How to handle tax on contract jobs in Arizona

Arizona has some special rules when it comes to figuring out tax for contracting jobs that are quoted at a flat rate. In these circumstances Arizona assumes the flat rate includes the tax. Arizona gives you pages of tax formulas and a confusing spread sheet to determine what the tax should be based on the total taxable sales of each invoice. This article will show you how to bypass that information and still calculate your taxes perfectly with less steps.


The key to making this method work is to have good tax codes. Before you proceed, be sure you have setup your tax codes properly in ESC. You will need 2 tax codes setup for every city and county where you perform work. The first you would setup normally. This one will handle your normal sales where every line item is listed and the tax is applied at the end. The second would tax everything (see the picture below) and would only be used for quoted jobs. We put a C at the end of these codes so that we will know they are to be used with Contract jobs.

Before you proceed you must first create two billing codes using the following information. Ignore fields not listed in the table below. 

Code Deduct JobTax
Description Taxable Sales Deduction Tax Adjustment
Type Discount Other
Rate 35 0
Income Account Leave Blank Leave Blank
Non Taxable Unchecked Checked

Once that has been completed you're ready to invoice. Create the invoice like you normally would. Once you have done that, complete the following steps to finish the invoice.

  1. Switch the tax code on the invoice to the one you created for this tax situation. This should be the tax code that taxes everything.
  2. Add the Deduct billing code to the bottom of the invoice. This will reduce the amount of the invoice by 35%. Remove the check mark from the print box on the invoice.
  3. Add the JobTax billing code to the bottom of the invoice. Set the Quantity to 1 and change the price to match the line above it, only make this amount positive. Remove the check mark from the print box on the invoice.
  4. Note the tax amount in the bottom right-hand corner of the invoice. This amount is now correct.
  5. To make the entire invoice correct, add the JobTax billing code to the invoice again. Set the Quantity to 1 and change the price to match the tax shown in the previous step, only make this amount negative.

That is all there is to it.

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