About tax districts and tax entities

Most states and many cities impose taxes on sales. The seller must add the tax to the selling price and then pay the taxes to the government. In the construction trades, contractors are usually not responsible for collecting taxes. However, certain types of work require contractors to collect and remit sales taxes to the appropriate government agency. The Tax Districts window provides the flexibility necessary to manage, compute, and report the individual sales taxes levied by state, county, and municipal governments.

When you create an invoice, Sage 100 Contractor determines the sales taxes from the indicated tax district. A tax district is comprised of a group of tax entities to which you report the taxes collected within that particular region. Before you can create a tax district, you must create the tax entities.

After you have set up the various tax entities, you can build different tax districts from them. For a given tax district you can include five tax entities, indicate which cost types are taxable, and indicate whether profit is taxable. To calculate taxes, Sage 100 Contractor separately computes the tax for each entity contained in the tax district, but on the invoice provides a total of the taxes.

Suppose a contractor works in a given state. In the state the sales tax rate is 7.25 percent, and in addition, a given county has a 0.25 percent sales tax rate. Before creating a tax district, the tax entities, titled (State) and (Name) County, are set up, each with its specified rate. The contractor then creates tax district 1-(Name) County, CA, which contains the tax entities (State) and (Name) County. When setting up job records for projects in the county, the contractor can include the tax district. Later when entering invoices, Sage 100 Contractor automatically uses tax district 1-(Name) County, CA and computes the appropriate state and county taxes.

You can also set up tax entities to compute discretionary surtaxes. When calculating the taxes for a job, both the sales tax and the discretionary surtax apply until the total of the taxable items on the billing invoice(s) equal or exceed the maximum. At that time, the discretionary surtax no longer applies, and only the sales tax continues to apply.

Sales tax requirements differ from region to region. In one region you might not have to report any sales tax, while in another region you might need to report taxes on everything but subcontract work. Before setting up the tax districts, consult the local tax agencies to determine the correct tax rates.