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Sales Tax FAQs |
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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 sale
tax collected for a month or quarter. Sales tax rates are completely
customizable for each client.
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. 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 task's settings are copied to
the invoice. When an A/R invoice is posted, sales tax is calculated
using the invoice's sales tax rates and the invoice's taxable billing
amounts. Sales tax is added to the invoice's total. Q. My invoice isn't showing sales tax, what's wrong? There are two things that control sales tax-- the client and the
job. First, check to see that the sales tax rate copied over from
the client's file correctly. (Choose Edit > Edit > Invoice)
If the rate isn't there just add the correct percentages, then check
the client's file (Choose View > Client. Find the client, then
click on the Billing Information button.) If the rate isn't there
you'll need to add the rate into the client's Billing Information
as well. If the rate is there, it means when the invoice was added
they did not tab through the invoice completely. The other possibility
is that the tasks are not marked as taxable. 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
task and the task table to make sure that everything is setup correctly.
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. (Choose View > Client. Find the client, then
click on the Billing Information button. Add sales tax information
and press 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's sales tax returns. (Tip: The county field is case and
space sensitive, so make sure you give each county the exact same
name.) 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. This
information is copied to the client's estimates and invoices automatically.
Q. Why are there settings for two sales tax rates? Some jurisdictions require that county or city rates be listed separately
on client invoices. The two sales tax rates are listed separately
on estimates and invoices to provide more detailed sales tax information
for your clients. Also, using two rates provide more detailed information
on the Sales Tax Summary. Q. How is sales tax and the Task Table related? The tasks determine just what amounts are taxable. Each task in the
Task Table can be marked as taxable or non-taxable, depending on its
tax status. When tasks are copied to new job tickets, this default
tax information 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 taxed on any job of which it appears. The only way it can be taxed
is if someone makes in taxable in the Edit Job Task window. 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 determined what's
taxed or 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 other invoices for the client. Changing the tax setting
on one specific invoice doesn't affect the client's account information
or its jobs. 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. 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. Q. When I enter the estimate should I include sales tax? No. Sales tax is charged on the total estimate, based on which job
tasks are marked as taxable. If the individual estimate amounts include
sales tax, then you'll 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.
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. 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 percentages 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 can be set as "always taxable", "always non-taxable"
or "use task table's tax settings" in Job Types/Spec Sheets. 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.
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. They can be edited on an invoice without affecting the client
account. Task settings are copied to an invoice from the job ticket.
Sales tax on an invoice is calculated based on an invoice's 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 -- 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 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 report lists each
invoice, total invoice amount, 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. The taxable
sales, non-taxable sales, and sales tax amounts on this report make
compiling your sales tax returns easy. Q. I've changed my sales tax rates in Preferences, but it didn't affect my clients. Why? The sales tax rates in Preferences is only copied to new clients.
Changing the default sales tax rate doesn't update existing clients
because they may not all have the same rate. If your tax rates change,
you'll need to change each client separately. 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
be always 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, too. 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 help ad agencies
and design firms decide sales tax issues. It's very complex, and the
liability for making a bad guess is great. Many states have publications
explaining sales tax laws in your jurisdiction. The TaxWeb
and Federation
of Tax Administrators web sites have links to the web site
for the taxing authority in each state, and should contain sales tax
information or phone numbers for you to get additional information.
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. 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 invoice, but
calculate no sales tax. Just mark these tasks as non-taxable when
creating jobs for your non-taxable clients to prevent this. You can
even create job type/spec sheets that for these clients that will
mark all tasks as non-taxable, instead of using the task table settings.
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