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Sales Tax FAQs
Summary: Answers to frequently-asked questions about tracking and reporting sales tax in Clients & Profits. Sales tax accounting is completely automated by Clients & Profits. Clients & Profits calculates and displays sales tax on estimates and A/R invoices. Each client can have up to two different sales tax rates calculated on their invoices and estimates. And a sales tax report can be printed to detail taxable sales, non-taxable sales, and sales tax collected for a month or quarter. Sales tax rates are completely customizable for each client.
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How is sales tax calculated? |
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My invoice isn't showing sales tax, what's wrong? |
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Where is a client's sales tax information stored? |
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Why are there settings for two sales tax rates? Can we print state, county, and city sales tax information on each invoice? |
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How is sales tax and the Task Table related? |
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How can I force certain tasks to always be non-taxable? |
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Can the same client have taxable invoices as well as non-taxable invoices? For example, when the job is shipped out of state. |
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Can different tasks on the same invoice have different sales tax rates? |
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Do I need to add sales tax information to each client, or is there somewhere I can set it up for all clients? |
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Should I include sales tax when I enter the estimate? |
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How does an estimate calculate sales tax? |
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Is sales tax included on the estimate amounts on job reports, like the Estimate vs. Billing report? |
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If certain types of jobs are always non-taxable, do I have to always remember to update the tax settings on their tasks? |
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How do I ensure that a certain client never gets charged sales tax? For example, non-profit clients. |
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How does an invoice calculate sales tax? |
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Can Clients & Profits account for sales tax when some materials on the invoice are shipped out of state? |
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Can Clients & Profits track taxes on media advertising? |
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What reports analyze sales tax? |
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I've changed my sales tax rates in Preferences, but it didn't affect my clients. Why? |
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Our state requires us to collect sales tax on the entire invoice when the job produces a tangible product, but to collect no sales tax on concept-only jobs. How can we set up Clients & Profits to do this automatically? |
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Does Clients & Profits use the accrual method or cash-basis method of accounting for sales tax reports? |
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All of these sales tax regulations are confusing. Where can I find out what to tax and when? |
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What should I do with sales tax on Purchase Orders or A/P invoices? |
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Why are invoices for a non-taxable client showing up on the sales tax report? |
Q. How is sales tax calculated?
Sales tax is calculated from two factors: the client's sales tax rate, and whether tasks are taxable or non-taxable. Each task can be marked as "taxable" or "non-taxable" in the Task Table, which helps determine whether sales tax is charged. Then, when the job is added, the task settings are copied to the job ticket's tasks. When an estimate is printed, Clients & Profits calculates sales tax based on the job's taxable tasks and their estimate amounts. When an A/R invoice is added, the client's sales tax rate and job tasks' taxable settings are copied to the invoice itself. When an A/R invoice is posted, sales tax is calculated using the invoice's sales tax rates (not the rate in the client file) and the invoice's taxable billing amounts (based on which tasks on the invoice are marked as taxable). Sales tax is then added to the invoice's total when the posting is complete.
Q. My invoice isn't showing sales tax, what's wrong?
Per how sales tax is calculated in the question above: First, check to see that the sales tax rate copied over from the client's file correctly. Select Edit > Select Billing Options (Tax). If the rate isn't there, just add the correct percentages, then check the client's file to make sure it has a rate for future invoices (My > My Clients > find client > Select Edit > Select Billing Info). If the rate isn't there, you'll need to add the rate into the client's Billing Information as well so that future invoices for this client get a sales tax rate. The other possibility is that the tasks are not marked as taxable (even if there is a rate on the invoice). Double-click on each task on the invoice to see if it is marked for sales tax and change it if necessary. The next step would be to check the job ticket's tasks and the task table to make sure that everything is setup correctly. The taxable status of task is copied from the task table to the job ticket's task to the invoice, so need to check each step to see where the problem began. As well, under Setup > Job Type/Spec Sheets, there is a setting on each job type to "Use Task Table's Tax Settings" in the "Estimate Options" window. Make sure it's not set to "Always non-taxable" if this is not what you meant to do. This job type/spec sheet setting will override the task tables taxable setting for any tasks added to a job using this job type/spec sheet.
Q. Where is a client's sales tax information stored?
The client's Billing Information window contains details about the county, tax rates, and default credit G/L accounts. If you haven't set up default information in Preferences or you've added clients before setting up under Preferences, you can add information directly to the Client file. (My > My Clients > find client > Select Edit > Select Billing Info). Add sales tax information and click Save.) The County field is the client's sales tax region, which is usually a county but can be a city, state, or province. The sales tax report sub-totals sales by county, which is needed for government sales tax returns. (Tip: The County field is case and space sensitive, so make sure you give each county the exact same name from client to client.) The rate is used to calculate sales tax on a client's estimates and invoices. The cGL is a liability account that is credited with sales tax amounts when A/R invoices are posted.
Q. Why are there settings for two sales tax rates? Can we print state, county, and city sales tax information on each invoice?
