The quick answer
With legacy tax and per-line taxes, the line's Tax Code depends on the customer, the ship-to address, the nexus assigned to the subsidiary, and the item's tax schedule. A customer with Taxable cleared and no Tax Item is non-taxable, and tax lookup doesn't override that. If the customer is taxable, NetSuite matches the ship-to state and ZIP code against the tax groups and codes for the subsidiary's nexus. When nothing matches, the line can fall back to the Default Tax Code on Set Up Taxes, or get no tax when the state has no tax records. Check the customer first, then the setup. In this example the San Mateo tax group covers ZIP 94401, but the customer isn't marked Taxable. Check Taxable, then remove the invoice line and add it again so NetSuite looks the tax up afresh.
The screenshots show sample data. Person and operating-company names are fictional. Use your own records and values when following the steps.
Before you start
This applies to accounts on NetSuite's legacy tax engine (not SuiteTax) with Per-Line Taxes on Transactions turned on, so each line carries its own tax code. You need access to edit customers and invoices and to view Setup > Accounting > Set Up Taxes and the tax groups. Menu paths and fields can differ by role and custom form, and a third-party tax engine, script, or integration can set the tax code itself. In the example, the California nexus is assigned to the United States subsidiary, the item's tax schedule is taxable in California, and the customer Bayline Robotics ships to 400 Concar Drive, San Mateo, CA 94401. The rate on the CA San Mateo group, 9.625%, is sample data. The correct rate depends on the exact address and date.
01. Read the symptom on the invoice
Open the invoice. Under Classification, confirm Subsidiary is United States, since the subsidiary's nexuses decide which tax codes can apply. On the Shipping subtab, check Ship To. That's the address tax lookup reads: 400 Concar Drive, San Mateo, CA 94401.
On the Items subtab, read the Hoist Control Panel line. Amount is 3,200.00, Tax Code is -Not Taxable-, and Tax Rate is blank. The Summary shows Tax Total 0.00, so the invoice total is just the 3,200.00 subtotal.
02. Check the customer's tax settings
Click the customer name to open Bayline Robotics, then open the Financial subtab and find Tax Information. Taxable is cleared and Tax Item is blank. That combination makes the customer non-taxable, which explains the line on its own. Resale Number is blank too, so the record shows no resale certificate that would explain it.
If Tax Item held a tax code or group instead, that value would generally take precedence over address lookup. Check it whenever a customer gets an unexpected rate. Don't change anything yet. First confirm the account can tax this address at all.
03. Confirm the account can tax the address
Go to Setup > Accounting > Set Up Taxes and open the United States tab. Enable Tax Lookup on Sales Transactions and Charge Out of District Sales Taxes are checked, and Default Tax Code is -Not Taxable-. Customers Default to Taxable is cleared, which is why customers created in this account start out non-taxable. Tax Code Lists Include shows Tax Groups and Tax Codes, so tax groups can appear on transaction lines.
Next, go to Setup > Accounting > Tax Groups and open CA San Mateo. Its Rate is 9.625%, the total of CA State Tax at 7.25% and San Mateo County District Tax at 2.375%. State is California, Subsidiaries is United States, and Inactive is cleared.
The City And Zip Code subtab lists San Mateo, 94401, the ship-to ZIP. So a matching group exists, and lookup would find it once the customer is taxable.
If no active group covered 94401, lookup would find no match and fall back, and here that means -Not Taxable- even for a taxable customer. The fix then is to create or import the California tax codes and groups. Don't change Default Tax Code to a California code as a shortcut, because it could tax unrelated addresses at the wrong rate. Leave both pages without saving.
04. Mark the customer Taxable
Return to Bayline Robotics and click Edit. On the Financial subtab, check Taxable and leave Tax Item blank so the ship-to address decides the tax. Click Save.
05. Recalculate the invoice
Reopen the invoice and click Edit. The existing line still shows -Not Taxable-. Fixing the customer doesn't update lines already saved on a transaction. They keep their tax code until the line is entered again.
Remove the Hoist Control Panel line and add it again with Amount 3,200.00. NetSuite looks up the tax from the now-taxable customer and the ship-to address, and the line shows Tax Code CA San Mateo and Tax Rate 9.625%. The summary shows Tax Total 308.00 (3,200.00 × 9.625%) and Total 3,508.00. Save the invoice.
Check the result
- The customer's Tax Information shows Taxable checked and Tax Item blank.
- The re-entered line shows Tax Code CA San Mateo and Tax Rate 9.625%.
- Tax Total is 308.00 and Total is 3,508.00.
If the line still shows -Not Taxable-, check in turn that the customer has no Tax Item, that the CA nexus is assigned to the United States subsidiary, that the item's tax schedule is taxable for California, that the ship-to ZIP is in its structured field, and that no script or integration sets the line's tax code.
Common questions
Where does NetSuite get the tax code on an invoice line?
With legacy tax and per-line taxes, NetSuite sets it when the line is entered. It looks at the customer's Taxable box and Tax Item, the item's tax schedule, the ship-to state and ZIP code, and the tax codes and groups available to the subsidiary's nexus. A taxable customer with a blank Tax Item shipping to 94401 gets the CA San Mateo group in this example.
What's the difference between the Taxable box and Tax Item on the customer?
Taxable says whether the customer is taxed at all. Tax Item is an optional customer-level tax code or group that generally takes precedence over address lookup. If you want the ship-to address to decide the rate, check Taxable and leave Tax Item blank.
What does the Default Tax Code on Set Up Taxes do?
It's the fallback when a taxable customer's ship-to address doesn't match any tax code or group for the nexus. It doesn't make a non-taxable customer taxable. In this example the default was also -Not Taxable-, which is why a missing tax group and an unchecked Taxable box look the same on the invoice.
Does Customers Default to Taxable update existing customers?
No. It only sets the Taxable box on customers created after you turn it on. Customers that already exist keep their current setting, so you have to update them yourself.
How do I get NetSuite to recalculate tax on an invoice after fixing the customer?
Open the invoice in edit mode, remove the affected line, and add it again, then save. Lines already on the invoice keep their old tax code until they're entered again. Here the re-entered line picked up CA San Mateo at 9.625%, for a Tax Total of 308.00 and a Total of 3,508.00.
Why can't I select a tax group on a transaction line?
Check Tax Code Lists Include on the country tab of Set Up Taxes (United States here). With Tax Codes Only, groups don't appear in transaction lists, so set it to Tax Groups and Tax Codes. Also make sure the group is active and available to the transaction's subsidiary.