How sales tax is charged

What this does

Every line on an estimate, work order, or invoice has a Taxable checkbox. Tax is the shop rate applied to the sum of the taxable lines. That number rides with the document to the invoice and, when the invoice is issued, into the ledger.

Which lines are taxable

The checkbox is on the line-item dialog and is on by default for a new line. In most states parts are taxable and labor isn't; some tax both; some tax shop supplies and fees. The app doesn't know your state's rules, so the default is a starting point, not advice: set it per line, and set it on your canned jobs so it's right every time the job is added.

Discount lines are never taxed, and they don't reduce the taxable total either: tax is computed on the taxable lines at their full amount, then the discount comes off the total. If your state taxes the discounted price, reduce the line price instead of adding a discount line.

How the total is computed

Subtotal is all non-discount lines. Tax = the taxable lines × shop rate, rounded to the cent. Total = subtotal − discounts + tax. You'll see the pieces on the document: subtotal, discount, tax, total.

What happens in the books

When the invoice is issued: Dr Accounts Receivable for the total; Cr each line's revenue account for the pre-tax amounts; Cr Sales Tax Payable for the tax. Tax is never revenue; it's money you're holding for the state. When a customer pays, the payment clears the receivable; the tax stays in the payable account until you remit it.

Editing an issued invoice's tax posts the difference to Sales Tax Payable. Voiding reverses it. A credit memo that refunds a taxed sale debits Sales Tax Payable for the tax portion, so the liability drops too. No Charge and Internal invoices post nothing and carry no tax.

Common problems

Tax is on labor and shouldn't be. Untick Taxable on the labor line; fix the canned job so the next one is right.

A tax-exempt customer. Untick Taxable on every line of their document. There's no customer-level exemption flag; check the lines before issuing.

Tax on the invoice doesn't match the state's calculator. Rounding is per invoice, not per line, and the shop rate may be stale. Check Settings → Shop → Tax Rate (%).

The invoice won't issue: "no Sales Tax Payable account is configured." See Setting up sales tax.