Looking for Advice on Handling Taxable and Non-Taxable Item Calculation

Here in the US the some items (goods) are taxable but labor (services) is usually not. The tax rate is based on the city in which the work is performed or delivered. For example in San Francisco, the rate is 8.5% for material goods and 0% rate for labor.

Let’s imagine I sell a television for $1000.00 and then install the television for $400.00. The gross sale is $1400.

If I make a quote and select the “San Francisco Sales Tax” it will tax the full $1400.00 gross sale @ 8.5% and shows taxes of $119.00. This is because it only allows me to select actual, On Net total, or on Previous Row Amount or Total.

In reality, the taxable amount is $1000 since only the television is taxable. SO I should only be collecting $85.00 in sales tax from this customer. Does anyone have a way of either overriding the taxable amount or a way of hiding the rows which should not be subject to tax?

Right now, we have to use “Actual” and manually calculate the tax by summing up the taxable items and then multiplying by the city tax rate. This is not very efficient and is prone to human error.

As a work around, you can create a separate Item Code for services and use it in your documents and do not set tax for that.

Thanks @Pawan but I already tried that. I created a tax code called “Zero Tax” with a rate of 0%. I then applied that rate to an item called “installation labor”. I then did a quote with one television and one installation labor. I then applied the sales tax rate to the order which is 8.5%. The item called “installation labor” is still contributing to the total order value and I cannot override it. I need to exclude the installation labor from the sales tax, and it still is included if I use “On Net Total”

What would be ideal is if we could edit the tax calculations in the area called “TAX BREAKUP” as seen in the Sales Invoice form (see below). This Tax Breakup should also appear in the Quotation and Sales Order in my opinion. It should also have the checkbox to allow the user to edit the fields like the same checkbox which allows you to edit the time/date of a transaction on other forms

Refer to the following link, it depicts the scenario you are looking for I think. Check if your accounts are properly set up for the scenario as well.

@Pawan This is excellent and it did work, but it is a bit complicated for US based businesses. Our tax codes are based on geography and we collect tax based on the destination of the goods we sell. Taxation is done based on the state in which the business has operations, in our case we have one office in California only so we only collect tax when we deliver goods to cities in the state of California.

In California labor is non-taxable, so when we sell it, it is with no tax. I need to go to this item every time I sell it and add the location to the list of tax codes and set the value to 0%. While it is not a big problem, it is a little bit of a hassle. It also requires that I remove the installation from the quote and then add it back in after the tax table has been updated for the item. Otherwise, the values do not update the tax rate of 0% in the quote.

Because taxation is so complicated in the US, companies such as Avalara has developed APIs to allow for the automated calculation of taxes based on the geography and type of good sold.

In any case, your help was invaluable and this solved a major issue for us in manually calculating sales tax. Much appreciated!