Some jurisdictions require that county or city sales tax information be listed separately from the state sales tax information on client invoices. The two sales tax rates are listed separately on estimates and invoices. Also, the two rates will print separately on the Sales Tax Summary report used to prepare your sales tax returns.
However, if you need three rates and calculations to print on invoices, such as for the state, county, and city, C&P can't do this apart from a work-a-round. Add a task to the task table that represents the third sales tax. Make sure this task is not marked taxable (don't want to calculate tax on tax). Add it to invoices that require it and manually calculate the sales tax amount for this task on that invoice. It will be included in the invoice's total. Use A/R invoice task sorting or groups to force this task to the bottom of the billed tasks on the invoice. Use task based billing reports to determine the amount of tax over a certain time frame, since it will not show up on the Sales Tax Summary report.
Q. How is sales tax and the Task Table related?
The tasks determine if the amounts estimated and billed on a task are taxable. Each task in the Task Table can be marked as taxable or non-taxable. When tasks are copied to new job tickets, this default tax setting is copied too. Once a task is added to a job, it's tax settings can be changed -- without affecting the default tax information on the Task Table.
Q. How can I force certain tasks to always be non-taxable?
If the task is marked as non-taxable in the Task Table, it will be not be taxed on any job on which it appears. The only way it can be taxed is if someone makes it taxable in the Edit Job Task window on the job ticket or A/R invoice or used a Job Type/Spec Sheet set to "Always Taxable" (in the Estimate Options window under Setup > Job Type/Spec Sheets) when adding the job.
Q. Can the same client have taxable invoices as well as non-taxable invoices? For example, when the job is shipped out of state.
Yes. The job tasks on the client's A/R invoices determine what's taxed and what isn't. If the tasks on an invoice are taxable, then sales tax will be charged. If another invoice's tasks are marked as non-taxable (i.e., the sales tax checkbox is unchecked in the Edit Invoice Amount window), then no sales tax will be calculated. Each invoice is independent of the others, so making one invoice non-taxable will not affect the other invoices for the client. Changing the tax setting on one specific invoice doesn't affect any other tax settings for the client. Of course, set the client up for their normal tax situation, so it automatically calculates sales tax or not. If there is one job that won't be taxable, but all the other jobs will be taxable, then change the tax setting on that job's tasks so that invoices for this job will automatically be marked as non-taxable. But, if it's just one invoice on a normally taxable job, then manually change the one A/R invoice to non-taxable (as desribed above).
Q. Can different tasks on the same invoice have different sales tax rates?
No. The sales tax rates are copied from the client's account to the invoice. They apply equally to all of the invoice's taxable tasks for sales tax rate 1 or 2. The most you can do is have two rates, where you assign sales tax 1 to some tasks and sales tax 2 to other tasks. If 3 or more rates are needed, the 3rd and later rates must be calculated manually by adding "sales tax tasks" to the invoice and manually calculating the sales tax amount on these tasks. Of course, they won't show up on the sales tax report, rather you'll need to run task based billings reports to determine how much sales tax was collected on these "sales tax tasks". Needing 3 or more rates on an invoice is a rare situation. It normally only happens when there is a multi-state billing on one invoice, where tax laws require to use that state's tax rate for the billing portion applicable to that state, and this invoice can't be broken out on separate invoices for each state.
Q. Do I need to add sales tax information to each client, or is there somewhere I can set it up for all clients?
A standard, or default, sales tax rate can be entered into Preferences. This rate is copied to the billing information for any newly-added client. But it does not affect existing clients or invoices. It's simply a shortcut for setting up new clients more accurately. Changing this rate in preferences will not change the rate on existing clients or invoices. This setting is only used when adding new clients to auto-fill your normal sales tax rate information to the client's billing info window.
Q. Should I include sales tax when I enter the estimate?
No. Sales tax is charged on the total estimate automatically, based on which job tasks are marked as taxable. If the individual estimate amounts include sales tax, then you'd be charging sales tax twice!
Q. How does an estimate calculate sales tax?
When an estimate is printed, it calculates sales tax with the rate from the Client file for each task that is marked as taxable. The task settings come directly from the job ticket. Task settings were copied from the Task Table to the job ticket when the job was added (or from the Job Type/Spec Sheet if "Use task table's tax settings" was not selected). Task settings can be edited on an individual job ticket, if necessary. Unlike an invoice, an estimate does not copy the sales tax rate to it, rather it pulls it from the client's file. If you wish to change the sales tax rate on an estimate, you must edit the Client file, then print the estimate. If you don't wish this change to be permanent for the client, then edit the Client file back to its original percentage after printing the estimate.
Q. Is sales tax included on the estimate amounts on job reports, like the Estimate vs. Billing report?
No. Both the estimate and billing totals for each job on these reports don't include sales tax. In all reports, sales tax is not factored into the job's budget, progress, or profitability.
Q. If certain types of jobs are always non-taxable, do I have to always remember to update the tax settings on their tasks?
