This article explains how tax amounts are calculated for Sales Tax Groups in QuickBooks Desktop companies.
Since Acctivate integrates and syncs with QuickBooks, it's important for Acctivate to round taxes in the same manner as the version of QuickBooks the Acctivate company is integrated with.
This article is meant to provide information on how QuickBooks Desktop calculates and rounds Sales Tax Groups vs Sales Tax Items and the discrepancies that may arise due to the difference.
For information on how QuickBooks Online calculates tax and rounds tax, see the note at the bottom of this article.
The method of rounding sales tax in QuickBooks Desktop varies between Sales Tax Items and Sales Tax Groups, which may result in a different tax amount for a Sales Tax Group and Sales Tax Item that have the same tax rate.
When using a Sales Tax Group, the sales tax on the sales order and invoice may not match the simple “Sub-Total x Tax Rate” method.
The 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 the 8.25% Sales Tax Group above, 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 Desktop 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.
QuickBooks Online calculates Sales Tax Groups by multiplying the group rate by the subtotal. This ensures that the total tax amount is the same whether using a Sales Tax Group or Sales Tax Item.
After a total rate is calculated for the group, each item in the group has its tax calculated and rounded based on the Tax Item's rate.
If the sum amount of the Sales Tax Items is different than the amount of the Sales Tax Group, then the discrepancy is allocated to tax item with the largest amount.
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.