You can create a Sales Tax Group when you have one or more sales tax items to add to the group. When a Sales Tax Group is used for a transaction, the tax percentage displayed is the sum of all the tax percentages. However, using that group tax percentage to calculate sales tax doesn’t necessarily reflect the correct total tax amount because of rounding that occurs when individual taxes are calculated. The following example illustrates this point.
As an example, suppose you have a state tax of 4 percent and a county tax of 1 percent. You create a Sales Tax Group to include both taxes. When that Sales Tax Group is used on an invoice, it is displayed as 5 percent.
Assume an invoice’s taxable items total $38.66. If you were to use the 5 percent tax value, you’d expect the tax to be $1.9330, which would be rounded down to $1.93. However, the invoice will actually show $1.94, which is the correct amount. This number is correct because the state tax of 4 percent is $1.5464, which rounds up to $1.55. The county tax of 1 percent is $0.3866, which rounds up to $0.39. Adding the two taxes together, the total tax is $1.94, which is the amount shown on the invoice.
Consequently, if your application computes sales tax, be sure to calculate each individual tax in a Sales Tax Group individually, then sum the individual results to obtain the correct total.
This section discusses multiple taxes and invoices, but the discussion also applies to taxes on sales receipts.
In general, it’s best to assign a tax item or tax group to an invoice and allow QuickBooks to apply the same tax to all taxable items on the invoice. In some situations, however, multiple taxes are required, so this method doesn’t work. In such cases, you’ll need to use techniques to apply the taxes as line items, and there are several important details to be aware of.
When you are applying taxes as line items, you can use only single tax items. Tax groups can be used only for the invoice as a whole. If you have multiple taxes that apply to all taxable items, plus one or more other taxes that apply only to some of the items on an invoice, it’s better to use a tax group that applies to the entire invoice for the taxes that
apply to all taxable items. You can then apply the other taxes as line items within the invoice. Use the ItemSalesTaxRef aggregate to apply a tax or tax group to the entire invoice.
You can use subtotals to apply a single tax line to multiple items in an invoice, but the tax is only applied automatically for the first tax line after the subtotal line. You need to manually supply the tax amount for any other tax lines that need to be applied to the subtotal line. If you don’t supply an amount, the amount comes out as zero and the tax line is useless. When you do supply an amount, the amount of tax on the subtotal also shows up in the rate column for that tax line. There isn’t any way for the rate to show up as anything other than the amount of the tax.
For example, in the following invoice, Tax 1 (5%) is applied automatically. The rate shows up as 5% and the amount is calculated as $15.00. Tax 2 (6%), however, is provided by you as an amount of $18.00 (in the third column). The Rate also shows up as $18.00, and is filled in by QuickBooks. There is no visual representation of the rate for the second tax (6%).
| Item | Rate | Amount |
|---|---|---|
| Item 1 | $100.00 | $100.00 |
| Item 2 | $200.00 | $200.00 |
| Subtotal | $300.00 | |
| Tax 1 | 5% | $15.00 |
| Tax 2 | $18.00 (QuickBooks fills in this value) |
$18.00 |
Note
Note
If you have a complicated tax situation where no single tax applies to all taxable items on the invoice, you must choose a zero percent tax to apply to the entire invoice. It is recommended that you name such a tax item “Tax Calculated on Invoice” so that it’s clear that the tax is not being applied by QuickBooks to the entire invoice.
Flat discounts are applied differently than percentage discounts are applied. In addition, nontaxable discounts are applied differently than taxable discounts are applied.
A percentage discount applies only to the line directly above it. As a result, all of the tax implications for a percentage discount apply only to that line. In contrast, flat discounts apply to all lines recorded above the discount. Flat discounts are pro-rated among the items they apply to.
In the following example, the $20.00 discount is properly distributed to be half taxable and half nontaxable. The taxable amount for the discount is only $10.00.
| Item | Amount | Taxable? |
|---|---|---|
| Item 1 | $100.00 | Nontaxable |
| Item 2 | $100.00 | Taxable |
| Discount | $20.00 | Taxable |
The following discussion shows how QuickBooks calculates both taxable and nontaxable flat discounts. A nontaxable discount is applied after sales tax. A taxable discount is applied before sales tax. Both taxes are prorated among the items they apply to.
Consider an invoice with the following items:
| Item | Amount | Taxable? |
|---|---|---|
| Item 1 | $100.00 | Taxable |
| Item 2 | $200.00 | Taxable |
| Discount | $30.00 | NonTaxable |
The sales tax (5%) in this example is calculated by QuickBooks as the sum of each (line item * tax) which equals a total of $315.00. The discount of $30.00 is then subtracted, which yields a total due of $285.
Note
Note
Do not use nontaxable discounts unless discounts in your state are never applied to sales tax.
A taxable discount is applied before sales tax is calculated. Using the previous example, the tax is calculated as follows:
($100 - $10) *.05 + ($200 - $20)*.05 = $13.50 sales tax
which equals a total due of $283.50 on this invoice after discount and tax are applied.