Sales Tax by Item

There are sales tax authorities, states, cities, counties, parishes which may have regulations which charge sales tax on certain items regardless if the customer is tax exempt.  Check with your accountant or tax authorities to be sure on these rules.

The example of this is a State may charge sales tax for a delivery or handling charge regardless if the customer is tax exempt.  This document explains how to set this up.

In our example:

State sales tax is 7.5%

Delivery charge is $20.00

You sell to Tom’s Office Supply & they have given you a sales tax exempt # stating they are resale.  The state says you have to charge them sales tax on your delivery charge regardless of the fact they are sales tax exempt.  You have set them up in the A/R Customer master and the O/P alternate ship-to file as tax exempt.

Parameters to consider:

• Inventory control (Module 5)
  • System management functions (Task 32)

    • Modify parameter files (Sub-task 22)

      • 1 I/C - General

        • ​ASK'OTH'ACT=Y  Ask for other G/L account

• Order Processing (Module 6)
  • System management functions (Task 32)

    • Modify parameter files (Sub-task 22)

      • 1 O/E - General

        • DFLT'CST'FLG=AY                 

          • ​This 1^st digit isn’t what we are concerned with in this document.  This 1^st digit doesn’t need to be changed.  The 2^nd digit needs to be considered for this document.  [1st digit Default cost of sale (Average or Last) A/L/a 'A' logic uses average except for out-of-stock items where last is considered more appropriate.  Specify 'a' to use Average in all situations.]

          • 2nd digit Y/N Omit "other" from material COST "Other cost" is handled by default as a pass-through charge ... both billed to customers AND added to the base cost of sales on material items.  Examples are: sales tax, excise tax and vendor/distributor surcharges.  A "Y"es setting omits the COST side of this behavior and only adds to the revenue (billing) amount.

The setup of the item in the I/C module, Item Master (Task 17):

• Item #: DEL-COMPANY TRUCK
• Item G/L #: 551-00 SALES-DELIVERY
• Other act#: 325-00 Sales Tax
• Average cost: 0
• Last cost: 0
• Other Cost: 1.50 
• Price 1: 20.00
• Taxable: N non-taxable
• Item type M material
• Product code:
• Report class:
• Dimensional: R repro-no quantity

Note: At the end of the month an O/P sales report may be needed on these types of items.  A way of grouping them together may be desired, i.e. item # or report class range.

Additional Note: In this example of 7.5% sales tax, you may setup the item with the Other Cost of $1.40 and the price of the item as $18.60 for a total of $20.00.  This way the customer is paying $20.00.  You are only reporting $18.60 as revenue & the $1.40 as sales tax.  This is up to you.

Reports and things to consider:

• In this example the price of the line item on the invoice will be $21.50.  The $1.50 isn’t broken out separately as sales tax.  The customer only sees the delivery item with a total of $21.50.

• On the A/R to G/L interface:
  • $20.00 is a credit to 551-00-xx
  • $1.50 is a credit to $325-00-xx

• If the rest of your state or zone tax is assigned to the same G/L account # (325-00-xx) all of the sales tax will be grouped together on the A/R to G/L interface. 

• On the A/R sales or zone tax reports the sale amount of $21.50 will be in the Non-taxable sales.  This is why the O/P item report may be desired.

• Order Processing (Module 6), Select the best Order processing report for you.  Here is one report which may be printed.
  • Special item history (Task 15)
    • 7 Class or code / item / date IHSCLS.
      • If these types of items are all grouped together into one report class select only the one report class.
      • If these types of items are all grouped together into an item # range, select the range of item #’s.
      • This report will show the $20.00 in the TOTAL SALES column.
      • This report will show the $1.50 in the TOTAL OTHER column. 
      • The Grand total of the TOTAL SALES column will need to be considered for the appropriate taxable sales reporting (possibly subtracted from the non-taxable sales & added to the taxable sales).
      • The Grand total of the TOTAL OTHER column will need to be reported & paid as sales tax.
• When paying the sales tax for the $1.50 in the A/P module use the same G/L account # as on the item “Other act #”.