Example 1) A specific invoice, such as a wireless phone bill, does not charge sales tax

Let’s say you have a monthly wireless phone invoice that does not incur sales tax. You want to be able to enter this invoice into ProContractor so that sales tax is not calculated.

First, set up a separate cost type for the wireless phone. In Administration > Setup > Cost Type, enter the cost type name and code WP in the screen header. In the General tab, select to use the cost type for general ledger only transactions.

Next, set up the tax authority that the wireless phone vendor is located in. If there is a linked tax authority, define that tax authority as well. Both should be defined so that wireless phone costs are not taxable. In Administration > Setup > Tax Authority, define the following tax authorities:

To specify wireless phone costs as not taxable, go to the Vendor Taxable Default tab and move the wireless phone cost type WP to the Taxable (No) grid.

Next, link the local and state tax authorities so that both local and state tax are assessed for projects in the local tax authority. In Administration > Setup > Tax Authority Link, enter the local tax authority LO in the screen header and then move the state tax authority ST to the Linked Tax Authorities grid, as shown below.

Finally, set up the wireless phone vendor to use the appropriate tax authority and default cost type. In Vendors > Setup > Vendor, enter the vendor name and code WI in the screen header. Set the following fields on the General tab:

Sales Tax Authority = LO

Default Cost Type = WP

Once the setup is complete, let’s say that you receive a wireless phone invoice for $909.89. In Vendors > Invoices > Enter Vendor Invoice, you enter the vendor information in the screen header and enter a purchase amount of $909.89. In the Distribution tab, when you click to add a new line, ProContractor automatically sets the cost type to WP and sales tax authority to LO based on the vendor setup. Because the tax authority is defined to omit sales tax on wireless phone costs, the line is set as not taxable.

Example 2) You work in a state that does not charge sales or use tax

Let’s say you work in a state that does not impose sales or use tax. Therefore, when entering vendor invoices, purchase orders, etc. for a project in this state, you want ProContractor to omit the tax by default.

First, set up the state tax authority so that tax is not calculated under any circumstances. In Administration > Setup > Tax Authority, enter the tax authority name and code ST2 in the screen header.

In the General tab, enter 0 in the Tax % field. In the Vendor Taxable Default tab, move all costs types to the Taxable (No) grid.

Next, set up the project with the appropriate state tax authority. In Projects > Setup > Project, enter the project name and code 20160001 in the screen header. In the General tab, select ST2 in the Sales Tax Authority field.

Once the setup is complete, let’s say that you receive vendor invoice for $650. In Vendors > Invoices > Enter Vendor Invoice, you enter the vendor information in the screen header and enter a purchase amount of $650.00. In the Distribution tab, you enter the values shown below in a distribution line:

Based on this entry, ProContractor automatically sets the sales tax authority to ST2 (the sales tax authority for the project). Because the tax authority is defined to not calculate sales tax, the line is set as not taxable. Note that this is true for any cost type entered, because you set all cost types to be non-taxable for the tax authority.

Example 3) Sales tax is not charged on a subcontract

Let’s say you have hired a subcontractor to handle a portion of the work on a project. You are working in a state that does not collect sales tax on the subcontract, and you want to perform setup in ProContractor to automatically handle this situation.

First, set up the tax authority for the project so that subcontract cost types are not taxable. In Administration > Setup > Tax Authority, enter the tax authority name and code (ST7) in the screen header. In this example, the tax authority code is ST7. In the General tab, specify the appropriate tax rate. In the Vendor Taxable Default tab, move the subcontract costs to the Taxable (No) grid.

Next, set up your project with the ST7 tax authority. In Projects > Setup > Project, enter the project name and code (20160003) in the screen header. Then go to the General tab and enter ST7 in the Sales Tax Authority field.

Once the setup is complete, create the subcontract. In Vendors > Subcontracts > Enter Subcontract, enter the project and generate a subcontract number in the screen header. In the Item Detail tab, when you enter a subcontract cost type for a line, ProContractor sets the line as not taxable by default.

Example 4) A tax authority does not impose tax on labor if it is broken out separately on the invoice

Let’s say you are working in a state that does not impose sales tax on labor if the labor is broken out separately from other costs on invoices. The local tax authorities within the state follow the same rule. When you enter invoices into the system, you want ProContractor to recognize this rule and automatically omit sales tax from labor costs.

First, you need to set up your local and state tax authorities so that labor is not taxable. In Administration > Setup > Tax Authority, set up your tax authorities as follows:

To specify labor costs as not taxable, go to the Vendor Taxable Default tab and move the project and equipment labor cost type lines to the Taxable (No) grid.

Next, link the local and state tax authorities so that both local and state tax are assessed for projects in the local tax authority. In Administration > Setup > Tax Authority Link, select the local tax authority (LO) in the screen header. Then move the state tax authority (ST) to the Linked Tax Authorities grid, as shown below.

