Taxes: Recoverable vs. Non-Recoverable
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Taxes: Recoverable vs. Non-Recoverable
You most likely collect sales taxes from your customers and then remit the money you collected to the government tax authorities.
You also very likely pay taxes on items you buy for your business ...
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concept is simple enough, but how would anyone know whether it's recoverable or not?
pretty much the same thought. I get that I need recoverable tax, but see no way to edit the hst on the site. we did a mock sale which was $16 +hst $2.40. then made a $10 purchase with HST but CANNOT find how to make these taxes recoverable. help please...
@JennP, here is an example of the reply sent to me by the state of CT as to whether the Ct sales tax was recoverable or compounded.
"The sales tax rate for Connecticut is 6.35% and it is nonrecoverable meaning you, the seller, must collect the full sales tax amount based on Connecticut's sales tax rate on any taxable goods and/or services and remit it to DRS in full. You may not deduct any taxes you may have paid when remitting and reporting your gross income from the sale or lease of goods and/or services to DRS.
[Connecticut] DRS does not compound sales tax and there are no local sales taxes. Compounding sales tax would be charging sales tax on the same goods multiple times. In CT, the end customer or consumer of the goods and/or services ultimately pays the sales tax (by being billed by the seller) and typically the seller reports the sales and remits the sales tax due to DRS. When the seller does not charge sales tax, the customer must report Use Tax on qualifying sales when necessary on their individual tax return."
However, if a purchase has been made on which tax was paid because the a sales tax exemption form has not been filed with that retailer, the state advises to refer to publication 98(5) on how to get a refund directly from the state on this tax. Below is a link:
https://portal.ct.gov/DRS/Publications---Policy-Statements/1998/PS-985-Sales-and-Use-Tax-Refund-Policy
Hope that helps CT sales tax payers! Each state may be different - it is a good idea to check your own states.
I talked to NY state this week - the employee I talked to advised that they do not use the term "recoverable" and that certain credit for tax paid can be applied for (but it varies by product/industry in NY, so definitely ask rather than assuming one answer is same for all). The same thing is true of "compound" tax, she said. In my field, it doesn't apply, but in some energy related areas it might.
I am wondering if this is a common term in the USA or more common in India and the UK where VAT may use that term.
It would help to hear from WAVE admin what the software does in response to these 3 definitions (recoverable, nonrecoverable, compound) -- that would help us decide if the shoe fits, where tax terms may not match the WAVE terms.
Hey @springdalerocks, happy to chime in here! Compound taxes in Wave simply reflect that you can stack them on top of a primary tax, and then calculate a total from the subtotal. As for recoverable/non-recoverable taxes in Wave, designating each type of tax simply determines if the totals paid/owing of these taxes actually reflect in the Sales Tax Report. Marking a tax recoverable just tells Wave "I want to see the totals for this" while leaving it non-recoverable basically says "eh, that amount isn't that important to me, so I don't mind if it doesn't appear in the report". That's the primary function/response (from a system perspective) in Wave, if that gives you more clarity!
Ryan, I will try running the report and creating dummy taxes/transactions of both types to see what transpires.
Because on the tax return itself there may be calcs to do (you charge tax, but were charged tax, so can attach receipts and invoice to document that you paid the tax on the base amount twice and get a credit), it may be that "recoverable" while not always accurate, produces a report that allows the math to be done more easily on the state sales tax return.
thanks for taking the time to provide feedback. I appreciate it.
Where can you find the taxes you created? I do not remember if one of the taxes I created was Recoverable or not, where do I go to see the details?
@itslindseytime, the taxes are in settings, lower left corner in the sidebar.
When I first set up my taxes in Wave, I mistakenly didn't set them as "recoverable". Since there seems to be no way to go back and just "flip the switch", what's the best way to move forward? Create a new sales tax and apply that to invoices and expenditures?
Hey @aaroncushing yep, you got it! We can't apply them retroactively, so you'll need to adjust those previous transactions after creating the new tax. For what it's worth this is pretty quick, since you can bulk select all of the transactions you need to change, and then click Edit at the top of the Transactions page > select "Tax" instead of category, and save the changes.
My accountant needs to have the details of recoverable HST I paid on expenses, ideally a general ledger by account showing gross expenses, HST paid, and net. I'm having problems pulling this type of report. Is it available?
@Stilmark it sounds like rather than looking at the Sales Tax Report, you should be using the Account Transactions report for this. With this report, you can filter for the HST account to track all of the transactions and net movement of the balance changes in the account.
Is there not a way to pull Account Transactions all show HST as a separate column along with Total Expense by Expense Category (ie: advertising category showing each line item expense, HST, and total expense)?
