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How to Set Up and Manage Sales Tax Items

The Add Sales Tax Item form is used to setup the sales tax collected from customers (not paid to vendors). The sales tax you collect is later passed on to sales tax authorities using the Pay Sales Tax form.  Total Office Manager keeps track of the amount of sales tax withheld, when it’s due, and who to pay.

  • If you collect sales tax at more than one rate, setup a separate sales tax item for each rate.
  • If you pay sales tax to more than one agency, setup a separate tax item for each agency.
  • If you sell to out-of-state customers, setup separate out-of-state sales tax items to identify different rates for different locations.
  • If you collect a combination of taxes from your customers, you’ll want to set up Sales Tax Item Groups, which are comprised of the sales tax items described here.
  • If you are not required to collect sales tax, you don’t need to set up sales tax items.

IMPORTANT: Every state has a different tax structure for their state, county, and municipality. Check with your own state and local sales tax agencies to find out their rules.

Form Access

  • From the main menu, click Customers | Sales Tax | Create Sales Tax Item.

Field Definitions

Basic Fields

  • Tax Name – Enter the name of the tax.  Example: “KS Sales Tax” or “Hill County Sales Tax”, etc.
  • Description – Enter a description of the tax.  Example: “Kansas State Sales Tax”.
  • Tax Rate – Enter the tax rate provided by the tax agency.
  • Tax Agency – Enter the name of the agency to whom your taxes are payable.  Select from the drop-down arrow if you have already set them up as a vendor or create the agency as a new vendor.

Tax Burden Fields

  • Paid by Customer – This is the typical scenario whereby the tax burden is paid by the customer.
  • Paid by Company – Often called a “Use Tax”, this setting indicates that the tax is paid by your organization.  In this scenario, an account is selected from your chart of accounts, to track the expense.
  • Expense Account – Used in conjunction with the “Paid by Company” tax burden setting, this field is used to select which account to use to track Use Tax expenses.

Calculate Tax Setting

The Calculate Tax field is used to select one of three possible settings:  Your accounting and tax professional should be able to offer advice on which setting is appropriate for your organization.

  • Based on Retail Price – Taxed using the price you CHARGE (retail price).  This is the most common choice for typical sales tax.
  • Based on Direct Cost – Taxed using the price you PAY (wholesale price or direct cost).  This is common when you track use tax.
  • Based on Gross Profit – Taxed using the gross profit (retail price less what you paid for it).  Be sure to check with a tax professional.

Other Controls

  • OK – The OK button saves and closes the form.
  • Cancel – The Cancel button closes the form without saving any changes.
  • Next – The Next button performs like the OK button, but also opens a new blank form ready to be filled in.
  • Alias – The Alias button opens the Item Alias form for the sales tax item.   See the topic Item Alias for more information on item aliases.
  • Inactive – Ticking the Inactivate checkbox make the sales tax item inactive.

Sales Tax Tips

  • IMPORTANT:  Sales Tax Rate Change Advice: If sales tax rates have increase, it is highly recommended that you inactivate the sales tax item that contains the old rate and then create a new sales tax item with the new rate. You will use the new item for now on. For clarity, you should also include the sales tax rate in your description. This makes it easier to go back and see how sales tax was calculated after the rates have changed several times.
  • The same warning as above also applies to changing vendors. If for some reason the vendor changes, create a new sales tax item an inactivate the old one.