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Sales Tax and PST

Sales tax is a consumer tax that is charged at the end of the supply chain. It is used in many US states, and also in some Canadian provinces.

If you are collecting Sales Tax, you will need to add the tax to any sales you make (except where the customer is exempt from sales tax). Although purchases may have sales tax added to them, you will not be able to reclaim these (instead the sales tax portion needs to be included into the purchase price, which MoneyWorks can do automatically for you).

When you first set up MoneyWorks, you therefore need to make sure that the tax rates in the tax table — see Tax Codes are set up for your location. MoneyWorks comes pre-loaded with the sales tax rates for PST in Canada, but not for the myriad of possibilities in the US.

Sales tax on a transaction line is determined by the tax code on the line, and this in turn is normally determined by the settings in the general ledger (although this can be overridden for specific customers and suppliers). Thus your sales general ledger codes will normally all have a tax code on them to make them taxable — see Tax Code.

Although you pay sales tax on purchases, you have to include it in the cost of the item. In MoneyWorks, if there is a sales tax on a purchase/expense transaction, the sales tax portion will automatically be allocated to the general ledger code used on the line. It is therefore possible to have a sales tax code on purchase/expense codes, which can dramatically streamline the entry of these transactions (because each line of the source docket is normally recorded net of tax, with the total tax given at the bottom).

The Sales Tax Report

The sales tax report is used to itemise and summarise your sales tax liability. You will run this at the end of each period for which you need to report on sales tax. To run the report:

  1. Choose Reports>Sales Tax

The Sales Tax report settings will open

  1. Set the Mode pop-up to Sales

If Mode is set to Documentation, the report (when run) will produce a description of the output it would normally produce.

  1. Set the From and To pop-ups to the periods that encompass your reporting cycle

If you are reporting on just one period, these will be set to the same

Show Details: If this option is on, each transaction line will also be shown on the report. This will make the report longer, but it may be useful if you find that your sales tax figures don’t seem to make sense.

  1. Click the Preview (or Print) button to view the report

The report will list every posted Sales transaction (i.e. debtor invoice, and receipts that are not paying invoices) in the nominated reporting period, along with its sales tax. The report will also list any sales transactions from prior periods that were posted in the reporting period, allowing prior period adjustments to be automatically included.

At the end of the report, the total sales tax is broken down into its component parts (e.g. State and County).

Note: Transactions entered prior to MoneyWorks 5.2 are shown in blue (the sales tax handling was different in older versions). The sales tax on these cannot be broken down into its component parts, so the total is listed at the end of the report.

Individual sales are listed at the top of the report, and the total sales taxes collected are summarised at the bottam (by tax code).

Sales Tax Report and Purchases

The Sales Tax report has a Purchases mode. If set to this, the report will look at purchase transactions (i.e. creditor invoice and direct payments) that were made in nominated time period using versions of MoneyWorks prior to 5.2. Sales tax on these transactions was not automatically “expensed”, and you needed to put through a journal at month end to adjust for this. The report will list the transactions, and the required journal.

Refunds and Sales Tax

Because the Sales Tax report only considers “Sales” transactions (i.e. Debtor Invoices and direct Receipts that bypass the Debtors system), it will not recognise refunds that you have put through as payments.

Refunds in MoneyWorks should always be done by applying a Return Refund to Debtor on a previously raised credit note (i.e. negative debtor invoice). Apart from ensuring this will be picked up correctly for Sales tax purposes, it will also ensure that any associated inventoried items on the sale are returned to stock at the correct valuation1. Refunds can also be achieved by using a negative Receipt (although counter-intuitive, this is a sales reversal, and the inventory and tax will be handled correctly).


1  If you use a payment transaction (as might seem logical), you are effectively buying the inventory back but at the price for which you sold them. This will upset your inventory valuation.