Sales Taxes

Last update: 2024-12-26

Sales Taxes

This guide provides step-by-step instructions on how to create and manage sales taxes when generating invoices.

IMPORTANT: Please review this section carefully before enabling sales taxes.

Understanding How Sales Taxes Work

Before enabling sales taxes for your account, there are some important details to understand. If you have any questions, don't hesitate to contact us.

By default, sales taxes are disabled. Every business is different, and if you don’t need to charge sales taxes, there is no need to set anything up.

Important Notes

  • Once a sales tax is applied to an invoice, it cannot be removed from that specific invoice.
  • Use the "Effective from (date)" option only for future invoices. The "Effective from" date will be compared with the invoice due date to determine if sales taxes should be applied.
  • When updating sales tax rates, create a new sales tax with an "Effective from" date in the future. Disable the existing sales tax on the effective date of the new tax.
  • Only users with the Owner or Administrator roles can manage sales taxes from the Admin Dashboard.

How to Add a Sales Tax

  1. Log in as an Owner or Administrator. From the menu, choose "Admin" > "System Settings", then choose "Enable, disable, and manage sales tax settings" from the Business Settings block.

  2. Depending on your location, you may have more than one applicable sales tax. For example, in Ontario, Canada, the HST (13%) combines a 5% federal tax and an 8% provincial tax.

    Fill in the following details:

    • Tax Name: Enter the sales tax abbreviation (e.g., HST). This will appear on invoices.
    • Tax Description: Add a note for internal reference (not shown on invoices).
    • Rate: Enter the percentage rate (e.g., 13 for 13%). Do not include symbols.
    • Effective From: Specify the date from which the tax applies. This will be compared with the invoice due date.

    Example Scenarios:

    Invoice Due Date: 2024-03-12 | Effective From: 2024-03-15 | Expected Behavior: Sales tax is not applied

    Invoice Due Date: 2024-03-24 | Effective From: 2024-03-24 | Expected Behavior: Sales tax is applied

  • Is Sales Tax Active? Select Yes to enable immediately or No to activate later.
  • Click Add.

List of Sales Taxes

The list will show all entered sales taxes. For example, the # of invoices column reflects the number of invoices using a particular sales tax.

Notes

  • Once the # of invoices is greater than 0, sales tax information cannot be deleted for data integrity reasons. However, you can disable or update it.
  • If there is an update to the sales tax, do not modify the existing tax. Instead, add a new one and disable the old tax on the effective date.

Sales Tax in Action

In the example above, the sales tax is applied because the "Effective from" date matches the invoice's current date. If the invoice is in draft mode without a due date, changes to the sales tax will update the draft. If the invoice already has a due date, updates will not take effect.

What to Do When There Is a Sales Tax Update

It is your responsibility to stay informed about sales tax updates announced by your local government and apply the changes accordingly.

Example Scenario

If the Government of Ontario announces that the HST rate will increase to 14% starting January 1, 2025, and today’s date is May 1, 2024, follow these steps:

  1. Leave the current sales tax unchanged.

  2. Add the new sales tax with the following details:

    • Tax Name: HST
    • Tax Description: HST in effect from January 1, 2025
    • Rate: 14
    • Effective From: 2025-01-01
    • Is Sales Tax Active? No

  3. On January 1, 2025, disable the old sales tax and enable the new one. The system will not do this automatically.

If you have any questions, please contact us.