Sales Tax

This tutorial will attempt to explain how Bizuno handles taxes, both sales to your customers and purchases from your vendors. In this tutorial we will use the great state of Texas for our business location. Also, we will use the sales tax for the example, working with purchase taxes is the same process but stored with a different key in the tax table.

Prerequisites #

Knowledge of your tax rates and taxing authorities for all regions that tax is to be collected.

Adding a New Taxing Authority #

Before tax can be applied to a sale or purchase, the tax rate must be set up. Tax rates contain one or more authorities that receive payments from the tax collected. A new tax rate cannot be established without your taxing authority entered into the list of your vendors. All taxing authorities are considered vendors for the purpose of collecting and distributing sales tax.

  1. Navigate to Vendors -> Vendor Manager -> New icon
  2. Enter the Vendor information address information
  3. Select the GL Account you want to use for this authority. The GL Account can be used to quickly determine how much tax was collected but if you have a lot of taxing regions, it may add too many accounts to your general ledger. Consult your accountant for recommendations in this area. The GL account type should be ‘Other Current Liabilities’
  4. Fill out the other fields as necessary. Press Save.

Adding a New Vendor

Adding a New Tax Rate #

CAUTION: The tax rate table is loaded into your browser memory when you log into Bizuno. If changes are made to the rate tables, it is best to log out and back in to reload your browser cache.

In this example, Texas only has a single authority to collect taxes so we will only need to create a single entry in the tax authority table.

  1. Navigate to My Business -> Settings -> Bizuno tab -> PhreeBooks Accounting Settings icon-> Sales Tax tab
  2. Click the New iconAdding a New Tax
  3. Enter the title of the tax rate, the date the tax takes effect (typically in the past) and the date the tax will terminate (usually way in the future, how often do taxes go away)
  4. Click the Plus sign to add a new row to the authority table
  5. Enter a few characters of the authority in the Vendor ID field, select the authority from the list. Enter a short name or abbreviation for this authority (This description is used when tax rates are calculated by item and will show the breakdown of tax to each authority). Enter the GL account to post the tax against and the rate in percent.Entering A New Tax
  6. Press Save.
  7. Repeat steps 2-6 for additional tax rates
  8. Log out and back into Bizuno to reload your browser cache

Assigning Default Tax Rates to Customer/Vendors #

Assigning default tax rates to your customers is an easy way to make sure the proper tax is applied to every sale and purchase. Bizuno has tremendous flexibility when it comes to assigning default tax rates. When a default tax rate is assigned to a contact, that rate is automatically loaded into the form when the customers record is loaded. Default rates may also be applied to individual inventory items (see the next section).

  1. Navigate to Customers -> Customer Manager
  2. Search for the customer record to change. Double click the row OR click on the Edit icon
  3. The pull down menu will list the tax rates, select the rate and click the Save icon. If tax is driven by the type of inventory item, select Per Inventory Item and the tax rate will be driven by the SKU and not the customer.Assign Default Tax to Contact

Assigning Default Tax Rates to Inventory Items #

In some cases, the tax rate may be driven by the type of inventory item. For example, some states do not tax labor but do tax materials. In this case, default tax rates may be assigned at the individual inventory item level and the tax calculation will take the rate for each SKU into account. To set the default tax rate for an inventory item:

  1. Navigate to Inventory -> Inventory Manager
  2. Search for the inventory record to change. Double click the row OR click on the Edit icon
  3. The pull down menu will list the tax rates, select the rate and click the Save icon. With inventory, there are separate default tax rates that can be applied. One to customers and another for vendors. If tax is driven by the type of contact (e.g. resale versus end user), select Per Contact and the tax rate will be driven by the contact default tax rate and not the inventory item.
  4. When the rates have been selected, press the Save icon to save your information.

Editing a Tax Rate #

NOTE: It is not recommended to edit a tax rate percentage when the authority rate changes. In this case it’s best to set the Expiration Date for the old rate and create a new record with the Effective Date and new percentage with the same authority. This will allow editing entries that had the old tax rate in effect without recalculating invoice total (with the current rate and change the invoice total, not what you want).

