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Set up taxes

Updated
The Strategic Value: If any of your goods or services are taxable, setting up taxes correctly means every invoice, order and event registration calculates the right tax automatically, with no compliance gaps or manual corrections later.
Strategy Checklist (Before you click):
  • Which of your goods and services are taxable, and which are exempt?
  • Which regions (states, provinces or localities) do you collect tax in? Usually wherever you have a physical presence (nexus).
  • What is the rate for each region, and which products does each apply to?
  • You need staff permission to manage finance settings. Every tax page is under Finance, Administrative section, Tax Settings.

The Implementation Blueprint

Work the five phases in order. Each builds on the one before; if you skip ahead, the drop-downs you need will be empty.

  1. Product tax categories: what is taxable
  2. Tax regions: where you collect tax
  3. Tax rules: which categories are taxed in which regions
  4. Tax rates: how much
  5. Tax sets: package rates so they can be chosen on goods and services

Phase 1: Product tax categories

Group taxable products by how they’re taxed. For example, if you sell store items, you might base categories on your store categories (apparel, gifts and so on).

  1. Go to Finance, Administrative section, click Tax Settings and select Product Tax Categories.
    Finance rail expanded to the Administrative section with Tax Settings open and Product Tax Categories boxed
  2. Click Add, enter a Name and click Done.
    Product Tax Categories page with the Add button boxed

Phase 2: Tax regions

A region is somewhere you must collect tax; for state tax, you might name it after the state.

  1. Go to Finance, Administrative section, click Tax Settings and select Tax Regions. Click Add.
    Tax Regions page with the Add button boxed
  2. Enter a Name.
  3. Click the add icon and choose a product tax category that’s taxable in this region. Repeat for each taxable category.
    Tax region window with a product tax category selected in the associated categories list
  4. Click Done. Each region/category pairing becomes a tax rule automatically.

Phase 3: Tax rules

A rule says a product tax category is taxable in a region. Rules were probably created for you in Phase 2; add any that are missing here.

  1. Go to Finance, Administrative section, click Tax Settings and select Tax Rules. Check the list of Region Name and Product Tax Category pairings.
    Tax Rules list showing the Region Name and Product Tax Category pairings, with one pairing boxed
  2. To add one, click Add, choose the Region Name and Product Tax Category, and click Done.
    Tax Rules page with the Add button boxed

Phase 4: Tax rates

Enter a rate for each place you have nexus; if you operate in several states, add each state’s rate.

  1. Go to Finance, Administrative section, click Tax Settings and select Tax Rates. Click Add.
    Tax Rates page with the ADD button in the page header boxed
  2. Enter a Name (for example, Minnesota) and an optional Description.
  3. Enter the rate as a decimal: for 6.5%, enter 0.065. If the tax is a flat amount, enter the Flat Amount instead.
  4. Choose the Payable Account for taxes payable.
  5. Click Done.

Phase 5: Tax sets

A tax set combines one or more rates; for example, local, county and state, so you can see the breakdown by collecting agency. A set is required even for a single rate; without one, the tax can’t be chosen on goods and services.

  1. Go to Finance, Administrative section, click Tax Settings and select Tax Sets. Click Add.
    Finance rail expanded to the Administrative section with Tax Settings open and Tax Sets boxed and the Add button called out
  2. Enter a name and choose the Tax Region.
  3. Click the add icon and start typing a rate’s name to add it. Repeat for each rate in the set (or add just one).
  4. Click Done. The set can now be selected when you create goods and services.
Consultant Pro-Tip: work the phases in order. Rules reference categories and regions, and sets reference rates. Do all five in sequence the first time and the rest of your billing setup will calculate tax automatically.
Common Pitfalls
  • Tax charged at 650%: the rate was entered as 6.5 instead of 0.065.
  • Tax not offered on a good or service: no tax set exists for that rate.
  • Item not taxed in a region: there’s no rule pairing its product tax category with that region.
  • Stopped after categories: tax doesn’t calculate until all five phases are done.

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