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Last modified on 1/28/2016 3:47 PM by User.

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Sales, Tax, Zone

Sales Tax vs Zone Tax

There are two ways of calculating sales tax.  One is the State tax.  The other is by a Zone tax.  It depends on your taxing authorities and how the taxes are reported as to which one to use. Here are a few examples:

 

  • State Tax – use this if only a flat state tax is used in your state.  An example would be the state of Michigan, which charges a flat 6% sales tax, and no other City, County or Parish tax.  The sales tax for Michigan would be set up the tax rates using the State Tax table.  Zone tax wouldn’t be used.
  • State Tax – may also be used if sales tax is collected and reported for another state that also has a single, flat rate.  The example would be if the selling location is in Michigan, but the goods are delivered to Ohio, and Ohio has a single, flat tax rate of 6.5%.   Ohio would also be setup in the State Tax table.  Zone tax wouldn’t be used.
  • State Tax & Zone Tax combination – we don’t recommend proceeding in this manner as you would then have two sales tax reports to run and reconcile (state tax and zone tax).  However, if you choose to use this combination an example would be when you have a state tax and a county tax.  Each tax must be reported and paid separately.  The example would be if the state of Florida charges 6% sales tax and the county of Palm Beach charges an additional 2.5%. The state of Florida could be setup in the State Tax table @ 6%.  The 2.5% county tax would be set up as a Zone Tax.
  • Zone Tax only – may be used for same scenario listed above (state of FL, county of Palm Beach).  Two Zone Taxes would be setup:  a Florida state Zone tax for 6% and a county of Palm Beach Zone tax for 2.5%.  Using this method, a Tax Zone report is used
  • Zone Tax only – may be used if a State tax and a City, County, or Parrish tax is colleted however you report and pay the whole amount to one entity.  The example would be if the State of Nevada charges 4% sales tax and the city of Las Vegas charges an additional 2%. Whereas the city of Reno charges a 1.5% sales tax.   In both cases, the entire tax is reported and paid to the state of Nevada, and nothing is reported to the cities of Las Vegas or Reno.  For these cases, 2 Tax Zones would be used.  A Las Vegas Zone tax would be set up as 6%(4+2) and Reno Zone tax would b set up as 5.5% (4+1.5).  
  • Non-Taxable Zone Tax only – if you need to report the breakdown on non-taxable/exempt sales, a Tax Zone needs to be setup for each exemption.  For example:  Government Tax Zone for 0%, Resale Tax Zone for 0%, etc.

 

See the document titled:  Task 23 – Tax Zone for complete instructions on setting up a Tax Zone.   See below for setting up a State Tax amount.

 

Setting up State Tax

 

  • Order Processing Module  (Module 6)
    • System Management (Task 32)
      • Modify application tables (Subtask 17)
        • Sales tax rates (Selection  5)
          • This table has two columns. One for the two character abbreviation of the state.  The other is for the tax percent.  This percent column can be 5 characters, (6 characters if you count the decimal).  
          • Every state sold/delivered to MUST be in this table regardless if you are using just State Tax, Zone Tax or a combination of both, however if you are using ZONE TAXES, set the state with a zero percent:   “00.00”.   
          • If selling/delivering to a state but not collecting state tax, the state must be in the table with a zero percent.   
          • If selling/delivering to a state and tax is being collected, reported and paid, the sales tax percent must be added.  For example, if the state charges 6% sales tax, it would be set up in the table as “06.00”.  If the state charges 6.25%, it would be in the table as “06.25”.

 

Setting up Zone Taxes:    See the document titled:  Task 23 - Tax Zones for complete instructions.

 

Setting up the Customer’s Tax Status

 

  • Module Accounts Receivable (Module 2)
    • Customer master (Task 17)
      • Enter new customer record (Sub-task 1)
      • Change existing customer record (Sub-task 2)

 

If using State Tax:

Field #6 – State A two-letter abbreviation of the state. It must match the abbreviation in the Sales Tax Rate table. (Module 6, Task 32, Sub-task 17, Selection 5)

Field #20 St. tax flag – A Tax code table appears on the screen (Module 2, Task 32, Sub-task 17, Selection 5).  T- Taxable is the only tax code that will charge a state tax, all other tax codes are NON-taxable.

NOTE:  Items can be set as taxable or nontaxable (Module 5, Task 17, Subtask 2, Field 20: Taxable).  Merchandise items are set as taxable.  Labor items may be nontaxable, depending on whether your state charges tax on labor items.  

·        Example:  The customer’s state tax flag is set as T for taxable.  The customer is sold a part for a copier, which is taxable and on the same invoice is an hour worth of labor which is nontaxable.  The state tax is only charged on the items that are setup as taxable in the Item Master.

·        Example: The same items are sold to a customer with a state tax flag of R for resale, which is nontaxable.  Tax isn’t charged on any items.

·        Example:  The customer’s state tax flag is set as T for taxable.  The customer is sold a few merchandise items.  They inform you that one of the items is for a government project and therefore, non-taxable.  At the time of order entry, when entering the line item, the tax status of the item can be changed only for that invoice.  If the line item is modified, when the cursor is at price field, the F1 key gives the option to change the tax status…..only for this line item on this invoice.

 

If using Zone Taxes:

Field #6 – State A two-letter abbreviation of the state. It must match the abbreviation in the Sales Tax Rate table. (Module 6, Task 32, Sub-task 17, Selection 5).  If using Zone Taxes only, be sure the tax for the states are set to zero percent.

Fields 25, 26 & 27 on the Customer Master.  A five-numeric digit, set up in the Tax Zone file (Module 2, Task 23).

NOTE:  Items can be set as taxable or nontaxable (Module 5, Task 17, Subtask 2, Field 20: Taxable).  Merchandise items are set as taxable.  Labor items may be nontaxable, depending on whether your state charges tax on labor items.  

·        Example:  The customer’s state tax flag is set as T for taxable.  The customer is sold a part for a copier, which is taxable and on the same invoice is an hour worth of labor which is nontaxable.  The zone tax is only charged on the items that are setup as taxable in the Item Master.

·        Example: The same items are sold to a customer with a state tax flag of R for resale, which is nontaxable.  Tax isn’t charged on any items.

·        Example:  The customer’s state tax flag is set as T for taxable.  The customer is sold a few merchandise items.  They inform you that one of the items is for a government project and therefore, non-taxable.  At the time of order entry, when entering the line item, the tax status of the item can be changed only for that invoice.  If the line item is modified, when the cursor is at price field, the F1 key gives the option to change the tax status…..only for this line item on this invoice.