How sales tax works in Wave

System

How sales tax works in Wave

This article explains how sales tax works in Wave, and how to record sales tax activity.
How is sales tax tracked?
When you create a sales tax, Wave automatically creates a sales tax liability acco...

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Jef

if i buy something for $100.00 + tax of 7.75 is added. I've paid tax when i purchased item from retail vendor. Question: I've paid now $107.75, is the 7.75 recoverable? I don't have a sellers account. I just want an easy way to calculate taxes. i.e. on invoice type sale ad amount of $19.99 then click on CA Tax and have it automatically calculate the Sales tax for the line item. I just don't want to pay for it at the end of the period. I want it to show tax amount as a negative then when i get paid for item, have that be positive. or add the liability then have it crossed off when tax payment has been received..? idk i think i almost have it but am missing something.

ConnorM

Hey @Jef! Great question here! You can actually set whether or not your sales tax is recoverable when you create the rate. Have you done so?

Steve_Liedy

Can you have both taxable and nontaxable items on the same invoice?

Barsin

Hey there @Steve_Liedy

Unfortunately Wave does not have the ability to have tax exempt items on an invoice at this time!

Ann_F

My prices include sales tax. Is there a way to set this up so it knows that the tax was included, not add it on after?

JordanD

@Ann_F Wave currently only supports adding sales tax to prices before tax. While we definitely acknowledge that in certain areas, this may be the norm, Wave is currently not set up to provide this sort of functionality.

Ann_F

Do you have any suggestions on how I could implement it in your system? I am looking at entering several months of already completed transactions. I may have to look at a different program.
Thanks.

CallieP

Hey @Ann_F , thanks for getting back. I'm afraid this isn't possible in Wave. I'm so sorry if this doesn't suit your needs closely enough.

Shawnality

Can Wave Checkout allow dynamic taxes based on the address of the customer? For example, someone outside of Canada trying to buy my product won't get a HST whereas a customer from Ontario will need to pay 13% HST on top of the price. Let me know, thanks!

-Shawn

ConnorM

Hey @Shawnality! I'm afraid that this is not something that is currently possible within Wave. I'm sorry for the inconvenience here!

RogerS

My organization only sells services, which do not incur state tax here in California. For purchases my organization makes, sales tax is included in the sales totals imported from our bank (as I suppose it is for others). This tax does not create a liability, as it is paid in full when the purchase is made. It is not recoverable either in our case.

I would like to record the sales tax separately from the purchase price for tracking purposes (similar to splitting off categories of income for individual bank deposits). Is it possible to do this without creating a sales tax liability account? The sales tax we pay on purchases seems to have the character of a current expense rather than a future liability. While it would be nice to have Wave auto-calculate the tax amount, I can also obtain this from my physical receipts.

In Wave, what is the simplest way to handle sales taxes on purchases? Should I simply create an expense category of "Sales Tax," subtract the sales tax from our purchase transaction totals, tap "Split this Withdrawal," and enter the two amounts?

reneta

Hi there,

I just received the email below from notices@waveapps.com:
"
We have identified that your account contains liability transactions with sales taxes applied. This may have led to inaccurate numbers in your Sales Tax report which you will need to fix manually (instructions are included below).

Applying sales taxes to liability accounts is not in line with accounting best practises as a liability transaction does not represent a taxable transfer of goods or services.

Going forward Wave will prevent the addition of sales taxes to these categories, excluding income and expense transactions run through a credit card.
"

Is this some kind of error? what if I pay my vendors through my company's checking account (as shown in the example here)? Also - The sales tax category IS EMBEDDED in the LIABILITIES account...so if Wave removes the option of accounting for Sales Taxes paid by means other than credit card, how can we continue using this software?

AlexL

Hey @RogerS , hmm this is an interesting one. I think the way you've proposed this does in fact make sense, although because I'm not super familiar with how this sales tax works in California, I'd get in touch with a CPA or accountant to ensure that there are no accounting repercussions by doing so! Hope this helps point you in the right direction!

Hi @reneta , To clarify, Wave will not be disabling or suggesting you remove sales tax from liability and equity accounts such as credit cards if those transactions are either income or expense transactions (which are taxable).

For example, were you to categorize a withdrawal from your bank account as a 'Payroll Liability' (a liability categorized transaction) this would not represent a taxable event in your business. However, a meal purchased via credit card is a taxable event (expense incurred and paid through your business) and will still be allowed in Wave.

