QuickBooks Taxes
In QuickBooks there are 4 inter-related tax items/lists:
Tax Item
Tax Group
Vendor – Tax Agency
Tax Code
Each tax item will provide a way to denote a % of Tax to charge. Tax Items that charge a % will always point to a Tax Agency Vendor. The Tax Item in QB is responsible to place any taxes collected in the proper Vendor escrow account.
The Tax Group in QB will allow the ability to create a composite tax made up of multiple Tax Items. An example of this could be the state tax, county tax and city tax. A tax group could then be used to represent all taxes collected for a specific city. If all taxes are remitted to a single tax Vendor, it is possible to create a Tax Item for each jurisdiction that contains the composite % rate for a specific city rather than create a Tax Group. QuickBooks allows either Tax Groups or the use of composite Tax Items for collection of sales taxes. It is left to the user to choose.
The place on the invoice where you denote either a Tax Item or Tax Group would be the Sales Tax selection box at the bottom of the Invoice. This dropdown box contains all Tax Items and Tax Groups. This box can be prefilled for each customer via the use of the Tax Default set in the Customer record. Only one sales tax can be defined for each customer. When a customer may cross tax jurisdictions different tax items/groups may be required on invoices to a single customer. This could happen because of delivery to multiple locations that represent that company. Usually taxes are owed where the exchange of product happens to the customer. The cross-jurisdiction problem could happen if some product is delivered to a customer and other products are picked up by the customer where pickup and delivery are within two different jurisdictions. Since there is only a single tax code per invoice, this could require different invoices to a customer based on tax jurisdiction or some users of QB will actually create multiple “customers” (representing the same customer) so that the tax Item default is correct.
Tax Code has a minimal implementation of “Tax” and “Non” implemented to allow notations on each invoice line if the item being sold is taxable so the proper tax can be calculated for the invoice. It is possible to extend this functionality to allow the accounting department to classify taxes or bucketize them for reporting purposes. Tax codes are 3 characters long and each one can be noted as taxable or exempt. These Codes will show on a tax report and add into the total for each code the individual line of the invoice.
Interact Taxes
In Interact there are 2 inter-related tax items:
Tax Authority
Tax Code
Similar to QB, the Tax Authority takes the place of Tax Item and Tax Agency Vendor. In QB, a Tax Item can only point to a single Tax Authority. Interact merges these two separate identities into a single identity.
The Interact Tax Code has the same functionality of the Tax Group in QB. The difference is that in Interact, we require a Tax Code for all transactions. QB allows you to assign either a Tax Item or a Tax Group to an invoice, Interact requires our Tax Code (the QB Tax Group) to always be used. Sometimes our Tax Code only has a single Tax Authority, other times it is a composite made up of multiple Tax Authorities. This can be done in QuickBooks if someone wanted.
How Taxes are calculated differently in QuickBooks and Interact
Taxes are calculated in Interact on each transaction.
Taxes are calculated in QuickBooks on each invoice (made up of one or many transactions).
This difference in how taxes are calculated can cause penny rounding issues. Other ticketing applications simply transfer each transaction as an invoice. AWS discovered long ago it is possible for penny rounding differences to occur even if each transaction or multiple item ticket is transferred as an invoice. Customers also prefer having multiple transactions listed on a single invoice.
If the data transfer between Interact and QuickBooks were to allow QuickBooks to calculate the sale tax, it would result in the QuickBooks invoice total to not match to the penny the Interact invoice. AWS has learned that accountants frown upon penny differences in accounting and should be avoided if at all possible.
Solving Tax Rounding Issues
To eliminate sales tax rounding issues the QuickBooks Synchronization module has disabled the QuickBooks tax calculation and will transfer in all taxes as line items on the invoice.
To disable tax calculation, the entire invoice is marked as a 0% tax. There must be a tax item in QuickBooks that has a 0% tax rate that is assigned to the invoice. This tax item will be displayed in the Tax field at the bottom of the QuickBooks Invoice.
The next step requires Interact to transfer in the taxes collected and deposit them into the correct Tax Escrow account. This is done by linking the Tax Authorities in Interact to the proper Tax Items in QuickBooks . Any money collected via taxes for a Tax Authority in Interact will transfer to the matching Tax Item in QuickBooks . As many lines on the invoice will be transferred to match the number of Tax Authorities in Interact. Penny for penny matching.
Tax collection for a Simple Tax Jurisdiction (Taxing Authority)
QuickBooks out of the box supports Tax Codes of “Tax” and “Non”. As each line is added to the invoice, it will be marked as taxable or non-taxable by the QuickBooks Synchronization module. Since a transaction in Interact may have multiple charges (i.e. base charge, added charges, and freight charges) that may be taxed differently, the transaction will be split up into each charge type present and transferred as separate line items to the QuickBooks invoice. Each line will be marked whether it is taxable or not using the “Tax” and “Non” Tax codes. This will allow tax reporting in QuickBooks to total all revenue in the correct classifications for filing tax reports.
