Use Tax and Reverse Charged Tax

1

Is use tax in the US similar to VAT in other countries? If so, I would suggest that reverse charged tax have an optional debit side account selection, as currently, when ‘reverse charged’ is selected the tax code credits and debits the same (selected) account.

2

Hi @Acct1,

Is this something required by law? or is the tax payable and claimable from two different tax authorities?

Could you please elaborate on your use case.

3

No. Use tax is a sales tax and is not offsettable like VAT.

4

Here is how it works, at least in my state:

  • Sales tax is charged to the end user of taxable items, businesses can file a sales tax exemption with their supplier, so that their supplier is not required to charge them sales tax, but then if the business uses an item they purchase in a taxable manner (not for resale), they owe use tax on it (if they sell it to a customer they owe sales tax which is collected from buyer at sale).
  • How this would work for optimal performance, is for Manager to create a separate invoice-like transaction payable to the taxing authority so that when reporting is set to cash basis, it recognizes the tax expense when the tax auth. is paid, rather that when the supplier of the goods is paid.
  • It would also preferably have some system for linking the tax payable on that tax-payable transaction to how much of the supplier invoice has been paid, when cash basis is selected. For example, I have an invoice for $750, but have only paid $500, if I am a cash basis sales/use tax filer, I only owe use tax on $500, not $750, so the use tax ‘invoice’ should only recognize tax payable on $500 in this period, and then should recognize tax payable on $250 in the period when the rest of the supplier invoice is paid.
  • I know that would be rather complicated, and probably beyond what the developer is interested in doing at this point; however, I know that sales and use tax reporting is a perennial problem for small businesses (and large ones, for that matter) in the United States.
  • The other side of this use tax, is that if you did have to pay tax on an item you purchase, and for your purposes, it is either a tax exempt item or for resale, you can deduct that from your sales/use tax remitted when you pay it; I believe this is how VAT works, and so I believe Managers current tax function works for this.
  • I haven’t used QuickBooks or any of the other major accounting software, but I believe that if Manager successfully streamlined sales & use tax reporting, they would be ahead of most accounting software. I would be glad to talk with the developer (@lubos) about this, and what reporting flow is needed.
5

Additionally, what would be great in a use tax system, is to be able to set automatic use tax rates based on items and/or suppliers.