Sales tax overview

Depending on where you do business, you might need to collect and report on sales tax in Accounts Receivable, Order Entry, or Purchasing.

About sales tax

While there is no federal sales tax, most states in the United States, plus the District of Columbia, impose a sales tax on retail sales and some services, as well as a use tax on sales and services. There are approximately 8,000 state, county, and city jurisdictions in the U.S. that charge a sales tax. Some states, such as Florida, Texas, and California, tax services in addition to tangible items.

Businesses are required to collect sales tax in the following cases:

• The customer is in the same state
• The business has nexus in the customer's state

Tax rates vary between states and also on what goods and services are taxable. For example, food is not taxed in some states. Clothing might have a lower tax than other items in the same state. In addition, most states allow counties, cities, and other local areas to levy a sales tax, too. So, businesses must keep records of sales in each city, county, and state in which they do business.

Sales tax calculation methods

Sage Intacct offers three very different approaches to applying sales tax during transaction entry: Simple, Advanced, and AvaTax.

The tax calculation method that you decide to implement depends on the number of jurisdictions for which you must collect taxes, the locations of your customers, and the types of goods you sell.

• Simple Tax: You manually calculate and enter a tax amount in the subtotals section for AR sales invoices in Accounts Receivable. You can automatically or manually apply a flat tax (an amount or percentage) for transactions in Order Entry and Purchasing.
  Example

  If you sell similar goods that all have the same tax rate in one geographic area, Simple Tax might be a good solution.

• Advanced Tax: You set up and maintain the tax jurisdictions and tax rates in Intacct using tax groups, tax details, tax schedules, and tax schedule maps. Taxes are automatically determined in the applicable transactions.
  Example

  If you sell goods and services in a limited area, perhaps one or two states, and you can easily keep track of the different tax jurisdictions and tax rates, Advanced Tax might be a good solution.

• Avalara AvaTax: When you use the AvaTax integration from Avalara, Avalara is responsible for managing and maintaining all the tax rate tables for the different jurisdictions. Taxes are automatically determined in the applicable transactions by Avalara, who calculates the taxes on their system.
  Example

  If you sell in all 50 states in the United States and must collect taxes from them along with many counties and cities, AvaTax can provide a more cost effective tax solution that alleviates your administrative overhead.

With either Advanced Tax or the AvaTax integration, variable tax rates are automatically applied in Accounts Receivable, Order Entry, and Purchasing. The difference between these two tax methods is the amount of work that you have to do. Although Advanced Tax is included in your subscription and Avalara charges you for using their system, price-performance considerations favor AvaTax for the more complicated tax situations.

Sales tax in multinational organizations

If you are a multinational organization, you might have entities in which you need to capture sales tax and entities in which you need to capture VAT or GST.

You can use the Taxes application, which supports using different tax solutions in different entities. You set up tax solutions that use Advanced Tax, Avalara AvaTax, or both and assign those tax solutions to the entities in which you need to capture sales tax. You set up VAT and GST tax solutions and assign those solutions to the entities in which you need to capture VAT or GST.

For example, if you are headquartered in the United States and have foreign subsidiaries in the United Kingdom, you can set up Avalara AvaTax for your entities in the United States and use the pre-configured United Kingdom VAT tax solution for your entities in the United Kingdom.

With the Taxes application, Advanced Tax is not supported in Accounts Receivable.