To Tax Or Not To Tax? Taxability Information Codes Help You Determine

When it comes to sales tax, there are two situations you want to avoid. The first is not realizing you have nexus in a state and not collecting enough tax. The second is collecting too much or the wrong sales tax amount. A taxability information code (TIC) determines what items are taxable (or not). Use TICs with your sales tax software to streamline tax calculation and collection.

What Is a Taxability Information Code?

A TIC is a five-digit code assigned to sales tax-exempt products in certain states. TICs are based on definitions created by the Streamlined Sales and Use Tax Agreement (SSUTA).

Multiple TIC categories exist, including clothing, business supplies, shipping, and school supplies. Within many categories is a long list of sub-categories, each with a TIC.

You use TICs with your sales tax software.

Why Use Taxability Information Codes?

Each tax jurisdiction has its own rules regarding what gets taxed and when sales tax applies. Some states offer sales tax holidays, during which items like computers, clothing, or energy-efficient products are tax-exempt. Certain states never tax clothing, health products, or food.

A TIC also determines how much tax to charge based on the state and, in some cases, city or municipality. While some tax jurisdictions use a flat rate for all taxable products, others assign different tax rates to different product categories.

Without TICs, figuring out what to tax and when can quickly become complicated.

Assigning a taxability information code to each product your company sells simplifies the tax calculation and collection process.

General products that are always taxed get assigned the code 00000. When a customer buys a product with code 00000, the relevant sales tax, based on their address, gets applied to their order.

Clothing, which may or may not be taxed based on jurisdiction, gets assigned code 20010. When customers put a general clothing item, like a pair of jeans, in their cart in Pennsylvania, no tax would be added. But sales tax would apply if they lived in Maryland and added jeans to their cart.

How Do You Apply a Taxability Information Code?

When setting up your online store with your sales tax software, apply the appropriate TIC to the products you sell. The assigned TIC tells your sales tax software whether it needs to calculate and collect tax when a customer purchases certain products.

If you only sell one type of product, assigning a TIC is simple, as you can use the same code for everything.

You may run into cases when you sell tax-exempt products but can’t find the relevant code. If you use TaxCloud, our team will dig into the issue for you to see if a taxability information code already exists or create the appropriate code based on the exemption pattern and category.

TICs aren’t static and jurisdictions may change their tax laws occasionally. It’s best to use a dynamic list of TICs, which automatically updates. That way, you can rest assured you’re always using the right code and collecting the appropriate sales tax. Your sales tax software should provide TICs in a live feed format to keep your stress levels minimal.

TaxCloud uses TICs to apply the right sales tax amount to a customer’s order and keep your company compliant with local sales tax laws. Contact us today to see how it works.