inclusive tax calculation
Andy and Amy,
Not sure if this is a bug or not, but my accounts person and I found something funny with the calculation for inclusive tax items. When we run our sales tax report we get an included tax amount that seems to be calculated using the item total amount. So a $6 tax inclusive item with 5.5% sales tax give a tax included amount of $0.33. When the actual included tax should be $0.31.
Again not sure if this is a bug, or a limitation of RGP, or if we have just set up something wrong. Our tax inclusive items have a 0% sales tax assigned to them as recommended in settings, tax setup.
We non integrated accounting software, but we thought this could be confusing for others. Thanks for any suggestions on this. Sorry if it isn't a bug.
Clay
Comments
This math is correct, at least in regards to how RGP computes tax exclusivity. A tax inclusive product priced at $10 with 10% tax should have a $1 tax.
Thanks for the quick reply. Unfortunately, in my real world example above RGP is calculating a $6 tax inclusive item with 5.5% sales tax to have a tax of $0.33. If you work it the other way, that comes out to 5.8% tax. Our Accounting software and our double checking of the math manually shows that the tax amount should be $0.31 on a $6 item with 5.5% tax.
I think I followed the instructions correctly for setting up the taxes and the tax inclusive items in RGP, but I may have done something wrong. I created a o% tax code and assigned that to my tax inclusive products. I did not assign any other tax codes to them. I also set up my state and county tax codes, and assigned them to the products I did not want inclusive. Did I do this correctly? How does RGP know what percentage to use to figure inclusive tax?
It doesn't seem like much, but it could be a big error after a year. Especially if imported to quickbooks.
Sorry, my accounts person and I are baffled by this and really would like to sort it out.
Cheers,
Clay
RGP computes the inclusive tax receipt hint off the total. So RGP should display $0.33 for a $6 item at 5.5%. ($6 x 0.055 = $0.33). You are most likely thinking that the tax inclusive feature creates a tax + total amount that EQUALS $6.... and that is not how the tax inclusivity is designed.
This may, or may not, be what you want based on your use of the final value - but RGP is operating as designed.
Tax inclusive "hint" amounts are NEVER transmitted via Quickbooks (only actual taxes collected are) thus this should have no impact on quickbooks.
Thanks Andy,
You are correct in my assumption of how I thought the tax inclusive feature works. It does not make sense to me how it does work though, because the tax reported on the receipt is incorrect. Shouldn't tax be figured on the pre tax price not the price including tax already? So, shouldn't the calculation be 6 divided by 1.055, not 6 times .055?
This incorrect amount also shows up up our sales tax report in RGP. That is how we first noticed it and why I mentioned the possibility of it importing to quickbooks.
So, is there a way to make the correct tax show up on the receipt then? If I enter the price of the product minus tax in the product set up and give it the 0% tax code, then won't the till ring up that price and not the price including tax?
Clay
This is the way it has behaved since the feature was introduced and haven't heard any other complaints. I suspect some people want the tax computed as RGP does and others may want it like you.
A reminder that you can enter whatever tax you want into quickbooks since it is a manual entry.... and use the total presented to compute the tax as you desire. Thus the only operational impact for you is that the receipts have a different tax than you expect.
In a future update I can look at making the computation have a choose of methods, but I can't offer any timeline for that change.
I suspect no one else has noticed. We use Xero for our accounting software and my book keeper was trying to balance that to RGP. That is how we saw the discrepancy and started looking into how it all works. We first noticed it in the sales tax report from RGP and I didn't know if that info went to quickbooks for those that use it. Just looking out for the people that do.
I can adjust the tax hint to get the correct amount of tax on the receipt until an option is provided.
As always, thanks for taking the time to look into this and get back to me. I really appreciate the support and that you listen to feedback.
Clay
Interesting that this was just posted - I noticed this when we tried to make our pricing tax inclusive. What I did was input all of our pricing divided by 1.065 (6.5% sales tax where we are) just like slackyard said. This worked for most of our items, however, the software is not letting some prices have no change - I have no idea why as it does for the rest. For example we have one item priced 26 dollars. So 26/1.065 = 24.413. If I input that price I get a total of 25.99, if I input 24.42 I get a total of 26.01. Whats weird is that strategy worked for most of our items, just a few it doesnt want to let me get to no change. Ideas?
@tetonrockgym,
What you are trying to do is different than describe in the thread. You are attempting to have prices come out to an even amount by pricing them less the tax. That will be an exercise in frustration due to rounding. Even if you get a product to work, it may not work for higher quantities. That is why it works some products and not others - it all depends on the price, tax, and rounding result.
You want to use the tax-inclusive pricing as described in the Sales Tax tab in Settings. That is - create a 0% tax and assign it to the products in question.
Because it is 0%, no tax will be collected at POS and you can have the products priced at an even amount.
Then to compute your sales tax liability quarterly for the state, run the Sales Tax report. You'll see all the 0% tax items grouped together with a total. Multiply that times the 6.5% and you've computed the tax owed to the state.
Hope this helps
Andy
@ andy laakman
Thanks Andy - yes that does make sense. Despite being frustrated with that one item, every single other item ive entered since works in the way I described, though the way you say does make more sense - maybe we will switch to it if we run into problems, but for now I have our products entered in the way I described and its been working. Thanks for the info.
FYI - the latest update includes support for calculating the tax inclusivity either via the old method, or the alternate method described above.
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