Sales Tax and Tax Groups

Open Settings → Accounting. Two of its tabs share the word tax and nothing else.

Settings → Sales tax. The top card adds a rate; the middle card lists the rates offered on invoices; the bottom card says whether new service items start taxable.

• Name: how the tax reads on the invoice. Name the authority and the place, so a customer and an auditor can tell what it is.
• Rate: a percentage with up to four decimal places; 8.875 means 8.875%.
• Paid to: the state the tax is owed to. Choosing a state with the rate box empty fills in that state's starting rate.
• Posts to: the liability account the tax collected accumulates in. Sales tax default uses the account set in Chapter 15.3. Once a state is chosen, a third choice appears: New account under the default, named after the state. With more than one state, give each its own account.

The starting rate is the state part only. Washington, like most sales tax states, adds a local rate that depends on where the goods are delivered. Summit's accountant looked up the combined rate for its Vancouver customers: 8.7%.³

1. 1

   A first attempt, saved too soon

   The bookkeeper typed the name WA sales tax -- Vancouver and the rate 8.7, and pressed Add the rate before choosing the state. The page accepted it: a rate with no state is allowed. The banner confirmed the rate, and the list showed it with no state and posting to the default account.

2. 2

   Enter it properly

   The bookkeeper typed the name and rate again, chose Paid to Washington, and in Posts to chose New account: Liabilities:Taxes Payable:Washington. Before a state is chosen this choice reads (choose the state first) and cannot be picked, because the new account is named after the state.

1. 3

   Save, and read the list

   Press Add the rate. The banner now adds: The account Liabilities:Taxes Payable:Washington was made for it. The list shows the mistake plainly: two rates with the same name, one paid to WA and posting to the Washington account, the other with no state posting to the default. On an invoice they would look identical in the Sales tax list.

1. 4

   Delete the first attempt

   Press Delete on the row with no state. The dialog names the rate and its percentage. Because both rows share that name, make sure you pressed Delete on the right row before you confirm. A rate already charged on an invoice, an estimate or a recurring template is never deleted: the page says where it is used and keeps it. This one had never been used, so it went.

Summit left the Labor and services card at Not set. It sells goods into Washington, not services, and every invoice line can still be ticked or unticked by hand.

A new customer, Vancouver Lake Rowing Club in Vancouver, Washington, ordered two Ascent 55L backpacks at $239.00 for delivery. The bookkeeper wrote invoice 1248 as in Chapter 2.1, with two additions: the Tax box ticked on the backpack line, and the Washington rate chosen in Sales tax under the subtotal. Summit's products were set up as not taxable, because Oregon has no sales tax, so the Tax box has to be ticked on each taxable line.

The Sales tax summary (the button on the rates list) gathers what you need for the return: what was charged at each rate in a period, from the invoices, and what each sales tax account holds.

Most books belong to one filer: the company's legal name and EIN from Chapter 15.1. Sometimes one set of books holds the accounts of a second filer. A sole proprietor may keep a separate Schedule C business in the same books; a company may manage a building owned by a related LLC. A tax group is that second filer. Accounts assigned to it report their 1099s and their Tax Report figures under the group's name and tax ID instead of the company's.

Summit's owners are moving the Galveston Building, whose units and leases are in these books (Volume 13), into Galveston Building LLC, a partnership that files Form 1065.

1. 1

   Open a new group

   Settings → Tax groups → New tax group (or Add the first tax group on an empty list).

2. 2

   Who files

   Tax group name: the legal name that holds the tax ID, Galveston Building LLC. Contact name: the person for questions about these filings. Leave No, a US filer.

3. 3

   Tax ID and return

   Kind of tax ID EIN; type the nine digits and the dashes are put in for you. If the number has been applied for but not received, tick No tax ID yet; 1099s cannot be filed for the group until it is on record. In Reports on choose the return the filer files, here Form 1065; the Tax Report builds its lead schedule from it.

1. 4

   A digit short

   On the first try the bookkeeper typed only eight digits. The form would not save: the box turned red with Enter all nine digits. Retyping the full number fixed it.

1. 5

   Save, then assign accounts on the Tax Report

   Press Add tax group. The banner says the group was added and that accounts are assigned to it on the tax report. The group owns nothing until you do that (Chapter 6.8). Summit will assign the Galveston Building's rent and expense accounts from the date the LLC takes over, on its accountant's advice.

• [x] Sales tax payable has a default account (Chapter 15.3) before the first rate.
• [x] Every rate has a unique name that names the place, and the right state.
• [x] Each state has its own liability account.
• [x] No rate saved by mistake is left in the list.
• [x] Taxable lines are ticked on invoices to taxing states.
• [x] The Sales tax summary's "Owed at end" agrees with the return before it is filed.
• [x] Each second filer has a tax group with its tax ID on file, and its accounts are assigned on the Tax Report.