Basic US Sales Tax Setup

This page is intended to assist with the setup of a basic US sales tax system. It may be useful for people in other jurisdictions to help them understand how the various tax options work, but this is only coincidental.
A brief description of each option is given, together with examples.

Please note that this is not tax advice. It is not compiled by an expert. Use at your own risk.

Tax categories

These are headings only, and are used to apply different tax rates to different types of goods:
Simple setup:
Freight (system required)

Other potential options would be food, luxury items, clothing etc, where these have different tax rates.

Tax province

Description of tax location. Most important where there are multiple business locations.
Simple setup:
City, county, state

Tax authority

This is where the different tax rates for each tax collected are stored. In addition, different general ledger accounts can be set for each type of tax.
Simple setup:
Minnesota sales 6.5%
CountyA sales tax 1.25%
CountyB sales tax 1.25%

Note that it is best practice to break the tax rates down into the maximum level of detail.
eg not:
Minnesota & county sales tax 6.75%
If you ever do business in another county, then you will need to go back and split the tax back out.
CountyA & CountyB sales tax 1.25%
The rates are the same at the moment, but they will be different at some point in the future.

Different general ledger accounts for different tax types are useful as well - this allows each tax type to be separately reconciled - especially important if they have different filing periods.

Tax grouping

This is where the different tax rates are combined
Simple setup:
CountyA Sales Tax = MN + CountyA
CountyB Sales Tax = MN + CountyB
Exempt = 0%

NOTE: There is a gotcha at this point - the current default setting for the calculation order is set as 0 for the first line, 1 for the second etc. This will not calculate the first rate - the first rate needs to be set with an order of 1.

At this point you should be ready to go with basic sales tax functionality.
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