The Tax Codes selection enables you to enter tax codes. These are shorthand representations of a sales tax structure. You may have an unlimited number of tax codes.

Each tax code describes the sales tax exacted by one or more taxing authorities (state, county, nation, etc). As many as five of these may be included in one tax code.

Each tax rate may have either a single-bracket or a double-bracket structure.

• Use one bracket if the tax is a flat percentage on a sale; for instance, a state tax of 5%.
• Use two brackets to handle more complicated taxes. For instance, a state might give the consumer the first hundred dollars tax-free, then charge 3% tax on everything up to one hundred dollars, and lastly charge 5% on the portion above one thousand dollars.

The tax brackets apply collectively, not individually, to the goods, services, and other charges in the invoice (except for those that are exempt). If a tax jumps from 7% to 10% at the one thousand dollar level, you cannot evade the 10% by keeping each line item under a thousand dollars.

You might expect that when an invoice is subject to several different sales taxes, you would simply assign several tax codes to that invoice. This would not work because each invoice is restricted to a single tax code. Instead, what you do is devise tax codes with different combinations of state and city taxes, and assign the appropriate tax code to each invoice.

This means that the same tax rate is often repeated in several tax codes. Each city should have a distinct account number for its tax code, even if its tax percent is the same as some other city’s (so that each city gets only the taxes owing to it). Conversely, the same account number should be used for the same tax within all the tax codes containing that tax.

When you enter an invoice in the Invoices selection, sales tax is automatically calculated from your entries here, and the result appears as the default (subject to your override). This also applies to Orders, if you use the OpenPro.com Order Entry package.

Although taxes apply to invoices and not to customers, each customer’s invoices will usually have the same tax code. For this reason, you assign a default tax code to each customer; and that in turn is offered as the default whenever you enter an invoice for that customer. You can override this if needed. If the same customer has more than one ship-to address, this situation is handled by assigning a separate tax code to each address.

NOTE: You must supply at least one entry in the Tax codes selection even if your state has no sales tax, since each customer in the Customers selection must have a tax code. If no sales tax applies, define a code with zero percents. You may wish to assign more than one tax code for the same geographical area. For example, some taxing authorities exempt certain products from taxation if used for agricultural purposes.

In some states, taxes become due when the product is sold, in others when it is paid for. You can specify for each tax code which rule applies. In the former case, tax due is accumulated when the invoice, miscellaneous charges, or another document is posted; in the latter case when the cash receipt is posted. Reports are printed as needed so you can pay the accumulated taxes due to each state (or other entity) when required. Refer to the “Sales Tax Reports” chapter.

To minimize the impact of changes in tax rates:

• Invoices posted before the effective date of the tax change should not be dated later than that date, and those posted afterwards should not be dated earlier than the effective date.
• Post all invoices and miscellaneous charges as late as convenient on the last business day before the tax change, then change the tax codes and refrain from entering any more invoices until the new rates become effective.
• Save the old tax code under a different number, so that you can use it on credit memos for merchandise purchased before the tax change but returned after the change.

Enter a description of the tax code.

This description will display when the tax code is entered in the Customers selection and in various other selections. Although not a requirement, OpenPro.com recommends that you assign a different description to each tax code. Typically the description designates the geographic area where the tax code applies, together with whatever other information is needed. For instance, you might have one tax code for <Buncombe Cnty, agric.> and another for <Buncombe Cnty, non-agric>.

The order in which you enter the taxes is significant, for two reasons:

• Some jurisdictions (e.g., in Canada) levy a tax on the previous tax.
• If you use OpenPro.com Inventory Control it is to your advantage to adopt a consistent sequence for the taxes within each tax rate. Suppose for instance that most of your business is done instate, and in your state you have state, county, and city taxes. Counties do not tax merchandise sold for agricultural purposes, but they do tax food products. The state does the reverse. You should be consistent about the order in which you enter these.

• For instance, you might reserve Tax-rate-1 for state tax, Tax-rate-2 for county tax, and Tax-rate-3 for city tax.
• By setting the appropriate taxability codes, you can then ensure that tractor parts would be exempt from county tax, regardless of what tax code might apply to this invoice. Similarly, condensed milk would be exempt from state tax.

In order to enter a tax code for receivables you must first enter in the tax code in Rules Setup. To do this you need to click on Rules Setup in the main OpenPro menu. From here you click on Maintenance and another drop down menu will appear. From that drop down menu you click on Tax Sales Tables and it will take you to the following window:

From this window you are able to add, edit or delete a tax code.

In order to add a tax code click on the blue Add New Tax Code button located at the top left hand side of the screen. This will take you to the following window:

Enter in all of the information, especially the required Tax Code field. You have the option to also mark the code for T.O.T (Tax on Tax) by just marking the designated checkbox.

Enter a description of this tax rate. This description will be used to identify each tax in Invoices (and Sales Orders) when specifying the tax exemption status of each line item for a particular tax. OpenPro.com recommends (but does not require) that you assign the same description to each tax rate in every tax code in which that tax rate occurs.

• In the first tax rate, a zero tax is legitimate.
• Such a tax is only a dummy of course. It is required in order to handle the case of a state with no sales tax (since every customer must have a default tax code).
• You will still be required to supply an account number for this <tax>.
• In the other tax rates, a zero percentage when processing a new entry signals that there are no more tax rates in this tax code.

When processing an existing entry, entering a zero percent indicates that you wish to delete this row of the table. The remaining rows will move up by one.

T.O.T. stands for <tax on tax>. The cursor does not move to this sub-field for the first tax rate.

At this point the cursor drops a line and moves back to the beginning of the row, to allow entry of a possible second tax bracket. The second bracket may be taxed at a higher or lower rate than the first.

Once your tax code is in the system, you are able to edit it at any time by going to the main Tax Sales Tables screen, choosing the tax code that you would like to change, and click in the green Edit link. Click on the “Save” button when you are through.

Once you have entered all of the required tax codes you are ready to select them in Receivables.

To apply the tax to a desired customer, from the main menu go to the Receivables section, and click on Customer Find. From there find the customer that you would like to apply a tax to and click on the “edit” button. You will be taken to the following screen:

Form this screen you are able to select the tax code that you would like to apply to your customer from a drop down menu, with all tax codes, in the “tax codes” designated field.

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