If you elect to post taxes on invoices, additional options are available for including retainage in tax calculations/distributions.

• Calculate Tax on Retainage – If you select this option, the retainage amount is included in the tax basis. When posting an invoice, the full tax amount is updated to the tax payables account and is due for payment. When unchecked, retainage is excluded from tax calculations.
• Distribute Tax to Retainage – With this option, retainage tax is tracked separately and is made payable at the time retainage is released. The tax basis amount for the invoice will exclude retainage tax; retainage tax is calculated separately and displayed in the Retainage Tax field. When the invoice is posted, the retainage tax is updated to the Credit GL Retg Account specified for the tax code (HQ Tax Codes, Add’l Opts tab). Then when retainage is released, the retainage tax is moved to the tax payables account and due for payment.

Selecting to post taxes on receipts allows you to post taxes on miscellaneous cash receipts or ‘on account’ payments (typically posted for ‘balance forward’ customers). If you will be posting taxes on ‘on account’ payments, it is suggested that you also select the Post Taxes on Invoices option. This will ensure the customer’s account balance accurately reflects the tax amount posted to payments on account. If you do not select either option, taxes will not be calculated for AR invoices or cash receipts, regardless of whether the invoice/cash receipt is contract-related and the contract allows the posting of taxes.