Question: My vendor charges me sales tax when I buy materials (even though we are exempt). How do I charge my customer for this tax? We need to collect the same amount that the vendor charged us because our state says that we calculate sales tax based on the price we pay for items.
Answer: See figure 1. Create sales tax items for each tax rate and taxing authority you must pay. In the Calculate Tax field, select the “Based on Direct Cost” method. Sales tax will be added to the invoice based on the price you paid for the item. This amount should match the amount you paid the vendor at the point of purchase.
Invoice your customers as usual. Sales tax will be added to the invoice and a liability will be created. Use the Pay Sales tax feature as normal.
Question: My vendor charges me sales tax when I buy materials (even though we are exempt). We are required to collect sales tax from the customer based on the retail price we charge the customer. My state allows me credit for the amount of sales tax that I paid the vendor. How do I charge my customer for this tax?
Answer: See figure 2. Create sales tax items for each tax rate and taxing authority you must pay. In the Calculate Tax field, select the “Based on Gross Profit” method. Sales tax will be added to the invoice based on the price you charged less the amount you paid (gross profit). This amount should match the amount you would have charged the customer (at retail price) less what you paid the vendor at the point of purchase.
Invoice your customers as usual. Sales tax will be added to the invoice and a liability will be created once the invoice is saved. Use the Pay Sales tax feature as normal.
Question: We pay our vendor sales tax when we buy materials for a job. Some items are tax exempt. We do not collect sales tax from the customer. How can we recover (recoup) the cost of sales tax?
Answer 1: See figure 3. When creating a bill, add sales tax to the total price of the materials; on the same line. If you purchase concrete mix for $100 and pay $8.00 in sales tax, enter an amount as $108.00. This method allows you to fully recover the final cost of the materials or parts. Invoice your customers as usual.
Answer 2: If you want to break out the cost of sales tax, create an Other Charge item called something like Point of Purchase Sales Tax. The COGS account might be Sales Tax Paid and the income account might be Sales Tax Recovered. Add this item below each taxable item on your vendor bill. Do not add this item to your invoice. In this case, the sales tax paid to the vendor will become a Cost of Goods Sold.
If an item (like equipment) is tax exempt, simply ignore these instructions for that item.
Question: We buy items from our vendors and we do not pay sales tax. When a sale is made, we must pay sales tax (e.g.: Use Tax) based on the price we paid for the items. We DO charge the customerfor the sales tax (Use Tax) we paid the vendor.
Answer: See figure 1. Create sales tax items for each tax rate and taxing authority you must pay. In the Calculate Tax field, select the “Based on Direct Cost” method. Be sure the “Paid by Customer (typical)” button is selected.
When you create an Invoice, use this tax item on all taxable line items. Sales tax (e.g. Use Tax) will be added to the invoice based on the price you paid for the item. This amount should match the amount you paid the vendor at the point of purchase. Invoice your customers as usual. A sales tax liability will be created once the invoice is saved. Use the Pay Sales tax feature as normal.
Question: We buy items from our vendors and we do not pay sales tax. When a sale is made, we must pay sales tax (we call it Use Tax) based on the price we paid for the items. The customer does not get charged for the Use Tax. The company pays the Use Tax.
Answer: See figure 4. Create sales tax items for each tax rate and taxing authority you must pay. In the Calculate Tax field, select the “Based on Direct Cost” method. Be sure the “Paid by Company” button is selected and an expense account is selected.
When you create an Invoice, use this tax item on all taxable line items. Sales tax (e.g. Use Tax) will be added to the invoice based on the price you paid for the item. This amount should match the amount you paid the vendor at the point of purchase. Invoice your customers as usual. A sales tax liability will be created once the invoice is saved. Use the Pay Sales tax feature as normal.
Question: Can I add a sales tax item to the item grid of an invoice (like I would any other item). In other words, can a sales tax item be added to an invoice like an inventory part would?
Answer: No. Sales tax items are selected for each part that is added to the invoice item list. Sales tax can’t be added like you would add an item.
Notes and Tips
- The sales tax feature in Total Office Manager’s is both powerful and unique. You can calculate sales tax not just based on the retail price but also based on direct cost and gross profit. In addition, Total Office Manager allows you to individually tax each line item on an invoice.
- Estimates can include the same sales tax items and options as an invoice can. Estimates do NOT create a sales tax liability of any kind. Only when a taxable invoice is created and saved is a sales tax liability created. If you create estimates, include sales tax information. It will be copied over when the estimate is converted into an invoice.
- If you do not wish to show your customer the sales tax amount, you can suppress the sales tax amount in many ways. The Print/Email Setup includes an option called Print Sales Tax Total. Clearing this checkbox will prevent the sales tax from being displayed on a printed invoice.
- If you use the “Paid by the Company” option (on a sales tax item). You will have full tracking but the customer is not paying the use tax. If you wish to recover the cost, and it is lawful to do so, you might then decide to add a line item to the invoice that will recover the cost of the use tax; plus markup if desired.
Legalities
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Be sure that you are in compliance with applicable sales tax rules and laws.
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Some states require you to pay vendors sales tax or otherwise pay use tax but they do not allow you to pass the sales tax expense onto your customer.
