Tax Types

A Tax Type is a named tax — UK VAT, Brazil ICMS, India IGST, a poverty-fund surcharge — together with a few facts about how it behaves. If a Jurisdiction is the “where,” a Tax Type is the “what.”

The clearest way to hold it in your head: a Tax Type is a noun, and a Tax Rule is the verb. The type names the tax and classifies it; the rule says “apply this type at this rate when these conditions match.” One Tax Type (Brazil ICMS) is referenced by many rules — one per state rate. The type itself carries no rate.

The fields — with UK & Brazil values

Every field, what it does, and a real value from the seed packs — UK VAT (Standard Rate) beside Brazil ICMS, two “VAT/GST” taxes that nonetheless differ in revealing ways.

The one flag that changes the accounting: Is Recoverable

Here is the most important sentence in this article, verified against the engine: of all these fields, the only one the tax calculation acts on is Is Recoverable. Everything else organises, classifies, or describes — useful, but not an input to the math.

Recoverable means a VAT-registered buyer can reclaim this tax on its purchases (an “input tax credit”). That single flag decides where the tax posts when you record a bill:

The classification & display fields

The remaining flags don’t feed the calculation — they organise your taxes for reporting, setup, and presentation. Worth setting correctly, but know what they do (and don’t):

“Inclusive of tax” lives elsewhere — an important clarification

People often expect a Tax Type to say whether tax is “included in the price.” It doesn’t. There are three different concepts, on three different records — keep them apart and a lot of confusion disappears:

Real data: UK and Brazil tax types

🇬🇧 United Kingdom — four treatments of one tax

The UK has a single tax, VAT, modelled as four types — the difference is the rate (set on the rule) and recoverability:

Note the accounting subtlety the flag captures: zero-rated is a taxable supply at 0% — you still reclaim input VAT, so it’s recoverable. Exempt is different — no VAT, and input VAT is not reclaimable, so the flag is off. Same 0% on the invoice, opposite treatment behind it.

🇧🇷 Brazil — a spread of families, levels, and recoverabilities

Brazil shows the full range of what the classification fields are for:

Twelve types in all (the seed also includes the 2026 reform’s BR-CBS and BR-IBS). Each one’s rate comes from its rules; the type just names it and flags recoverability for the GL.

One type, many rules

Because the rate lives on the rule, a single Tax Type is reused across many rules. BR-ICMS is one type — but São Paulo’s rules apply it at 18%, Rio’s at 20%, and the interstate rule at 12%. Same noun, different verbs:

This is why you rarely create many Tax Types — you create a handful and let rules express every rate and condition. Tax Rules is the next article.

Guardrails & setup

• Code is uppercase, no spaces — two validation rules enforce it, same as jurisdictions, because the code is an external ID used by the seed and lookups.
• Seeded, not hand-built. The Tax Seeding Wizard creates a country’s tax types with the flags pre-set. You mostly review and adjust.
• Deactivate, don’t delete. Turning off Is Active stops a type being used on new rules while preserving every historical record that referenced it.
• Set Is Recoverable carefully — it’s the one flag with accounting consequences. When in doubt for a purchase tax: can a registered business reclaim it? Yes → recoverable; no → leave it off.

Where to go next

1. Tax Jurisdictions — the place a tax type belongs to.
2. Tax Rules — rules that apply a tax type.
3. Tax GL Mapping — where a tax type posts.
4. How Tax Calculates on a Document — tax types firing on a document.

Frequently asked questions