No. A job type/spec sheet can be set as "Always taxable", "Always non-taxable" or "Use Task Table's tax settings" in Setup > Job Templates (Standard Estimate window). When a new job is opened with an "always non-taxable" job type, all of the job's tasks will be set as non-taxable -- even if they were taxable in the Task Table. The reverse is true for "always taxable" job types: any task on the job will be marked as taxable, even if it is non-taxable in the Task Table.
Q. How do I ensure that a certain client never gets charged sales tax? For example, non-profit clients.
Make sure the client has no sales tax rates in their billing information window under My > My Clients > select edit > Billing Info. As long as the client has no sales tax rate, no sales tax will be charged -- regardless of whether tasks are taxable or not.
Q. How does an invoice calculate sales tax?
When an invoice is created, sales tax rates are copied from the Client file to the invoice. They can be edited on an invoice without affecting the client account. Task sales tax settings are copied to an invoice from the job ticket. Sales tax on an invoice is calculated based on an invoice's sales tax rate and task settings. When an invoice is posted, the sales tax amount credits the general ledger account indicated on the invoice. This credit G/L account (cGL) default is copied to an invoice from the Client file, and can be edited on an invoice, if needed.
Q. Can Clients & Profits account for sales tax when some materials on the invoice are shipped out of state?
Yes. In this case, the tasks on the client's A/R invoice must be non-taxable. Sales tax applies to the total billing amount for each line item (i.e., task). If the invoice has a task for Printing that includes some deliveries in-state and some out-of-state, you'll need to add the Printing task twice (A/R invoices allow this, job tickets don't) -- one that's taxable and another that isn't. The in-state (i.e., taxable) printing amount would need to be separated from the out-of-state (i.e., non-taxable) printing billing amount.
Q. Can Clients & Profits track taxes on media advertising?
Yes. Media tasks are treated no differently than other tasks. As long as the task is marked as "taxable", sales tax will be charged on its billing amount. Some agencies use the client's second sales tax rate to track media taxes separately.
Q. What reports analyze sales tax?
A sales tax summary can be printed for any time period (i.e., monthly, quarterly, etc.) from A/R reports. The Sales Tax Analysis report lists each invoice, the total invoice amount, the taxable amount for each rate, and the amount of sales tax calculated for each rate. Invoices are sorted by the county name from the client's billing information window. The taxable sales, non-taxable sales, and sales tax amounts on this report make compiling your sales tax returns easy to do.
Q. I've changed my sales tax rates in Preferences, but it didn't affect my clients. Why?
The sales tax rates in Preferences are only copied to new clients. Changing the default sales tax rate doesn't update existing clients or invoices. If your tax rates change, you'll need to change each client separately, as well as changing the rate in preferences.
Q. Our state requires us to collect sales tax on the entire invoice when the job produces a tangible product, but to collect no sales tax on concept-only jobs. How can we set up Clients & Profits to do this automatically?
First, set all tasks as taxable. Second, set the sales tax option on Job Types/Spec sheets on concept-only jobs to "Always non-taxable". When tasks are added to jobs with a concept-only job type, they will always be non-taxable. However, if additional tasks are added, after the job has been added, you'll need to mark those as non-taxable manually. Only those tasks added to the job initially using the job/type spec sheet to create the job will be marked non-taxable.
Q. Does Clients & Profits use the accrual method or cash-basis method of accounting for sales tax reports?
Clients & Profits recognizes revenue on an accrual basis (i.e., when Accounts Receivable invoices are posted); therefore, sales tax reports are calculated on an accrual basis as well with a credit to the sales tax payable account.
Q. All of these sales tax regulations are confusing. Where can I find out what to tax and when?
It's critical to consult a CPA that's qualified to help ad agencies and design firms decide sales tax issues. It can be complex, and the risk for making a bad guess on sales tax requirements can be great. Also, consider contacting your state taxing authority. Often, if you submit real business case situations in writing to them, they will provide their interpretation of sales tax law in those cases. This response can be helpful in a sales tax audit to show you used the advice of the taxing authority in setting your sales tax policy (it holds more weight than the opinion of your CPA).
Q. What should I do with sales tax on Purchase Orders or A/P invoices?
If you are not tax-exempt and must pay sales tax to your vendors, then sales tax is considered part of the cost of the purchase. Sales tax should be included in the total cost when you are adding an A/P invoice or a purchase order to a task (don't break out the vendor's sales tax as a separate cost unless your client requests this).
Q. Why are invoices for a non-taxable client showing up on the sales tax report?
You have your tasks on jobs for this client marked taxable. This will cause invoices for this client to be marked taxable. These invoices will then show up on the sales tax report as taxable invoices, but calculate no sales tax (since the client's sales tax rate was set to zero). You can mark these tasks as non-taxable when creating jobs for your non-taxable clients to prevent this (see questions above for how to do this). Or, just leave it alone, since no sales tax is being calculated due to the client's zero rate.
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