Goldenseal Project Management Software-- Time and Materials Sales Tax

Time and Materials Sales Tax

How do I handle sales taxes on Time & Materials projects?

Goldenseal project billing software lets you set the markup or "management fee" that you add to actual costs. To set that up, choose Payment Terms from the Options menu, and choose Projects from the submenu.

In Project Payment Terms, there is also a checkbox that determines whether sales tax is included in the T&M billing amount.

When it is turned on, Goldenseal includes the sales tax that you pay to vendors, as part of the base amount for billing. When it is turned off, Goldenseal only includes the gross amount paid to vendors.

Depending on the tax code in your area, there are usually three different ways that sales taxes are handled for project billing.

NOTE: These instructions apply to any sales taxes, even if they are called VAT (value added tax), GST (goods & services tax) or some other name.

Pay Taxes to Vendors, Don't Collect from Customer

In some areas, your vendors will charge you sales tax, and you will not collect tax from your project clients.

In that case, turn the Include Sales Tax checkbox on in your Project Payment Terms. That way you'll collect the full cost of each expense that you pay, for the project.

In your vendor invoices, you will pay sales tax.

In your Billing Records for the project, do not include any sales tax in the Sales Tax field (since that covers amounts that you collect from the client).

Tax Exempt with vendors, collect from Customer

In some areas, you don't pay sales tax to your vendors, for project work. Instead, you collect sales tax from your clients and then pay it to the tax agency.

In that case, turn the Include Sales Tax checkbox on in your Project Payment Terms.

In your vendor invoices, you will not pay sales tax.

HINT-- If you don't enter a sales tax into your vendor accounts, then they won't appear in invoices. You can also use a "zero percent" sales tax if you prefer.

In your Billing Records, include sales tax in the Sales Tax field. You will collect that money from your clients, and then pay it to the tax agency.

Pay Taxes to Vendors, Collect from Customer, Get Credit

In Canada and some other countries, you will pay sales tax (VAT or GST) to your vendors, and also collect sales tax (VAT or GST) from your customers. When you pay to the tax agency, you then get a credit for the tax amounts paid to vendors.

In that case, turn the Include Sales Tax checkbox off in your Project Payment Terms.

In your vendor invoices, include a sales tax amount (for the tax, GST or VAT that is due). Also include a Vendor Withholding for the credit that you receive (in this case it is a credit, rather than an amount you withhold).

In your Billing Records, include sales tax in the Sales Tax field. You will collect that money from your clients, and then pay it to the tax agency.

When you file with the tax agency, you'll pay the sales taxes collected, but receive a credit for the Vendor Withholding amounts.

NOTE-- This link explains more about Canadian GST taxes (which also applies to the United Kingdom and some other countries).

Click here to return to Project Management topics.