About Tax Calculations for Work Completed
When you capture work completed for an SM work order, the system determines the taxability of each work completed line based on specific criteria defined for the work order scope.
The taxability of a work completed line is based on the type of work order (customer or job), the work completed line type, the line's billable status and, if the line is associated with a material (inventory lines, purchase, or miscellaneous lines with a material-related SM cost type), the Material Tax Override assigned to the related work order scope.
Job Work Orders
The system does not calculate taxes for equipment, labor, and non-material miscellaneous work completed lines (those with no SM cost type or those having an SM cost type with a non-material cost type category) on a job work order, nor can you manually apply them.
| If Material Tax Override is: | Allowed Tax Type is: |
|---|---|
| blank | Use or blank |
| N-No Tax | blank (no tax can be applied) |
| S-Sales | blank (no tax can be applied) |
| U-Use (U.S. only) | Use or blank |
Since you can only apply Use tax to a material line, lines are only taxable if associated with scope assigned a Material Tax Override option of Use or blank. If a tax code is specified, the system sets the tax basis equal to the line's Actual Cost amount. It then uses the tax rate and the tax basis to calculate the line's tax amount.
Customer Work Orders
For customer work orders, the taxability of a line is based on its line type and billable status (determined by the scope's price method). If it is a material line, the system also uses the scope's Material Tax Override option to determine if the line is taxable.
If the work completed line is a non-billable equipment, labor, or non-material miscellaneous line, no taxes can be applied. If the line is billable, the system will calculate either Sales tax (if US) or VAT tax (if AU/CA), since Use tax is only applicable to material lines.
| If Material Tax Override is: | Allowed Tax Type for Billable is: | Allowed Tax Type for Non-Billable is: |
|---|---|---|
| Blank | Blank, Sales, Use or VAT | Blank, Use |
| N-No Tax | Blank (no tax can be applied) | Blank (no tax can be applied) |
| S-Sales | Sales, VAT,Bblank | Blank (no tax can be applied) |
| U-Use (U.S. only) | Use or Blank | Blank, Use |
If the line is taxable, the system defaults the appropriate tax type and tax code, and sets the tax basis equal to the line's Total Billable amount (Sales or VAT) or Actual Cost amount (Use). It then uses the tax rate and the tax basis to calculate the line's tax amount.
Work Completed Generated from an AP Invoice or Purchase Order
For work completed lines that were generated from an AP invoice (in AP Transaction Entry) or a purchase order (in SM Purchase Order Entry or PO Purchase Order Entry), the system handles taxes a little differently. Regardless of whether you pay tax to the vendor specified on an invoice or purchase order, the system determines the taxability for the resulting work completed line based on its line type and billable status (determined by scope's price method). If it is a material line, the system also uses the Material Tax Override option defined for the work order scope to determine taxability.
If the generated work completed line is a billable non-material miscellaneous line (from AP Transaction Entry) or non-material purchase line (from SM Purchase Order Entry or PO Purchase Order Entry) and the line is taxable, the system applies Sales tax to the work completed line. Regardless of whether you applied Sales or Use tax to the invoice or purchase order line, only Sales tax can be applied to a billable non-material work completed line. Additionally, because the tax basis for billable work completed is based on the line's Total Billable, the tax basis will differ for the work completed line depending on whether you applied Sales or Use tax to the vendor.
* For non-material miscellaneous lines (generated from an AP invoice line), the Total Billable defaults from the total cost of the invoice line. For non-material purchase lines (generated from a PO item), the Total Billable may include a non-material markup, depending on the rate template assigned to the work order scope. In which case, the tax basis will be the cost of the PO item plus the markup amount.
For material-related work completed lines, the system also uses the Tax Variance check box in SM Company Parameters to determine tax liability. You will generally select this check box if you pay both Sales and Use tax, and your Use tax rates are higher than your Sales tax rates. In this case, the Tax Amount for the material line will be the difference between the Sales tax paid to the vendor and the Use tax calculated for the work completed line.
So, assuming Sales tax is 6% and Use tax is 8%, the calculations would look like this:
* For miscellaneous lines coming from an invoice, the tax basis will be equal to the tax basis specified for the invoice line. For purchase lines coming from a PO item, the tax basis will be the total of the purchase order item before tax.
** This is the total amount of tax you paid between the invoice line / purchase order item and the related work completed line. If you applied Use tax to the invoice or PO item, no tax variance is applicable, since you do not pay use tax to a vendor. Therefore, the tax amount for the work completed line will be the full Use tax amount. The total amount of tax paid is then added back to the cost of the work completed line.
