Avalara Xero Integration Guide [2026 Updated]

Connecting Avalara and Xero automates the tedious and high-stakes process of calculating, collecting, and remitting sales tax. This integration directly embeds real-time tax calculations into your invoicing workflow, ensuring you charge the correct amount every time, without relying on manual rate tables. This guide provides a detailed walkthrough on setting up the connection, troubleshooting common issues, and adopting best practices to keep your tax compliance running smoothly.

Why Integrate Avalara with Xero?

For businesses operating across multiple jurisdictions, managing sales tax is a significant challenge. Tax rates and rules vary by state, county, and even city, and they change constantly. Manually managing this process in your accounting software is not only time-consuming but also creates a major risk of error. Integrating Avalara with Xero addresses this head-on by automating the entire compliance lifecycle directly within the invoicing process you already use.

• Accurate, Real-Time Calculations: The integration pulls the customer's address and the items on the invoice, then communicates with Avalara's tax engine. In seconds, it returns the precise sales tax amount based on over 12,000 taxing jurisdictions and applies it to your Xero invoice. This removes guesswork and the need for manual rate lookups.
• Improved Compliance: Avalara’s core function is to keep up with the latest tax laws, product taxability rules, and jurisdictional boundaries. By connecting it to Xero, your tax calculations are always based on the most current information, drastically reducing your risk of non-compliance and potential penalties during an audit.
• Reduced Audit Risk: Every calculation is documented and backed by detailed reports in your Avalara dashboard. Should you face an audit, you have a clear, traceable record of why a specific tax rate was applied to an invoice, which is far more defensible than a manually entered rate.
• Significant Time Savings: Think about the time your team spends finding the right tax rates, validating addresses, and preparing sales tax returns. Automation handles these tasks in the background, freeing up your finance team to focus on analysis and strategy rather than manual compliance work.

Prerequisites for Connecting Avalara and Xero

Before you start the integration process, make sure you have the following in place. Taking a few minutes to organize this information upfront will make the entire setup process much faster and smoother.

• An Active Avalara Account: You will need a subscription to Avalara's AvaTax service. Avalara’s pricing is customized based on transaction volume and the specific services you need. If you don't have an account, you'll need to contact their sales team for a quote first.
• A Xero Account with Admin Access: To install an app from the marketplace and authorize the connection, you must have Administrator or Standard + All Reports & Cash Coding permissions in your Xero organization.
• Nexus Information: You need to know which states you have sales tax nexus in. Nexus is the connection between your business and a state that obligates you to collect and remit sales tax there. This information is configured within Avalara, not Xero, and is the foundation for accurate calculations.
• Product & Service Details: Gather a list of the products and services you sell. Avalara determines taxability based on its system-wide tax codes (Avalara Tax Codes), so you will need to map your items to these codes during setup. For example, some clothing items are non-taxable in certain states, and this mapping is how the system knows that.

A Step-by-Step Guide to Connecting Avalara and Xero

The primary way to connect the two platforms is through the official native integration available in the Xero App Marketplace. The process is designed to be straightforward and doesn't require deep technical knowledge.

Step 1: Get the Avalara App from the Xero App Marketplace

First, you need to add the Avalara app to your Xero account.

1. Log in to your Xero account.
2. Click on your organization’s name in the top-left corner, and in the dropdown menu, select "App marketplace."
3. Use the search bar to look for "Avalara" or "AvaTax."
4. Select the Avalara AvaTax app from the search results. You'll be taken to its dedicated page with details and reviews.
5. Click the "Get this app" button to begin the installation process.

Step 2: Authorize the Connection

Next, you need to grant Avalara permission to access your Xero data. This is a standard security step for cloud integrations, allowing the two systems to communicate securely.

1. After clicking "Get this app," you will be redirected to an authorization screen.
2. Xero will show you a list of permissions the Avalara app is requesting, such as accessing contacts, invoices, and organization settings.
3. Review the permissions and click "Allow access" to proceed. This establishes a secure connection between your Xero and Avalara accounts.

Step 3: Configure Your Avalara AvaTax Settings

Once you’ve authorized the connection, you’ll be guided through the setup within the Avalara platform. This is where you tell Avalara about your business so it can calculate taxes correctly.

