Setting Up Luxury Sales Taxes

Overview

If you are in New York or Massachusetts, your store may be subject to luxury sales taxes (i.e. a higher tax rate over a certain purchase threshold).

To use the Luxury Tax option, you will need to:

Create a separate Product Tax Class for the items subject to the luxury sales tax.
Create a separate Sales Tax Rate which include the Luxury Tax Settings in MicroBiz. These settings allow you to apply the luxury tax to the amount of the purchase above a specific threshold, or apply the tax to all items after the threshold has been reached.
Group the Product Tax Class and Sale Tax Rate for the luxury items in a Sales Tax Rule.

How to Set Up Luxury Taxes

Let's use an example to show how this works. Assume that purchases of Clothing & Shoes above $110 in value are subject to a luxury sales tax of 4%, while General Merchandise items are not subject to any luxury taxes. In this case you will need to set-up a new tax rate for Shoes and Clothing. We will name this New York City Luxury Sales Tax. When setting up this Sales Tax Rate, be sure to select a Tax Type of 'Luxury' and a Luxury Tax Type of 'Above break point'. As set up below, New York’s 4% sales tax will only be applied to garments whose price after discounts is more than $110.00. If we were going to create the New York Luxury Tax Rate you would check off the “Luxury Tax Option”, set the threshold to $110 and select the box for “Luxury Tax Applies to the Full Value” as shown below.

Here are the relevant fields:

Rate - This will be the tax rate applied to the items based on the Product Tax Class and Customer Tax Class in the Sales Tax Rule.
Tax Type - This can be set to Standard or Luxury. If set to 'Luxury', the two luxury tax options appear.
Luxury Tax Type -This determined how the luxury tax will be applied once the purchases of items subject to the luxury tax exceed the threshold. The tax rate can be applied to just the purchases above the threshold amount, or can be applied to the entire purchase amount once the threshold has been exceeded.
Luxury Break Point - This is the transaction amount (after any discounts) that triggers the luxury tax calculation.

Be sure to understand how your taxes work and run some test transactions in MicroBiz to make sure the rules are being following before going live with your POS system. We also recommend having your accountant confirm your tax settings. For example, In some jurisdictions the local taxes are also exempt; in some the local taxes are still levied. The 4% rate is applied to the entire amount charged for the item.

Examples

New York - 4% State Sales Tax only applies to garments whose price after discounts is more than $110.00. In some jurisdictions the local taxes are also exempt; in some the local taxes are still levied. The 4% rate is applied to the entire amount charged for the item.

Check Luxury Tax Option
Set Threshold to $110
Luxury Tax Applies to Entire Amount

Massachusetts - 6.25% State Sales Tax only applies to garments whose price after discounts is more than $175.00. The 6.25% tax applies only to the amount above the $175.00 threshold.

Check Luxury Tax Option
Set Threshold to $175
Luxury Tax Applies to Amount Above Threshold