Jurisdiction
A jurisdiction is the taxation authority that imposes the tax. Each jurisdiction is identified by a tax authority code. This code provides the location for the transaction to be taxed.
Tax collection for Multiple Tax Jurisdictions (Multiple Taxing Authorities)
There are states (and counties and cities) that require detailed accounting of sales. They may need to know the total for all sales within a city or county of both taxable and exempt sales. To meet that requirement, the QuickBooks Synchronization module can use Tax Codes. This functionality will replace the simple tax jurisdiction functionality explained above. “Tax” and “Non” do not contain the functionality required for this level of tax reporting.
Because it is possibility for a single invoice from Interact to contain multiple tax jurisdictions (tax authorities) for a Customer, the Tax Code is the only way to properly account for all the numbers required for tax reporting. The Tax Code in Interact can be used as the Tax Code in QB. This will allow each line item to be noted with the correct designation for tax calculation. It will match exactly how Interact calculated the tax and deposited the amounts in the Tax Agency Vendor account. By matching the Tax Code names in Interact with the Tax Code names in QB, when tax reports are run in QB, they will match to the penny of exactly how Interact collected taxes. By the use of the associated Tax Code exempt accounts, all sales that are exempt will be properly matched with the proper jurisdiction.
The way to eliminate sales tax rounding issues is to disable QB tax calculation and transfer in all taxes as line items on the invoice
is to is to disable QB tax calculation and transfer in all taxes as line items on the invoice
transfer sales tax information to QB is to disable QB tax calculation and transfer in all taxes as line items on the invoice
Since there is no good way to let QB calculate taxes on an invoice and guarantee to a penny that the invoice total will match. The primary way that is recommended to transfer sales tax information to QB is to disable QB tax calculation and transfer in all taxes as line items on the invoice. To disable tax calculation, the entire invoice is marked as a 0% tax. There must be a tax item in QB that has a 0% tax rate that is assigned to the invoice. The next step requires Interact to transfer in the taxes collected and deposit them into the correct Tax Escrow account. This is done by linking the Tax Authorities in Interact to the proper Tax Items in QB. Any money collected via taxes for a Tax Authority in Interact will transfer to the matching Tax Item in QB. As many lines on the invoice will be transferred to match the number of Tax Authorities in Interact. Penny for penny matching.
The solution to tax collection for multiple and more complex jurisdictions (Version 6.1.1 and later)
There are states (and counties and cities) that require detailed accounting of sales. They may need to know the total for all sales within a city or county of both taxable and exempt sales. To meet that requirement, the Sync tool can use Tax Codes. This functionality will replace the simple tax jurisdiction functionality explained above. “Tax” and “Non” do not contain the functionality required for this level of tax reporting. Add in that it is possibility that a single invoice from Interact may contain multiple tax jurisdictions for a Customer, the Tax Code is the only way to properly account for all the numbers required for tax reporting. The Tax Code in Interact can be used as the Tax Code in QB. This will allow each line item to be noted with the correct designation for tax calculation. It will match exactly how Interact calculated the tax and deposited the amounts in the Tax Agency Vendor account. By matching the Tax Code names in Interact with the Tax Code names in QB, when tax reports are run in QB, they will match to the penny of exactly how Interact collected taxes. By the use of the associated Tax Code exempt accounts, all sales that are exempt will be properly matched with the proper jurisdiction.
Appendix
Interact QuickBooks
Tax Authority -> Tax Item -> Tax Agency Vendor
Tax Code -> Tax Code
(Unused) TaxGroupItem
Note: Tax Group Items may be present for direct QB data entry but are unused by the QB Sync Tool. If the customer creates TaxGroupItems to be used to manually generate invoices in QB, then the tax reports will actually duplicate totals (actually four, 2 tax and 2 exempt) for each jurisdiction that will need to be added together to represent the total sales for the jurisdiction. That is because the Tax Code forms totals and so does the Tax Group, but each total is shown in a different place on the tax report. There will be a single total if manual entered invoices are generated similar to the QB Sync tool (use Item lines in the invoice rather than setting the tax at the bottom of the form). A decision will need to be made by the customer if the desire is for 1) a simple tax report or 2) a simple manual invoice entry. Either way will work. Either the accountant will need to do a small amount of additional work to file taxes or the person entering manual invoices needs to do additional work to create the line items. Most customers choose simple invoice.
Note: All tax money transferred from Interact to QB will actually be documented in 3 places in QB. It will show as a TaxItem money receipt addition, a SalesTaxLiability account addition and a TaxAgencyVendor addition to the payable account. The money collected is never "owned" by the company collecting it. It is placed in an escrow account (SalesTaxLIability) and the same amount is placed in the TaxAgencyVendor account as money owed. When the check is cut to pay the TaxAgency, the money will be taken from the SalesTaxLiabiliy account for the check and then the payment will be paid against the TaxAgencyVendor account to reduce the amount owed the Tax Agency.