1. You will be prompted to log in to your Avalara AvaTax account with your credentials.
2. From your Avalara dashboard, navigate to the Settings > Integrations section. You should see an option to configure your Xero connection.
3. The setup wizard will prompt you to enter your company information. One of the most important steps here is to configure your nexus regions. This involves telling Avalara every single state and jurisdiction where you have a legal obligation to collect sales tax. Be thorough, as any state you miss will not have tax calculated for it.
4. Follow the remaining on-screen prompts to confirm company-level settings.

Step 4: Map Your Tax Codes and Activate Sales Tax on Invoices

This is where you activate the integration and tell Xero to start using Avalara for its tax calculations. Instead of manually choosing a percentage-based tax rate in Xero, you will now select a single "Avalara" tax rate.

1. In Avalara, ensure you have mapped your products or services to the correct Avalara Tax Codes. This process relates what you sell to universal product categories so Avalara knows what tax rules to apply.
2. Within Xero, go to Accounting > Advanced > Tax rates. The connection will typically create a new tax rate named something like "Avalara - F&A Tax Rate" or similar. This is now the only tax rate you should use for taxable sales.
3. To enable it on an invoice, create a new invoice as you normally would. When you get to the "Amounts are" field, make sure it is set to "Tax Exclusive."
4. On each line item, select the new Avalara tax rate from the "Tax Rate" column. Xero will automatically send the invoice details to Avalara, which will calculate the tax and return the correct amount, populating it onto the invoice.

Step 5: Test the Integration

Before you start using the integration for all your live invoices, run a few tests to ensure everything is working as expected.

1. Create a draft invoice in Xero for a test customer. Make sure the customer has a complete shipping address in a state where you have confirmed nexus.
2. Add a few line items to the invoice and apply the Avalara tax rate to each one.
3. Review the invoice total. Does the sales tax amount seem correct? Check that a tax amount has been added at the bottom.
4. Save the draft invoice. Then, log in to your Avalara AvaTax dashboard and navigate to the Transactions tab. The Xero invoice you just created should appear there, along with the detailed tax calculation.
5. Repeat this test for a customer in a state where you do not have nexus. In this case, Avalara should return a tax amount of zero.

Once you've confirmed the tests are successful, you are ready to use the integration for all of your transactions.

Best Practices and Common Troubleshooting

An integration is not a "set it and forget it" tool. Regular maintenance and a clear understanding of how it works will ensure its long-term accuracy and reliability.

Best Practices for Maintenance

• Keep Nexus Updated: Economic nexus laws mean you can trigger a tax obligation in a new state based on sales volume or transaction count. As your business grows, regularly review your nexus exposure and update your settings in Avalara immediately when you establish nexus in a new state.
• Reconcile Regularly: Once a month, reconcile the sales tax reported in Avalara with the sales tax liability account in Xero. This helps you catch any discrepancies early, such as voided invoices or rounding differences, before it's time to file.
• Maintain Product Codes: If you launch a new product or service, make sure you map it to the correct Avalara Tax Code. The taxability of products varies widely—for example, SaaS is taxed differently than a physical good—so accurate mapping is essential.

Common Issues & How to Fix Them

• Issue: Sales tax isn't being calculated on an invoice.
  Solution: This is the most common problem. Check these three things first:
  1. Is the customer's shipping address complete and accurate? Avalara needs a full address (street, city, state, zip) to determine the jurisdiction.
  2. Did you select the Avalara tax rate on the invoice line item? If you accidentally chose a standard Xero rate, Avalara won't be triggered.
  3. Have you configured nexus for the customer's state in your Avalara account? If you haven't told Avalara you have nexus there, it will correctly return zero tax.
• Issue: An incorrect tax amount is being calculated.
  Solution: This is almost always due to a setup error. Check the product tax code mapping in Avalara for the specific item on the invoice. You might have mistakenly classified a taxable item as non-taxable, or vice versa. Also, double-check that the customer's shipping address is correct.

Final Thoughts

Integrating Avalara with Xero transforms sales tax compliance from a manual, risk-prone chore into a streamlined, automated process. By embedding real-time calculations directly into your invoicing, you save countless hours and significantly reduce the risk of costly compliance errors.

While automation handles the mechanics of tax calculation and filing flows, your responsibility for strategic tax decisions remains. Researching topics like where you have nexus, whether a new product is taxable, or how to handle exemptions still requires deep expertise. We built Feather AI to provide instant, citation-backed answers for exactly these questions, allowing you to complement your automation suite with on-demand tax intelligence and make decisions with total confidence.