To edit a tax rate:

  1. Navigate to My Business -> Settings -> Bizuno tab -> PhreeBooks Accounting Settings icon-> Sales Tax tab
  2. Double click on the tax you wish to edit.
  3. Make any necessary changes and press the Save icon.

How to Handle Changes to the Tax Rate #

When a tax rate changes, the proper way to handle it is to create a new rate record and use the Expiration Date and Effective date to track rates over time. The image below shows three successive (and hypothetical) changes to the rate in Texas over 4 years. Bizuno will highlight the rates that are not in effect (and inactive if the filter is set) to prevent confusion as to which rate is currently in effect. The same color coding is available in the pull down menus on the order screens and throughout Bizuno. The current tax rates are shown a the top of the list.

Migrating Customers/Vendors to a New Tax Rate #

When a taxing authority changes the percentage rate, Bizuno recommends that you create a new record for the new rate. Bizuno has a convenient tool to make this easy. The tool searches all your contacts and replaces the old tax rate id with the new one, easy-peasy.

  1. Navigate to My Business -> Settings -> Bizuno tab -> PhreeBooks Accounting Settings icon-> Sales Tax tab
  2. Click on the Migrate tool iconTax Rate Migrate Tool
  3. Select the tax rate to search for. Typically this will be a rate that reached it’s Expiration date and will be highlighted on the list.
  4. Select the tax rate to replace it with. Typically this will be the record with the replacement rate, on the first part of the list, unhighlighted.Migrate Rate Selection
  5. Press the Go icon, the number of affected rows will be displayed.

Deleting a tax rate #

NOTE: Once a tax rate has been used in a journal entry, it CANNOT be deleted. The rate should be set to inactive. Over time, as historical fiscal years are removed, the records that utilize these rates will be removed and at that time the tax rate can be deleted. If a tax rate has been used and you try to delete it, you will get an error message and the rate will not be deleted.

To delete a tax record:

  1. Navigate to My Business -> Settings -> Bizuno tab -> PhreeBooks Accounting Settings icon-> Sales Tax tab
  2. Click the trash can on the tax rate to be removed.
  3. Confirm your request and the record will be deleted.

Settings default tax rates in the Bizuno API #

NOTE: The Bizuno API has a multi-layer approach to guessing the tax rate and authority. If the passed tax amount/rate/description matches your tax table values, that tax rate will automatically be applied to the transaction. This overrides the defaults set in the Bizuno API settings.

Since most applications that Bizuno accepts for importing data through the API do not use gl accounts or specify how they calculated taxes, Bizuno has the ability to set default accounts/rates in their absence. To set the default tax rate for API transactions:

  1. Navigate to My Business -> Settings -> Bizuno tab -> Bizuno ERP Settings icon-> Settings tab -> Bizuno API accordion.
  2. Select the default tax to apply. Press the Save icon.Bizuno API Default Settings

FAQs #

When do I inactivate a tax rate versus deleting a tax rate? #

Tax rates can only be deleted if they are not used in a journal transaction. In this case, set them as inactive. In General, once a tax rate has been used, it should remain in the tax table until all records have been removed. This typically will only happen when past fiscal years are purged. It is helpful to put a date/revision code in the description to help keep the current straight (on top of the highlighting)

Why did the total change when I open an older Sale? #

If you edited your tax rate table and changed the percentage value versus creating a new entry, Bizuno has no way of knowing what rate to apply at what time. When an entry is edited (sales or purchases), the tax rate calculation is done in real time. that means whatever the current rate is assigned to the table rate id, the new total will reflect that rate. For example, if the rate changed from 8% to 9% AND the tax rate table was edited to reflect the new rate, if a posted entry is opened, the total will be recalculated WITH THE NEW RATE. If it is then saved, the new rate (and the new total) will be applied to the record and saved in the database. The original total using the old tax rate will be over-written.

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