice. For the vast majority of cases, letting AvaTax handle tax determinations provides the most accurate and compliant approach.

The key to successful AvaTax integration is proper fiscal position sequencing:

• The AvaTax fiscal position mapping should have sequence = 1
• Only use sequence = 0 or manual contact-level assignments when you specifically need to override AvaTax. 
• Maintain this sequence hierarchy for predictable tax determination behavior

**As always, consult with a tax professional for specific tax compliance advice.