Following the instructions to filter for Liability and Equity accounts in Wave via the Filter button may bring up income or expense transactions in a Liability or Equity account, or even on asset accounts. When bulk editing to remove sales tax, you can uncheck any transaction categorized into a liability such as credit card. See screenshot below:

reneta

Thanks @AlexL - you gave the example of using a credit card. What if I use my bank's Debit card, or pay by Interac, or transfer via EFT? I just want to make sure the software continues working....

(Unrelated to the above) currently (and I have reported this already, but no fix yet) the software stopped showing transactions from several accounts of one of our banks.

czyadgrl

I'm noticing leftover Sales Tax Liability from previous years are showing up on my new reports I'm running for 2020.
However they have been paid by my customers, and I have paid the state and recorded those payments as expenses.
HOWEVER, in my state, they give a discount for paying early. As well, it is combined with our Payroll Withholding payments and done on the same form/at the same time/one transaction. So the payments would not match up even if I separated out what I paid to the state vs what I'm required to bill my customers.

How can I get rid of this long-standing liability for taxes that have been dealt with already?

Barsin

Hi @reneta

Previously Wave was allowing transactions from non-anchored asset accounts like for example a payroll liabilities account (which does not incur a sales tax in real time) to be allowed a sales tax transactions to be applied. This was the same for equity accounts and this was not fully correct on Wave's end. We've since revoked this type of transaction to incur a sales tax.

Essentially all accounts moving forward like your bank asset accounts, and credit card and some loan accounts will be able to have a sales tax applied. This is because these types of accounts do typically incur a sales tax in the real world. The accounts you've mentioned should not be affected. Check to see if you have any non-anchored liability accounts (remember this doesn't include your credit card) or equity accounts and ensure that there are no sales taxes applied to these. Once again if the transaction did not incur a sales tax in the real world, it should not be applied to this account. Hope this helps!

Moreover regarding your bank no longer importing transactions, I would highly recommend reaching out to our support team via ticket in order for them to better look into this as they have more visibility into what may be happening with your particular bank connection.

Hi @czyadgrl

Is this leftover balance in your sales tax account equal to the discount you received for paying early? If so it's likely that you'll need to create a journal transaction crediting the amount back from your sales account with the outstanding balance back to the initial asset account I believe? We in Wave support are not accounts so I would hate to give you erroneous advice. You may want to reach out to a CPA about this to confirm!

EliezerJeremias

I am having the same issue @cyzadgl is having that I have received a sales tax refund but it is showing that i still have a ballance. @Barsin the journal idea didn't work either

JulianP

Hey @EliezerJeremias ! I'm sorry to hear that you are having a similar issue. If the journal transaction doesn't suffice in this case, I encourage you to contact a CPA to receive the appropriate advice since the Wave Support Team does not consist of CPA's.

EliezerJeremias

> @JulianP said:
> Hey @EliezerJeremias ! I'm sorry to hear that you are having a similar issue. If the journal transaction doesn't suffice in this case, I encourage you to contact a CPA to receive the appropriate advice since the Wave Support Team does not consist of CPA's.

I have contacted my CPA and they told me to apply a credit from the tax department but the issue is that it shows as not paid

AlexL

So to confirm @EliezerJeremias , you applied the Journal that your CPA has told you to and it still hasn't diminished this amount? Can you provide a screenshot of what this journal looks like?

EliezerJeremias

> @AlexL said:
> So to confirm @EliezerJeremias , you applied the Journal that your CPA has told you to and it still hasn't diminished this amount? Can you provide a screenshot of what this journal looks like?

The journal gave me errors when I added one withdrawal and one deposit

thelocalfarm

I received a similar email as @reneta:
"We have identified that your account contains liability and equity transactions with sales taxes applied. This may have led to inaccurate numbers in your Sales Tax report which you will need to fix manually"
How do we handle input tax credits (ITC) if this is the case, including GST and PST (we are a farm so we can claim PST paid on farm-related expenses or equity) that are categorized as a capital asset (property, plant & equipment)...e.g. irrigation equipment includes PST & GST incurred in the real world, which we can claim as ITCs (claimed separately from "Sales Tax" reporting). We have been using Wave's sales tax entry form to account for ITCs, but clearly this is not the way to do it as it affects equity accounts and the PST & GST remains in the total expense when reporting income for tax returns (when claiming ITCs I can't also include it as a write-off on my corporate tax return). How do we record ITCs in Wave?

Many thanks,
Dean

Barsin

Hey there @thelocalfarm

Thanks so much for your community post and sharing some insight here.
I do have some questions and points I'd love for you to followup with!