@Stilmark I'm afraid not; the Account Transactions report isn't that granular. Do you mind expanding on why this type of reporting would be useful for you? I don't doubt that it would be, otherwise you wouldn't ask; I'm just trying to get a better sense of how this type of reporting would be used so we can think about this more universally, or even propose a workaround for your specific needs. Thanks!
I provided the accountant with the HST report and it turns out that this is adequate. They wanted to make sure that expense claims for taxes were net of HST (I double checked as this isn’t clear when you pull the report) and that there was good back up for the HST tax credit . We were audited so I believe there is extra sensitivity.
Hey @Stilmark. thanks for following up and letting us know you had what you need and thanks for the feedback!
Audits can be stressful, so I hope you had everything you needed, and it went well!
I have created a non-recoverable tax and included it on all purchase transactions where I've paid sales tax. These amounts are not showing up in any reports, The tax account shows no balance and the ledger shows no transactions. I cannot seem to find any way to view the total amount of tax paid. If I use a recoverable tax for this purpose I can see the amounts, but then the software does not include the tax in the total expense and it screws up my expense totals. I need to see the total Sales Tax I've paid for a given period so I can remit the Use Tax owed.
I am a coach in Canada and I charge client 5% gst. Is this a recoverable tax?
Hey @LeighC - I'd recommend double checking with the CRA just because we can't advise the recoverability for specific items. A tax accountant should also be able to confirm as well!
@JonL - non-recoverable taxes won't show on your Sales Tax report unfortunately. You could create a new tax which is recoverable and swap it out, although this is a bit of a manual process. You should also be able pull up the tax owing though via the Account Transactions report, which you can then filter for the liability account which would be holding the value of this tax.
Dear Ryan, I created a tax (GST) as nonrecoverable which now turns out to be recoverable. What is the work around to edit or re-create the tax? I am wondering if I can delete the tax and then re-create it as recoverable, or, perhaps create a new tax for the same percentage with a slightly different name (like, GST2) and then never use the first one again.
Hey @Yuri_Volkov, that is the workaround we'd recommend too! If you need to see the current tax accrued, you could pull this up in your Account Transactions report by filtering down to the GST Liability account, which will have tracked values even if they were unrecoverable. Depending on how many transactions you have associated with GST, you could manually apply GST-2 to those instead, but it may be easier to create GST-2 in Settings > Sales Taxes. Once done, you should be able to make a Journal Transaction moving the balance of GST over to GST-2.
Hi
what if it's a recoverable tax but i will remit only part of it
for example invoice of 100 with T1 tax of 5% . $5 will be collected but i want to split the accounts (3 to remit, 2 to keep)
Thanks
Hi @Ahmad . Can you provide some more info on your reasoning for only remitting part of your taxes? Someone may be able to advise you better with a fuller understanding of your situation.
How do we determine which we are? I'm operating in Texas, and charge 8.25% to clients that are in Texas. I conduct my business mostly online, and some in state for photography services. I'm not clear how to determine yet if I deduct any sales tax from items I've purchased. Is anyone familiar with Texas sales tax? Thanks
@brittanykristen I think this link might help! https://www.taxjar.com/states/texas-sales-tax-online/#do-you-have-sales-tax-nexus-in-texas
@ckeen_1244 Thank you for the link! I think I'm still unclear on how it's filed, if on my invoices through Wave, if I report it as Recoverable vs Non-Recoverable. I'll have to do a bit more research on this one! Thanks!~
Hi brittanykristen,
Do you know if Arkansas Sales tax is recoverable? Thank you!
Hey @ChristineJ I feel as though this article might give you a bit of insight on whether or not this specific tax is recoverable: https://www.taxjar.com/states/arkansas-sales-tax-online/#is-what-youre-selling-even-taxable -- however, it might be best to consult a local tax expert to help you with this situation.
I need to recover VAT from transactions on the Accounting Transaction TAB - for instance bank charges have VAT on them so need to tell Wave to take 15% of the bank fee and allocate it so that the Sales Tax report can see the transaction. I am not going to create a purchase bill for bank charges. I cannot figure out how to set it up so that this happens. Megan
@MeganRoxton I noticed you submitted a Support ticket but I can help you here! Head to Settings > Add a Sales Tax > put in the VAT tax rate and make sure the tax is set to recoverable (it will appear checked blue). Once the tax is set to recoverable, it will show up on your Sales Tax Report! There are detailed instructions and pictures to guide you in this Help Centre article: https://support.waveapps.com/hc/en-us/articles/360026050831--UK-Set-up-Wave-to-track-VAT