Task Description: Taxes are generally involuntary fees levied on individuals or corporations enforced by a government entity, whether local, regional, or national, to finance government activities. In economics, taxes fall on whoever pays the tax burden, whether this is the entity being taxed, like a business, or the end consumers of the business’s goods.
Table of Content
- Tax Component
- Tax Code
- Tax Region
- Tax Rules
- Sales Transactions
- Tax Calculation Type
Setting up tax
- The tax configuration menu is available in the Finance and Admin module
- The Users without access to the Finance module can create the Tax masters under the Admin menu
Menu Path: Admin > Default settings
- In the Products Tab, select a service product in the Tax dropdown
Creating Tax Component
Menu Path: Finance > Tax Components > Tax Components > Tax Components List > Menu > New or Click (+) sign or use the ‘Insert’ key on the keyboard to create a new Tax Component
Enter the Component Code and Description
- In the Sales Tab select the Calculation method, Tax Rate type, Tax Account, and other details
- Select the tax rate type
- Flat Rate: A single Tax rate for the products of all price ranges
Product Price Tiers: Tax Rate will be different for the defined price ranges
Go to Purchase Tab and enter the Tax Rate % and other details and save the Master.
Tax Code
Menu Path: Finance > Masters > Tax Codes
- On the Tax Codes List > Click (+) sign or use the ‘Insert’ key on the keyboard to create a new Tax Code. You can also go to Menu and select ‘New’.
Enter the Tax Code, Description and highlight the Tax Components to be added for this code, and click on the ‘Add’ button. Then remove the Tax Component that was already selected, highlight the Tax Component, and click on the ‘Remove’ button.`
Note1: The first Tax Component is always computed on the Sale Price of the line item. Starting from the second Tax component, the Tax bases can be computed on the Line Item and/ or on the Tax Components that appear before this Component in the list. This can be done by clicking on the button that appears on the Tax Bases column by selecting the option from the ‘Tax on Tax’ window and clicking on Accept.
Note 2: Select the option ‘Non-taxable’ when defining a Tax Code that is not taxable such as Out of State sales, sale of Food and Clothing, and Sales to Government and Re-sellers. Tax components cannot be added to a Tax Group exempted from tax.
- After making the selection, save the Tax Code Master
Tax Region
Menu Path: Finance > Masters > Tax Regions
- Click on the (+) sign or use the ‘Insert’ key on the keyboard to create a new Tax Region. You can also go to Menu and select ‘New’.
- Enter the Tax Region Code, Name, Country, State, Tax Code, Starting Tax Locator, and Ending Tax Locator, and click on Save.
The Tax Locator code is the combination of State, County, and City.
Tax Rules
Menu Path: Finance > Masters > Tax Rules
- Click on the (+) sign or use the ‘Insert’ key on the keyboard to create a new Tax Rules. You can also go to Menu and select ‘New’.
- Enter the Tax Code, whether the Tax should be applied to the Region or the Tax Region, and the Rules for the particular Tax.
As given in the snapshot, the Rule can be applied to the entire Transaction, to a Customer, Customer Type, Product, or Category.
- Entire Transaction: The Tax Rule is applied to all the products in the Transaction.
- Product: The Tax Rule is applied to the Product specified in the selection.
- Category: The Tax Rule is applied to the Products that fall under the Category specified in the selection.
- Customer Type: The Tax Rule is applied to the Customers who belong to the Customer Type specified in the selection.
Create a Customer Type
Menu Path: CRM > Masters> Customer Type
- Enter the Code, and Description and save
- In the customer Master, Sundry Tab, select this Customer Type and save the Master
All the Customers with this Customer Type will fall under the Tax Rule created with this Customer Type.
Sales Transaction
Menu Path: Sales > Transactions > Sales Invoices
- Click the (+) sign or use the ‘Insert’ key on the keyboard to create a new Sales Invoice. You can also go to Menu and select ‘New’.
- Select the Customer and Products and the quantity to be shipped and go to the Details Tab. The Region and Tax Region are populated automatically based on the Customer’s address. The Tax Calculation Type is ’Automatic’ by default.
- In the Products Tab, the Tax Code field is populated with the default value of this Tax Region and the Tax amount is calculated accordingly.
- If the Tax Code field is changed manually, you can observe that the Tax Calculation Type is changed to Manual override
Tax Calculation Type: The tax calculation type can be Automatic or Manual Override.
- Automatic: The Tax code field gets populated automatically based on the Customer’s address. If there is a special Tax Rule defined for the particular region, it takes precedence. (eg. Tax rule for a particular Customer Type, Product, etc.).
- Manual Override: The User can change the Tax code which is different from the default.