1. “we are a farm so we can claim PST paid on farm-related expenses or equity) that are categorized as a capital asset (property, plant & equipment)” - Yes, you can still apply sales tax to asset purchases, and those amounts will be reflected as tax paid on purchases on the sales tax report.
2. Would you clarify what you mean by “farm-related expenses or equity”??
3. If you’re paying for assets or expenses personally and using an equity account as the “payment” account, that’s fine - the sales tax will work. You apply the sales tax on the category account (eg expense or asset), not the payment account (eg bank, cc, loan, equity)
4. “We have been using Wave’s sales tax entry form to account for ITCs, but clearly this is not the way to do it as it affects equity accounts and the PST & GST remains in the total expense when reporting income for tax returns” - are the PST and GST taxes set up as recoverable? (you can check this under Settings > Sales taxes > And check to see if it's recoverable. If so, the tax amount won’t be in the expense amounts.

Thanks again and looking forward to hearing from you!

thelocalfarm

Thanks for the response.

1. OK
2. Sorry for the confusion. I meant assets rather than equity. Although the email from Wave states that I have "liability and equity transactions with sales taxes applied" even though I have no transactions in the equity account.
3. OK
4. They were set-up as recoverable and after double checking, the tax amount is indeed not included! Sorry again.

Many thanks for your help!

Nish

I have added sales tax to a bill as shown above but when I search for the bill transaction, notice it doesn't show GST and when try editing the transaction, it doesn't have the option to "Include sales tax" like the other transactions are permitted.

I've tried removing the existing Category "Bill # | Payment to Vendor" and tried manually updating the transaction to include Customer, Sales Tax but as soon as I select the Outstanding Vendor Payment, the Sales Tax gets removed. Hope you can look into this.

JulianP

Hey there @Nish ! Did you mean to attach a screenshot? If so, it looks like it wasn't included in your message I'm afraid. To clarify, when the bill was initially created, did it include GST? If your bill checks out on the Purchases > Bills page and GST is recorded, then you can delete your current transaction, and record a payment on the bill manually to autogenerate a new bill payment transaction for you. The transaction's total amount should include the GST applied to the bill. Let me know if the issue persists. I hope this helps!

Nish

@JulianP said:
Hey there @Nish ! Did you mean to attach a screenshot? If so, it looks like it wasn't included in your message I'm afraid. To clarify, when the bill was initially created, did it include GST? If your bill checks out on the Purchases > Bills page and GST is recorded, then you can delete your current transaction, and record a payment on the bill manually to autogenerate a new bill payment transaction for you. The transaction's total amount should include the GST applied to the bill. Let me know if the issue persists. I hope this helps!

Hi Julian,

Thanks for your reply and basically, any Bill or Invoices with GST doesn't show-up with the GST details when I go to the list of transactions. For example:

Here's the list of transactions where transactions created from a receipt shows GST but Invoices & Bills don't show the GST:

Here's the Invoice #10061 which has the GST of $22 (but doesn't show GST in transaction on the 1st image:

Here's the Bill #1256 which has the GST of $30 (but doesn't show GST in transaction on the 1st image:

Hope that make it clearer and I'm wondering why the GST indication under the amounts for Invoices or Bills isn't shown in the transaction list (1st image)

Regards,
Nish

AlexL

Hey @Nish , your GST is already included in the payment via the Bill or Invoice itself, it just doesn't appear as a line item in the transaction.

If we take your $330 bill for example, $30 of it is considered 10% for GST purposes. If you look at the Bill payment which appears in your Transactions page, you'll notice that the amount is actually $330 and not $300, which means that the GST amount is inclusive of this payment.

I would be interested in hearing why you're looking to have this sales tax amount divided out of the rest of the transaction though. Let us know!

Nish

Hi Alex.

Thanks for your update. Basically, I need to get a report each quarter for the GST Sales Tax showing the following:
(a) Date
(b) Description
(c) Total cost including GST
(d) GST amount

Currently, I can run the report that shows (a), (b) & (d) above but I also need to know the total cost including GST amount - eg. Bill #1256 which was for $330. Is there a way to get this easily without running multiple reports & consolidate the information?

Barsin

Hey there @Nish

Thanks for this valuable feedback in our community. If you select the Sales tax report >> Then select the sales tax clickable link from this report (which should open up your account transactions (general ledger) report >> You should see the isolated GST amounts excluding the total cost.

With regards to printing a totals report including transactions, this isn't available in Wave at this time.