Determining the applicable sales tax on an invoice can be complicated. Every region seems to have its own tax structure. Regularly, there is more than one tax to contend with. Sometimes different types of products and services can have different tax rates.
 
TekStack supports this complexity with tax groups and codes. Tax groups and codes have the flexibility to model various sales tax structures in the different regions where you sell your products. Once created, tax groups can be reused across your customers. And, adding a tax group to a customer account ensures the tax group is applied consistently to any invoices generated for that customer.
Here’s how it works. (Note that rates shown may not be accurate for the example locations.)

Tax Groups

These are the groups created for each region. Examples here are the Canadian province, British Columbia (BC), and the American state of New York.

Tax Codes

Inside each Tax Group are the Tax Codes that apply to that geographical location. In British Columbia there are two taxes, listed as codes, GST and PST. They are applied in a certain order.


In the state of New York, the sales tax you’re charged depends on where you live. Counties and municipalities collect their share on top of state taxes.



Tax on Tax
Sometimes a specific tax is applied to an amount that has previously been taxed. Called Tax on Tax, in jurisdictions where allowed, a tax can be charged on another tax. 
Applied in the appropriate order, the example below shows how this happens. The first tax is applied on the sales amount. The second tax is applied on the total of the sales amount plus the first tax.
      

Tax rate Amount to which tax applied Amount of tax Total
5.00% first tax $1000 $50 $1050
10.00% second tax on tax $1050 $105 $1155
Totals   $155 $1155

Add Tax Group to Invoice

If you have an opportunity that results in a sale, you close it as won, generate an order and create an invoice.
If the customer account record already has a tax group specified, the tax group is automatically added to the invoice and the sales tax is calculated. 



But what if the applicable tax group hasn't yet been added to the customer account record? In this case, the invoice is generated without a tax group and no sales tax is calculated. 



As soon as you determine the applicable tax group, you can add it to the invoice. Select the blank field, press Enter and the available tax groups appear. Choose the one you need for the invoice and save the record. The Tax Group is added, and the appropriate sales tax is calculated on the invoice.



Once you've added a new Tax Group on the invoice, it is automatically added to the order and customer account. It will then be applied to the next order and invoice. You won't have to set it again.


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Keywords: tax, revenue, invoice, accounting, tax on tax