Tax is automatically calculated based on the tax profile associated with an order. Because taxes are based on where the goods are going (rather than where they originate), aACE determines which tax profile to use by checking the postal code associated with the shipping destination:
- If the Delivery Type is set to "Pick Up", then aACE uses the tax profile associated with the order office's postal code.
- If the order is going to be shipped and the ship-to company has a tax profile established in the Customer Details tab of the company record, then aACE uses that tax profile. (Note: Tax profiles configured for a customer should only be for special cases, such as resale. The primary driver for setting an order's tax profile should be the postal code.)
- If the order is going to be shipped and the ship-to company does not have a tax profile established in the Customer Details tab, then aACE uses the tax profile associated with the ship-to company’s postal code.
- If the preceding options are not relevant, then aACE uses the default tax profile.
Some of your customers may be tax exempt. Because of the tax calculation logic described above, using an 'Exempt' tax profile may cause problems. For example, if the Delivery Type is set to "Pick Up", the tax calculations will be based on your own facility's tax profile. The proper way to ensure a customer's orders are flagged as tax exempt is to record this setting at the Company record:
This setting will flag every order for the customer as tax exempt and taxes will calculate to 0.00, regardless of other criteria. If a particular order for the customer does not qualify for this exemption, or if an order for a customer not normally exempted needs tax exemption, you can manually clear or mark the Exempt flag in the totals section of the order record.
Overriding Tax Calculations
On an order, you can manually override the calculations: Edit the order, click the Tax drop-down field in the Totals section, and select one of the available tax profiles:
Understanding Tax Variances
Variances from Rounding Logic
If you manually calculate taxes on an order (e.g. the order's subtotal * the relevant tax rate), you may notice a minor difference between your manual calculation and aACE's calculation. This discrepancy arises because aACE calculates and rounds taxes at the line item level, then sums those individual amounts.
For example, suppose that aACME Education received a sales order for two items at $45.00 each, with a subtotal of $90.00. The order is using the default tax profile, which calculates taxes at 8.8755%. If we calculate the tax manually on the subtotal, the result would be $90.00 * 8.8755% = $7.99. However, aACE calculates the tax for each individual item on the order ($45.00 * 8.8755% = $3.99), then adds those two tax values together for a tax total of $3.99 + $3.99 = $7.98.
If required, you can change this default preference for calculating tax values: Navigate to Accounting > Preferences > Data Entry. In the Invoicing (Sales Tax) section, clear the flag to 'Round taxes at the line item'. If you clear this flag, the tax calculations will be based on the order subtotal.
Please note, changing this preference will also impact how orders can be entered and invoiced:
- All items in an order must use a single tax profile.
- Invoices cannot cover multiple orders that have different tax profiles.
- Invoices cannot cover multiple orders that have different exemption statuses.
Variances from Multiple Invoices
Another situation that may result in imbalances between order and invoice tax totals is when a single order is billed across multiple invoices. If an item is split across the invoices (e.g. two on the initial invoice and the remaining three on a following invoice), there may be a few pennies difference in the tax.