How to setup and use a cost tax

In some states a tax is assessed on the cost of parts when they are sold. This is different from a normal retail tax where the tax is assessed based on the price of the parts sold to the customer. This article will show you how to handle this.

Setup:

Before you can use a cost tax on an invoice, you must set one up. Use the directions below to make this happen.

  1. Create a tax code (Sales → Enter Tax Codes) and change the type from Retail to Cost.
  2. In the Cost Account field, enter some sort of cost of sales account. This is important because this tax is actually increasing the cost of the parts you are selling.
  3. Fill out the rest of the tax code normally. Make sure that only the necessary items are checked. Cost tax is generally only applied to Material, but other conditions may exist.

Use:

When you are ready to create invoices that need to have the cost tax applied, simply change the tax code on the invoice to be the desired cost type tax code you just created. The cost increase this causes will show up in the Other Cost area in the bottom left-hand corner of the invoice.

Additional Notes:

If you wish to recoup the cost tax you have to pay, simply increase your markup percentages by the amount of the cost tax (Inventory → Enter Markup Codes) and recalculate your inventory prices (Inventory → Update Inventory Pricing).

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4 Comments

  • Avatar
    Gina Monson

    We have a situation with cost taxes on quotes, where the invoice is completed in the field. When the quote is created, the tax code is set to "cost tax." Once the quote is accepted, a dispatch is created and the parts and other detail lines are imported to the parts tab of the dispatch screen. The field technicians are responsible for completing the invoice as they finish the job. However, the cost tax is not carrying over to the Mobile Tech application; instead, the invoice on Mobile Tech shows a tax amount chargeable to the customer, above and beyond the amount of the quote. When testing this scenario with the desktop application - Quote to Dispatch to Invoice - the cost tax is carried all the way through to the invoice. Is this a glitch that needs to be corrected, or are we doing something incorrectly? Any help is appreciated!

  • Avatar
    Scott Haugsjaa

    Hey Gina, thanks for reaching out to us.

    The only scenario I could think of that would cause the Tax to be different in those examples would be that the Quote has a Tax Code different than than the Customer's default Tax Code.

    This means someone is manually changing the Tax Code on the Quote for a specific objective.

    Can you help us understand why you'd need to adjust the Tax Code on the Quote from the Customer's Default Tax Code? Thanks!

  • Avatar
    Gina Monson

    Hi Scott. We are changing the Tax Code on the quote so that we are paying cost tax. Also, I believe your thought is correct; it is defaulting to the customer's Tax Code. However, shouldn't the Tax Code on the quote carry over to the Invoice as long as the Quote -->Dispatch--> Invoice process is followed, regardless of whether the invoice is created in the office or on a mobile device?

    Thanks for your help, Scott!

  • Avatar
    Scott Haugsjaa

    While I don't disagree with your logic, this is not a bug - it's just designed to pull the mobile tax code from the Customer.

    Knowing that, you'll want to adjust accordingly. Either update the Customer's record and then create the Dispatch or change the Tax Code after importing the Invoice from Mobile.

    First time I am hearing that you'd have a Quote's Tax Code for a Customer different than the Customer's Tax Code. Very unique.

    Thanks for sharing!

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