Sales Tax report - Help understanding why Sales Subject to Tax is higher than expected
DaveB
Member Posts: 16
Hi,
I having difficulty understanding why I'm seeing the figures that I'm seeing in the Sales Tax Report. When I run the report, I expect the Sales Subject to Tax figure to be equal to income for the same period in the P&L report. However, I found it to be higher. I'm failing to understand how this can be the case.
I do have some refunds for operating expenses over the same period, which were also subject to the same sales tax. I.e. I purchased something for my business, decided later it was inadequate, or I didn't need it, and returned it to the Vendor for refund. I'm not an accountant, so naturally assumed this to be a reversal of the original expense (from a reporting point of view). However, it would seem that it is treated as a "sale" back to the Vendor - which also implies that a refund for expense also would not reduce the Purchases Subject to Tax if it in fact causes * Sales Subject to Tax* in the report to increase.
Am I way off-base in my speculation here? Any help in understanding what is truly going on would be very much appreciated.
Dave
Comments
Hey @DaveB. Perhaps you've already done this, but have you adjust the report type from accrual to cash & cash equivalents? This may reflect the data to be more accurate/line up correctly with what you are expecting (https://support.waveapps.com/hc/en-us/articles/115004972126-Sales-tax-reporting-changes) -- if you are still noticing that this is way off, please let me know and I would be happy to investigate this a bit further for you here (perhaps we will need to see screenshots, etc).
@JamieD Thanks for your reply!
As a matter of fact, I did try that already. When I change the report type to Cash and Cash Equivalents, the Sales Subject to Tax actually increases and gets even further away from my income in P&L for the same period.
Thoughts?
Hey there @DaveB
Sorry for the delay in response. So the Sales Tax report only reports on sales taxes that were marked as 'recoverable'.
If you headed into your Settings > Sale tax > Selected the pencil icon beside the tax profile you've created, you'll be able to see if you've made this tax recoverable or not. I'm wondering if all the transactions you've attributed the tax to were all labeled as recoverable? Also how many different tax profiles do you have here?
For future reference you should be able to batch edit your transactions sales tax settings if you'd like in your transactions page. Let us know whether you've made any headway on this.
Hi @Barsin,
I don't even have to check, I know it's setup as a recoverable sales tax (HST in Ontario), and it is the only Sales Tax for my business.
What influences Sales Subject to Tax in the Sales Tax Report. Are Refunds for Expenses transactions considered to be a "sale subject to tax"? That is the only thing I can think of that could possibly account for the discrepancy I'm seeing - and if that's true, does a Refund for Expense transaction have any impact on the Purchase Subject to Tax?
Thanks,
Dave
Hi @DaveB
A full refund for an expense should just negate the initial tax on your sales tax report. So I don't believe that would be the issue. Perhaps you may want to try sifting through your invoices or bills and seeing if there are any overdue or unsent ones sitting there? These are accrual, which I can see Jamie has mentioned trying to select cash based.
I am curious how you're marking these refunds though. Are you simply selecting the refund transaction and categorizing it as a refund for the expense account? This process negates the sales taxes. Let us know more about how you're categorizing the refund transactions.
Hi @Barsin,
Thank you for your reply. There are no invoices or bills at all in my Wave account. You are correct, for each refund expense transaction I categorized the transaction as a "Refund for Expense" back to the same category as the original expense transaction.
Based on what you've described, I'm even more perplexed as to why the Sales Subject to Tax is higher than income. Income for my business is seasonal, and occurs over only a few months of the year in the summertime. So, given all this, I'd also expect little to no variance between cash and accrual Sales Subject to Tax values for a calendar year period.
I'd greatly appreciate any additional help you can provide.
Dave
Hey @DaveB. In this situation, you would still technically need to apply a tax to the transaction in order to zero this out I believe -- I'm going to send you a support ticket email and request collaborative access so that we can look into this a bit further (I think having a support email thread will gain more eyes on what's going on here).
I’m having the same thing. The sales tax report does not match the same period income in any way, either accrued or cash. I need to work in cash and have no outstanding invoices or bills so there should be no difference.
I had to file my return to meet the deadline but have zero confidence in the figures used. I’m sadly on the verge of moving on from Wave. Love using it but no confidence in the reporting.
Hey @Chris_SHCC1 , thanks for reaching out! I can see that you do have a Support Tickets open currently with Jess, one of our Support Specialists, and she is investigating what could be the cause of the issue. Please feel free to reach back out if you need anything else!
I know this goes back a year, but I'm trying to file my GST return and I'm having the exact same problem - the Sales Subject to Tax from my Sales Tax Report is higher than expected and I'm not sure how Wave is calculating this amount. In my case, Sales Subject to Tax should simply be equal to Sales from my Profit and Loss report. For my GST return, I need to know how much I spent on GST for expenses and assets, which should be equal to Tax Amount on Purchases from the Sales Tax Report but now I don't have confidence in the numbers in this report if Sales Subject to Tax is incorrect.
Can someone please help me understand how Sales Subject to Tax is calculated? Thanks.
EDIT: I just want to add, changing the Report Type doesn't change the amounts in my reports and I have GST set to a recoverable tax.
Also, the Tax Amount on Sales amount is not correct either (higher than the amounts I entered for GST in the sales transactions). Where are these numbers coming from? I can't trust the amounts in this report.
I just did a test and generated a Sales Tax Report for just one month with some sales and manually added up the numbers myself with a calculator - for GST, Tax Amount on Sales and Tax Amount on Purchases are correct but I have no idea how Sales Subject to Tax and Purchases Subject to Tax are calculated.
I have gone through the info in the link below but it doesn't help me understand why Sales Subject to Tax is different from Sales on my P&L report.
https://support.waveapps.com/hc/en-us/articles/208623466-How-to-use-the-Sales-Tax-Report
Hey @Ando! Thanks for that additional context that you've offered us here. In order to make sure that you get the best help possible here, I've created a ticket with our support team on your behalf in order for you to work through this with them. They will be reaching out to your email with regards to this matter as soon as possible.
While I cannot speak to anyone's situation other than my own, as the OP, I'm happy to offer more information into how the situation occurred, and was resolved for me.
In my situation, I had some expenses that had been capitalized. Which is to say that I had some purchases of materials for my business with transactions that were categorized into an asset account, rather than an expense account.
Then, I found myself in a situation where I needed to return some of those purchases to the vendor for refund. Naturally, though ignorantly, I also categorized the resulting refund transaction against the same asset account.
Since the way I categorized the refund transaction, Wave (correctly, I might add) interpreted the refund I received as the sale of a capital asset.
Once this problem was identified, I corrected it by instead re-categorizing the refund to an operating expense category rather than to an asset account. Then I journal'd the same amount from the capitalized asset to the operating expense category of the refund. The same effect could have been achieved by splitting the original purchase transaction(s) between the asset account, and the amount of the refund to the operating expense - instead of journaling the refunded amount from the asset to the expense category - in my case it was simpler adding a correcting journal entry.
This resolved the discrepancies between sales in my P&L report, and sales subject to tax in my sales tax report, while still facilitating the purchase and return of the capitalized asset.
While this may not have been your precise issue, this is what it was for me, and perhaps this will help you identify what's going sideways for you.