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Chapter 10

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Sales tax items

Sales tax items are needed, to record sales tax in sales documents, and designate the receiving vendor.  The tax item XE "tax item"  XE "sales tax item"  XE "item:sales tax"  generally has three jobs:  it applies a rate, it states the jurisdiction where the tax applies,  and it also tells which vendor gets the tax. Entry of new tax items begins with Lists|Items|Items|New.

Type must be Sales Tax Item.

Tax Name appears in the item list, like a label on the back of a rubber stamp.  If sales tax varies by location, or if you need to track locations of sales, an item will be needed for (and probably named after) each jurisdiction.

Description will appear on the sales document, for your customers to read.

Rate is a percentage, but a fixed amount can be entered on the invoice.

Tax Agency is the vendor receiving the tax.

Account is not an option.  When the sales tax preference is turned on, a Sales Tax Payable account is set up .  All sales tax items use this account, so there is no need to display it on this window.

OK completes setting up the item.

With tax items entered, a Most common sales tax can now be entered under File|Preferences|Sales Tax.

Multiple taxes on each sale require  XE "sales taxes:multiple" planning.  Here, we find a choice.  Tax item groups are available, but may or may not be the best choice. Descriptions of the options will guide you.  This is the case where there are several taxes, but all taxes apply to all items.  Where different business items are taxed, see below under Peculiar Situations.

Tax item groups are effective, and XE "item groups:sales tax"  XE "sales tax:item groups"  may be necessary if taxes on one sale are payable to different agencies.

Name and Description are as on individual tax items.

Tax item allows individual items to be referred into the group.  An individual item may be pulled into each of several groups, particularly a state tax, where county and/or city taxes are separate.  Rate, Tax Agency, And Description (columns) show whatever is set up in the individual items, and can only be changed there.

The rub comes when you apply a tax group.  Each individual tax is calculated separately, and rounded to the nearest whole cent.  This can be different from the printed (total) rate times the purchase total. If you have to pay separately, expect to explain this to customers now and then.  A customer message, for use on invoices, may be useful.

Items of the usual sort (things you sell) must be marked as taxable, if appropriate, from Lists|Items|Edit.  If shipping is taxable, you need an item for it.  A likely type is Other Charges.

Composite tax items are the other choice.  This method uses one tax item for any given location, which is the sum of all rates applicable there.  The citizens of the Silicon Valley have voted (November 5, 1996) to raise the sales tax rate from 7.75% back up to 8.25%, to build highways and public transit.  The total is distributed among the state, county, and where incorporated, to the cities. The sum is paid to the state, together with a statement of how much business was transacted where.  The possibility of paying a composite tax to several agencies is discussed in Peculiar Tax Situations, below.

Customer records (Lists|Customer:Jobs|Edit ) should all be edited, even if they are tax exempt. Obtain a window like the illustration by clicking Additional Info tab.

Customer is taxable means that, or  XE "customer:taxable"  XE "taxable:customer" that they must pay sales tax. Exceptions may be made on individual invoices.

Tax item will take the tax item for their location.  Reporting may require this for tax-exempt customers.

Resale Number receives the state identification number for customers not paying sales tax.

All that being done, you are set to collect sales taxes and pay them to government agencies.

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Last modified: May 21, 2004