Tax Set Up Examples
MicroBiz allows for flexibility and accuracy in collecting sales tax in most jurisdictions and countries. To set it up you need to know who gets taxed, what the rates apply, the location of where they apply, and which products get which rates. All of this information is defined in Tax Rules. Tax Rates, Product Tax Classes and Customer Tax Classes are used when you define your Tax Rules.
Standard Tax Exclusive Prices (United States)
If you have a single store and all your products are subject to the same tax rate - you can create one tax rate, one product tax class and one tax rule and set your store address and you'll all set tax-wise. Otherwise you will have to set-up multiple rates and product tax classes.
General Steps in the US
- Create 1 or 2 customer Tax Classes "Taxable Customers (Default)" and if you need it "Non-Taxable Customers" .
- Create Product Tax Classes - for some states you just need "Taxable Goods" and "Non-Taxable Goods" Depending on your State and what you sell you may need a separate "Shoes & Clothing" or possibly more like "Prepared Food", "Medicine" and so forth. Product Tax Classes get assigned to new products when you create the product so make sure what you call your Product Tax Classes makes your intention clear to your staff when they are creating new products.
- Create your Tax Rates. If you do not need to make separate tax payments by jurisdiction, you can create one combined tax rate. If you want to show taxes collected for the different jurisdictions separately in the tax reports, then you will need to create separate rates for each jurisdiction. These separate rates are then grouped together in a Tax Rule (next step).
- Create a Tax Rules for each State you have stores, such as "CA Sales Tax." Add the applicable Customer Tax Class, Product Tax class and Tax Rates and save. This is where you would aggregate Tax Rates from different tax jurisdictions.
- Make sure your store address contains the country, state and if necessary county cited in the Tax Rate. Also be sure that the spelling of these fields exactly match the corresponding information entered in the Store set up screens - as the system looks for an exact match of the applicable State, County, City and Zip Code fields when applying taxes.
VAT/Tax Inclusive Prices (Other Countries)
If your area has some sort of Value Added Tax - here are the steps to set that up. We're going to assume you have standard rate VAT products in your store. You might also have some reduced rate VAT products and maybe even some zero rate VAT products. You can omit any rates that do not apply to your business. And be sure to change the names to conform to your local naming conventions - (TVA, BVW, UST etc.)
- The first step is to make sure that your system is set for Tax Exclusive Pricing. This can be done using the setting at Settings >> General >> Advanced Settings >> General Account Settings
- Create one or two Customer Tax Classes: "Taxable Customers (Default)" and if you need it "Non-Taxable Customers" .
- Create three Product Tax Classes: "Standard Rate VAT", "Reduced Rate VAT" and "Zero Rate VAT". You will assign these to your products so the register applies the correct rate.
- Create three Tax Rates: "Standard Rate VAT", "Reduced Rate VAT" and "Zero Rate VAT". It may be helpful to include the actual rate in the name "Standard Rate VAT (21%)" . To define the jurisdiction of the Tax Rate, most businesses in most countries only have to select the correct country for the tax rate - and the rate will apply to all your stores with that country assigned. Don't forget to set the actual percentage rate.
- Create three Tax Rules: "Standard VAT (21%)" , "Reduced Rate VAT (7%)", "Zero Rate VAT" - change the names to reflect your local rates and conventions. Add the applicable Customer Tax Class, Product Tax Class and Tax Rate (so add the standard rate Product Tax Class and the standard Tax Rate to the standard Tax Rule)...and save. Repeat for reduced rate and zero rate if those also apply to you.
- Make sure you store address contains the country cited in the tax rate.
- That's It.
GST vs. PST
If you live in a jurisdiction where tax is compounded (such as Quebec), set up your GST Tax Rule with priority 1 and your Quebec PST Tax Rule with priority 2. The PST will apply to both the base purchase amount and the GST.
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 rounded up to the next full penny (this is what the 'bracket look up table' is doing).
Creating a Tax Rule
Setting up a MicroBiz Sales Tax Rule takes five Steps:
Step 1 – The first part of the Tax Rule is who gets taxed – i.e. which Customer Tax Class applies to this Tax Rule. For most business and customers there will be a simple default Customer Tax Class that is linked to the Tax Rule. Most customers are regular customers that pay sales tax if your state/province or location charges sales tax on purchases. You may also create non-taxable Customer Tax Class or maybe even a wholesale Customer Tax Class to keep track of customers that may need different rules to apply to them.
Step 2 – The second part of the Tax Rule is what gets taxed – i.e. which Product Tax Class applies to this rule. For many retailers there is a single Tax Rule that applies to all the products sold, but some retailers need to keep track of both taxable and non-taxable items. For example, maybe sporting goods are taxable and clothing is not. Or maybe food and medicine is taxed at one rate and general merchandise is taxed at a different rate.
Step 3 – The third part of the Tax Rule is which Tax Rate(s) apply to this Tax Rule. Tax Rates include both the percentage tax levied as well the jurisdiction or location of the Tax Rate. In Florida there is a 6% state-wide rate. Only enter as much address as necessary in a rule. For a state-wide rate, just enter the country and state and Tax Rate. Use a descriptive name like “IL State Sales Tax 6.25%”.
Step 4 – Set up a Tax Rule:
- Rule Name: ‘Illinois General Merchandise (6.25%)’
- Customer Tax Class: Taxable Customers
- Product Tax Class: Taxable General Merchandise
- Tax Rate: Illinois General Merchandise (6.25%)
This means if you sell a taxable item to a taxable customer in Illinois the 6.25% rate will apply.
Step 5 – Define your store where your store is located, such as being in Illinois. Now when you sell items from your Illinois store the ‘Illinois General Merchandise (6.25%)’ rule will be applied to those items being sold.
If you have a store in a jurisdiction that has multiple taxes being applied (like state and county taxes) you have two options:
- You can set up your Tax Rate to include both taxes. So if your store is somewhere like Miami Beach, Florida with a 6% state rate and a 1% Miami-Dade County rate you simply create a rule for your Miami Florida Store at 7%.
- You can also set up the separate rates and set up separate rules if you want to see the taxes collected separate on your reports. This may be useful if you have to split these numbers out on your weekly or monthly tax reports when you file and pay your sales and use taxes. To accomplish this you set up a Florida Tax Rate of 6% and a Miami-Dade County Tax Rate of 1%. Then a Florida Tax Rule and a Miami Dade County Tax Rule. Both of these will apply when you sell a taxable product to a taxable customer at your store in Miami Beach, Florida. The trick here is to set the priority of both to zero so both rates apply to the base purchase amount.
Other Related Articles:
Tax Inclusive Pricing
Luxury Sales Taxes