This article explains how tax works in Order Entry. It covers the basic tax concepts used, when RFMS applies Sales Tax or Use Tax, and which settings affect the tax shown on an Order.
Use this article for a working overview of tax behavior in Order Entry. For setup steps or accounting procedures, see Configuring Tax Settings.
Tax Types
RFMS can work with several tax types.
Sales Tax is charged to the customer. It is based on the selling price and appears in quote, order, and invoice totals.
Use Tax is paid by the store, not the customer. It is usually used for installed jobs or materials consumed by the business. It is based on material cost and does not appear on the customer-facing document.
Miscellaneous Tax is an optional extra tax, such as a local assessment or environmental fee. It is calculated using the Miscellaneous Tax Base defined in setup.
GST/HST is used in some Canadian installations. It works like Sales Tax, but the exact behavior depends on the store’s tax setup.
Tax Methods
Tax methods control how RFMS calculates tax.
Sales Tax applies tax to the customer’s selling price and shows it in the order totals.
Use Tax applies tax to material cost and does not show it to the customer.
Line Tax (Mixed) allows each line to use either Sales Tax or Use Tax. When this method is active, each line shows a Use Tax Line checkbox. If the checkbox is selected, that line uses Use Tax. If it is not selected, that line uses Sales Tax. New lines default to Sales Tax.
How RFMS Choose Tax Setup
RFMS checks the Ship-To city first.
If the ship-to city matches a record in the City List, RFMS uses that city’s tax settings. If the city is not found, RFMS uses the Store Code settings instead.
If the Compute Sales Tax by Selling Store’s Location option is turned on, RFMS always uses the store’s sales tax setup for retail tax. This option does not change how Use Tax is selected. Use Tax still checks the city file first.
What the Customer Tax Type Does
Each customer has a Tax Type that controls whether tax applies.
Taxable means tax can be calculated based on the store or city setup.
Exempt means tax is not charged.
Resale means tax is not charged because the customer is buying for resale.
When you select a customer, that tax type becomes the starting tax status for the order. If you manually enter sales or miscellaneous tax on an Exempt or Resale order, RFMS changes the order to Taxable and shows a warning.
RFMS supports two ways to handle exemption:
- customer Tax Type set to Exempt or Resale
- a Tax Certificate stored in the customer record
Use one method only. Do not use both for the same customer.
When Sales Tax is used
RFMS uses Sales Tax when the order is treated as a retail sale. Sales Tax is based on the customer’s selling price and appears in the order totals.
If the order is taxable and no Use Tax conditions apply, RFMS calculates Sales Tax using the city or store setup.
When Use Tax is used
RFMS uses Use Tax when the order is treated as an installed job or an internal-use transaction, based on the configuration and the lines on the order.
This usually happens when:
- the ship-to city or store is set up for Use Tax, and
- the order includes a service line, a service amount, or a material line with a zero price
When these conditions are met, RFMS removes Sales Tax from the header and calculates Use Tax behind the scenes. Use Tax is based on material cost and is not shown to the customer.
Why Tax May Change After Lines Are Added
A use-tax order may still show Sales Tax at first if it contains only material lines and no labor or service lines.
After labor, a service amount, or a service line is added, RFMS can remove the Sales Tax from the header and switch to Use Tax. This helps the system tell the difference between a retail sale and an installed job.
Gross cost vs. net cost
Use Tax can be reported using either:
- Gross cost, which uses the full material cost
- Net cost, which subtracts items already taxed by the supplier
This choice is made when running reports, not in the City or Store setup. In many cases, net cost helps avoid double taxation.
| Sales Tax | Use Tax | Misc. Tax | GST/HST | |
|---|---|---|---|---|
| Paid by the customer | Yes | - | Yes | Yes |
| Paid by the store | - | Yes | - | - |
| Shown on the order | Yes | - | Yes | Yes |
| Based on selling price | Yes | - | - | - |
| Based on material cost | - | Yes | - | - |
| Based on configuration | - | - | Yes | Yes |
Tax Base Definitions
The Tax Base controls which parts of the order are taxable. These values are set in City or Store setup and cannot be changed inside the order.
Sales Tax Base can be set to one of these options:
- Material
- Material + Labor
- Material + Labor + Misc. Charges
- Material + Misc. Charges
Miscellaneous Tax Base can be set to one of these options:
- Material
- Material + Labor
- Material + Labor + Misc. Charges
- Material + Labor + Misc. Charges + Sales Tax
- Material + Misc. Charges
- Material + Misc. Charges + Sales Tax
Tax rates are also set in configuration as tax percentage values. Order Entry uses those setup values when it calculates totals.
Main Settings That Affect Tax
Several settings can affect tax on an order.
Customer Tax Type controls whether tax applies at all.
Tax Method controls how tax is calculated. The method may be Sales Tax, Use Tax, or Line Tax.
Ship-To Location controls whether RFMS uses the City List or the Store setup for tax lookup.
Tax Certificate supports exemption validation for qualifying customers.
Tax Base Definition controls which parts of the order are included in tax calculations.
Tax Priority Order
In general, RFMS follows this order when deciding how tax should work:
- Customer Tax Type
- Tax Certificate
- City List based on Ship-To location
- Store Code
- Order or line-level checkboxes when Line Tax is active
In practice, this means:
- Exempt and Resale customers override other tax settings
- city and store settings matter only when the order is taxable
- tax values can change if the ship-to address or order lines change
Recalculate tax
Tax usually recalculates automatically when order lines change. You can also refresh tax manually.
To recalculate tax:
- press Ctrl+T while the cursor is in the tax field, or
- right-click in the tax field and select Compute Tax
A manual refresh may be needed if the ship-to address, tax method, or pricing changes after lines have already been added.
Legacy Note
The older option Sales Tax from Store Location, now called Compute Sales Tax by Selling Store’s Location, forces RFMS to use the store’s sales tax setup for Sales Tax only. It does not change how Use Tax looks up rates.
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