When setting up your sales tax information there are multiple factors to consider. For example, sales taxes may be comprised of different tax authorities (State, County, City, Special). Certain products may be also be taxed at different rates, or be tax exempt. Certain types of customers may also be subject to different taxes, such as wholesale customers or out-of-state customers. And finally, certain cities or towns may have special 'luxury' taxes on certain types of items. MicroBiz is set up to support all these types of tax scenarios, and as a result requires a few extra tax set-up steps.
Step One: Set Up Your Tax Rate for Your Store
Let's first set up the tax rate that will be applied for the store selected. If you navigate to Settings >> Sales Tax you will see four different sections: Sales Tax Rate, Sales Tax Rules, Customer Tax Class and Product Tax Class. Select the first option 'Sales Tax Rate'.
This is where you enter your tax rate or tax rates for your store or stores for their tax jurisdictions. You have two options. If you have no need to separate your tax payments by tax jurisdictions (e.g. state, county, city. etc.) then you can enter one blended rate. But if you would like to see a report that separates payments by tax authority, you will need to enter your tax rates by authority separately.
If you do enter or layer different rates for different jurisdictions, make sure that you fill in the fields that match the tax jurisdiction. For example, if you have a city tax make sure that you enter the city name in the Sales Tax Rate. It is also critical that the city name entered in this form exactly matches the city name entered in the Store Record that you want to use this sales tax. If it does not match letter for letter, the sales tax will not work for the store.
Hint: Try to use the tax percentage in the Tax Rate Name. This will help you audit the tax rate if you use several different types of sales taxes.
Example: Let’s use Menlo Park CA (our home town) as an example but you can use your tax rate as you follow along. To begin, click on “New Tax Rate”. For Tax Identifier you can enter in any name you’d like, we will use 'California State Sales Tax 6.0%'. For a state-wide tax rate all you need to enter is the country and state. For ours, we would enter “United States”, “California” and a Rate Percentage of 6%. Once you have completed these steps click on “Save”. Now in California, there are separate tax rates for counties and cities. In our case, San Mateo County has a separate County tax of 0.25% and Menlo Park has a special city tax rate of 2.5%. So, we need to create two new tax rates. Follow the same steps as above but for a county tax rate we need to enter information to the country, state and county fields. For a city tax rate, we need to enter information to the country, state, county fields and city fields. For the city of Menlo Park, we would need to enter “United States”, “California”, "San Mateo", and 'Menlo Park" and Rate Percentage of 2.5%. Once you have completed these steps click on “Save”. You can repeat this process for any number of tax rates you may need.
Step Two: Specify Which Products Get Taxed at Which Rate
The Product Tax Class screen allows you to create specific Product Tax Classes. This specifies what products get taxed and what tax is applied. There may already be some suggested product tax class values present: General Merchandise, Shoes & Clothing, Food, and Tax Exempt Merchandise. You can create more if you need them by clicking on “New Product Tax Class” and assigning it a name. If your products already fit into one or more of these categories, then move on to 'Customer Tax Classes'.
Step Three: Assign Tax Rates for Different Types of Customers
Customer Tax Classes assign specific tax rules to certain customer records. If you navigate to the Customer Tax Class menu, you may notice three default customer tax classes are already present: Default (Taxable), Wholesale, and Tax Exempt. Default will be your general taxable customer, Wholesale should be used if you have wholesale customers that will be taxed at a different rate and Tax Exempt is for anyone our rules won’t apply to. If you need to create different customer tax classes all you need to do is click on “Add New”, assign the tax class a name and click “Save”. If you believe that all your customers will fall into one of these customer tax classes, move on to “Sales Tax Rules”.
Step Four: Bundle Sales Taxes, Customer Types and Product Classes into a Sales Tax Rule
Now that we have established that we have all the customer and product tax classes and sales tax rates we will need, it is time to create our tax rule. The tax rule brings everything together and applies the tax rates to the customers and products you want them to apply. To start the process, click on “New Tax Rule”. To continue, fill in the name you’d like for this Tax Rule, select the customer tax classes and product tax classes you would like to apply the rule to and then select any tax rates that will apply to this rule. Once finished, click on “Save” and you should be all set!
Example - Let's assume that all the merchandise in our store is subject to the same taxes, and that all our customer pay this full tax in every item. In this case we would just need one tax rule, which would group (1) the Product Tax Class assigned to all our products, (2) the Customer Tax Class assigned to all our customers, and (2) all our sales taxes from our different tax jurisdictions. As you can see in the screenshot below, our rule includes our default Customer Tax Class, default Product Tax Class and all our Sales Tax Rates. So products purchased in the Menlo Park store with a 'General Merchandise' Product Tax Class purchased by customers with a 'Default' customer tax class would be charged a combined tax of 8.75% (comprised of a 6.00% California sales tax, a 0.25% San Mateo County sales tax and a 2.50% Menlo Park city sales tax). If you have different product tax classes and customer tax classes, you will need a separate tax rule for each unique combination. To check, go to Settings >> Store Settings and review the taxes listed on the Tax tab.
The most common error is that the values entered into the State, County and City fields in the Tax Rate screens do not exactly match the values in the Store Record. A typo or extra space will break the connection between the Tax Set Up and the Store's Register. Also make sure that the correct Product Tax Class is assigned to the product rung up. Same with the correct Customer Tax Class if a customer is attached to the transaction. If none of these work, reach out to our support department.
- Start/End Date - Use these for taxes that are temporary or have a known end date.
- Always Round Up - If you’re in Florida or Maryland, check this box on your tax rate setup. It forces a rounding up of the final tax subtotal so any fractional penny is round up to the next full penny.
- Priority - Use this field to set the priority of your taxes. For example, if one tax needs to be applied to a transaction to calculate a total before the second tax rate is applied within a specific Tax Rule.
Do You Have Special Taxes?
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