Use Automatic Tax Calculation

Once you have set up Automatic Tax Calculation, Billing automatically applies tax on new invoices, subscriptions, and Hosted Billing Checkout flows. This guide covers how Automatic Tax Calculation behaves in each context, how to resolve inline errors, and when to use manual tax instead.

Automatic tax on invoices

When global tax automation is enabled and your data is complete:

• Each new line item on an invoice defaults to automatic tax.
• Tax is calculated in real time as you select the customer, choose products, and adjust quantities and prices.
• The line-item UI shows the tax rate when calculation succeeds, or an inline error when information is missing.

Automatic tax on subscriptions

When global tax automation is enabled and your data is complete:

• New subscription items also default to automatic tax.
• Billing calculates expected tax per billing period based on the product tax categories, customer address, and your tax registrations.
• The line-item UI shows the tax rate when calculation succeeds, or an inline error when information is missing.

Switching between automatic and manual tax

Each invoice or subscription has a control to switch between Automatic and Manual tax.

Automatic tax recalculates whenever you:

• Change the customer.
• Adjust the product or price.
• Edit the customer's address.

Manual tax lets you supply a custom tax rate as a percentage.

Use manual tax for:

• Edge cases not yet covered by the tax engine.
• Transitional periods where your tax team requests specific behavior.
• Correcting historically miscategorized items.

Manual overrides are labeled as such in tax exports to preserve auditability. For more information, see Tax reports and exports.

Resolving inline errors

When Billing cannot calculate tax for a line item, it explains why and offers two remedies: fix the missing data, or switch to manual tax.

Missing product tax category

If the product on a line item has no tax category assigned:

1. Click Assign category in the error message.
2. Select the appropriate category and save the product.

Billing retries the calculation. If successful, the computed tax rate and amount appear on the line item.

Alternatively, click Switch to manual tax to disable automatic tax for that line and enter a manual rate.

Missing or invalid customer address

If the customer has no billing address, or the postal code is missing or invalid:

1. Click Add address in the error message.
2. Add or update the billing address in the customer record.
3. Save the address.

Billing recalculates tax for all automatic-tax lines on the invoice or subscription.

Alternatively, click Switch to manual tax to disable automatic tax for that line and enter a manual rate.

Customer data safeguards for subscriptions

To prevent silent tax failures on recurring charges, Billing enforces the following safeguard.

Blocking removal of billing address on active subscriptions

If you try to delete the billing address of a customer who has at least one active subscription with automatic tax enabled, Billing displays a blocking dialog:

Cannot remove address
This customer has an active subscription with automatic tax enabled. To ensure tax is collected correctly, a billing address must be maintained. You can update the address, but it cannot be removed while the subscription is active.

You can update or replace the address, for example when a customer moves. To remove the address entirely, you must first cancel the subscription or switch its line items to manual tax.

Automatic tax on Hosted Billing Checkout

If you use Hosted Billing Checkout:

• The checkout form prompts customers for the location details needed to calculate tax.
• Tax appears as a labeled line item in the order summary.
• As the customer edits their address (for example, changes their postal code), the tax amount updates dynamically.

If a required postal code is missing or invalid, an inline error appears near the address field:

"Enter a valid postal code to calculate the correct tax."

Examples

Example: Fixing a missing tax category during invoice creation

1. You create an invoice for a UK customer.
2. You add a product that has no tax category.
3. The line item shows an error: "Tax can't be calculated because this product is missing a tax category."
4. You click Assign category, select SaaS – Business, and save.
5. Billing recalculates and shows a tax rate of 20% with the correct tax amount for the line.

Example: Using manual tax for a complex service

1. You invoice a professional service in a country with special tax treatment not yet fully supported.
2. Automatic tax shows an error or a rate your tax team doesn't want to rely on.
3. You toggle the line to Manual and enter a 0% tax rate (per your tax advisor's guidance).
4. The line is included in your tax report as Manual, helping auditors distinguish system-calculated from human-chosen values.