How sales tax is impacted by incorporated and unincorporated addresses

In a recent post, I briefly touched upon the topic of incorporated vs. unincorporated townships. From an abstract, legal perspective, incorporation in the United States means a region is chartered by its state. Incorporated townships have elected officials; by contrast, unincorporated communities lack elected officials at the town level.

There are more differences between incorporated and unincorporated regions, but we’ll focus on how this affects you and how AvaTax can help.

Why do these taxes differ from the rate table?

Incorporation often results in differing tax jurisdiction boundaries and rates. A common question we see here in Developer Relations is: Why is the total sales tax different for locations in the same ZIP code? Let’s take a look at an example.

This is an address in incorporated Manhattan, Kansas: 701 S 4th St Manhattan, KS 66502

And this is an address in unincorporated Manhattan, Kansas: 1015 Temple Ln Manhattan, KS 66502

These locations are approximately 1,500 feet (or about 456 meters) away from each other, in the same ZIP code, and across the incorporation border. Here are the AvaTax summaries for a CreateTransaction call for the same $100 transaction:

Incorporated address tax summary:

    [
    {
      "country": "US",
      "region": "KS",
      "jurisType": "State",
      "jurisCode": "20",
      "jurisName": "KANSAS",
      "taxAuthorityType": 45,
      "stateAssignedNo": "",
      "taxType": "Sales",
      "taxName": "KS STATE TAX",
      "rateType": "General",
      "taxable": 100,
      "rate": 0.065,
      "tax": 6.5,
      "taxCalculated": 6.5,
      "nonTaxable": 0,
      "exemption": 0
    },
    {
      "country": "US",
      "region": "KS",
      "jurisType": "County",
      "jurisCode": "161",
      "jurisName": "RILEY",
      "taxAuthorityType": 45,
      "stateAssignedNo": "MANRL",
      "taxType": "Sales",
      "taxName": "KS COUNTY TAX",
      "rateType": "General",
      "taxable": 100,
      "rate": 0.01,
      "tax": 1,
      "taxCalculated": 1,
      "nonTaxable": 0,
      "exemption": 0
    },
    {
      "country": "US",
      "region": "KS",
      "jurisType": "City",
      "jurisCode": "AVGL0",
      "jurisName": "MANHATTAN",
      "taxAuthorityType": 45,
      "stateAssignedNo": "MANRL",
      "taxType": "Sales",
      "taxName": "KS CITY TAX",
      "rateType": "General",
      "taxable": 100,
      "rate": 0.0145,
      "tax": 1.45,
      "taxCalculated": 1.45,
      "nonTaxable": 0,
      "exemption": 0
    }
]

Unincorporated address tax summary:

    [
    {
      "country": "US",
      "region": "KS",
      "jurisType": "State",
      "jurisCode": "20",
      "jurisName": "KANSAS",
      "taxAuthorityType": 45,
      "stateAssignedNo": "",
      "taxType": "Sales",
      "taxName": "KS STATE TAX",
      "rateType": "General",
      "taxable": 100,
      "rate": 0.065,
      "tax": 6.5,
      "taxCalculated": 6.5,
      "nonTaxable": 0,
      "exemption": 0
    },
    {
      "country": "US",
      "region": "KS",
      "jurisType": "County",
      "jurisCode": "161",
      "jurisName": "RILEY",
      "taxAuthorityType": 45,
      "stateAssignedNo": "RILCO",
      "taxType": "Sales",
      "taxName": "KS COUNTY TAX",
      "rateType": "General",
      "taxable": 100,
      "rate": 0.01,
      "tax": 1,
      "taxCalculated": 1,
      "nonTaxable": 0,
      "exemption": 0
    }
]

The incorporated address has a 1.45 percent Manhattan city tax applied to sales transactions, while the unincorporated address does not.

The rooftop-level accuracy of AvaTax can help you calculate the correct sales tax for your customers, without over- or under-collecting. Tax tables are based on ZIP centroid, and often indicate all applicable sales taxes of that ZIP code. The ZIP-based tax table would tell you the unincorporated location is subject to higher tax, but our example unincorporated address falls outside the jurisdictional boundary of the Manhattan city tax.

Give our new demo page a spin to see how AvaTax and the AvaTax API facilitate sales tax compliance.

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