Handling Sales Tax Discrepancies.

This article explains a problem that may occur when using Sales Tax Groups.

The following problem may occur in the QuickBooks edition of Acctivate when using Sales Tax Groups.  The sales tax on the sales order and invoice may not match the simple “Sub-Total x Tax Rate” method.

This problem occurs when multiple sales tax items are rounded, causing a discrepancy when compared to the aggregate tax rate.  Of course, this problem does not occur for Sales Tax Groups containing a single Sales Tax Item.

The following example illustrates this discrepancy for the “FW – Fort Worth, Texas” Sales Tax Group in our sample company with the following configuration:

  • 1.00% FWCTY (City of Fort Worth)
  • 0.50% FWMTA (Fort Worth Metro Transit Authority)
  • 0.50% FWCR (Fort Worth Crime District)
  • 6.25% TX (State of Texas)

A product is priced for sale at $35.50.  The following calculation would be performed for a single 8.25% Sales Tax Item.

$35.50 x 0.0825 = 2.92875, rounds to $2.93
Sales Tax = $2.93
Total = $35.50 + $2.93 = $38.43

The same example using a 8.25% Sales Tax Group, instead of a single Sales Tax Item.

$35.50 x 0.0100 = 0.35500, rounds to $0.36
$35.50 x 0.0500 = 0.17750, rounds to $0.18
$35.50 x 0.0500 = 0.17750, rounds to $0.18
$35.50 x 0.0625 = 2.21875, rounds to $2.22
Sales Tax = $2.94
Total = $35.50 + $2.94 = $38.44

There are pros and cons of using Tax Items versus Groups.  Most notably, a change to a single tax district could affect many tax rates.  This would require a single change when using Sales Tax Groups, but would require a lot more updates if you have hundreds or thousands of individual sales tax items.

Any discrepancies between the Acctivate sales tax calculation and QuickBooks will be accounted for using a Sales Tax Discrepancy item on the Invoice in QuickBooks.  In some cases, you may need to create the Sales Tax Discrepancy Item in QuickBooks.

CA and UK editions of QuickBooks have a customer tax configuration option which, if enabled, will override the tax code of the Tax Discrepancy item. In QuickBooks, navigate to Edit > Preferences > Sales Tax. Click on the Company tab and uncheck the "Use Customer Tax Code" checkbox.

Please review your sales tax configuration with your QuickBooks ProAdvisor, Consultant or CPA.  There are a lot of implications of changing your sales tax configuration.