Finally, define your project, specifying the local tax authority as the sales tax authority for the project. In Projects > Setup > Project, specify the project name and number (20160001) in the screen header. In the General tab, specify the local tax authority (LO) in the Sales Tax Authority field.

Once the setup is complete, let’s say that you receive an invoice from a vendor with labor costs of $1500.00 and material costs of $900.00. Each cost is listed on a separate line as expected. You need to enter this invoice into ProContractor.

In Vendors > Invoices > Enter Vendor Invoice, you enter the values shown below in separate distribution lines for labor and material costs:

Based on your entries, ProContractor automatically sets the sales tax authority for each line to LO, the tax authority for the project. Because LO is defined to omit tax on labor costs, the labor line is set as not taxable with a tax amount of $0.00. However, the material line is automatically set as taxable, with the amount of tax calculated based on the linked tax authority rates.

Example 5) A local tax authority has no tax exemptions, but the state tax authority exempts material costs from tax on certain projects

Let’s say that you are working in a state where the state tax authority allows tax exemptions for material purchases on certain projects that have state funding. However, these exemptions are not applied at the local level. When you enter purchase orders for these projects into the system, you want ProContractor to recognize this rule and automatically calculate the appropriate tax on materials at each level.

Because the tax exemption on materials is valid for only certain projects, you need to set up two different tax authorities for the state: one for projects that qualify for the tax exemption, and one for projects that do not. You also need to set up two different tax authorities for the local tax authority, since the local tax authority is the primary tax authority for the project. In Administration > Setup > Tax Authority, define the following tax authorities:

To specify material costs as not taxable, go to the Vendor Taxable Default tab and move the project and equipment material cost type lines to the Taxable (No) grid.

Next, link the local and state tax authorities so that both local and state tax are assessed for projects in the local tax authority. In Administration > Setup > Tax Authority Link, select the local tax authority (LO) in the screen header and then move the state tax authority (ST) to the Linked Tax Authorities grid, as shown below.

Repeat this step for the special projects tax authorities by selecting LO1 in the screen header and then moving the state tax authority for special projects (ST1) to the Linked Tax Authorities grid.

Finally, for a project that has special funding, specify the local tax authority for special projects as the sales tax authority. In Projects > Setup > Project, specify the project name and number (20160001) in the screen header. In the General tab, select LO1 in the Sales Tax Authority field.

Once the setup is complete, let’s say that you have to enter a purchase order for $6000 of materials for this project. In Vendors > Purchases > Enter Purchase Order, you enter the values shown below for a line item:

Based on your entry, ProContractor automatically sets the sales tax authority for the line to LO1, the local-special projects tax authority. The line item defaults to taxable, since the primary tax authority does not have any tax exemptions for materials. However, the tax details show that the linked state tax authority (ST1-State Special Projects) does not calculate tax for this line.

Note: When you run Sales and Use Tax Reports for a particular location, you will need to select both tax authorities for the location. For example, if you want to run reports for the local tax authority, you will need to select both LO and LO1 in the report criteria to see the total taxable amount and tax amount.

Example 6) One of your vendors does not collect sales tax in the state you are working in, so you must accrue use tax

Let’s say one of your vendors, Acme Materials, Inc., does not have a nexus agreement in the state where your project is based. As a result, you must accrue use tax on Acme invoices for this project. In ProContractor, you want to set up your tax authorities, project, and vendor so that use tax is automatically calculated instead of sales tax on Acme invoices for this project.

First, set up the tax authorities for the vendor and project as appropriate. In this example, assume that the vendor is based in ST1, a state with a tax rate of 7.00, while the project is based in STU, a state with a tax rate of 6.00%. In Administration > Setup > Tax Authority, enter the tax authority name and code in the screen header. In the General tab, enter the appropriate tax rate. In the Vendor Taxable Default tab, all cost codes are automatically specified as taxable. If needed, specify one or more cost codes as not taxable by moving them to the Taxable (No) grid.

Next, set up the vendor, Acme Materials Inc., to use ST1 as the sales tax authority. In addition, specify STU as a tax authority for which to collect use tax. In Vendors > Setup > Vendor, enter the vendor name and code in the screen header. In the General tab, specify ST1 in the Sales Tax Authority field. In the Taxes tab, move STU to the Default Use Tax (Non-Nexus) grid.

Now, set up the project, John’s Grill and Tavern, to use STU as the sales tax authority. In Projects > Setup > Project, enter the project name and code 20160003 in the screen header. In the General tab, select STU in the Sales Tax Authority field.

Once the setup is complete, let’s say that you enter a vendor invoice for Acme into the system. When you enter a distribution line for John’s Grill and Tavern, ProContractor automatically calculates use tax for STU (the project’s tax authority) instead of sales tax.

Example 7) Sales tax is not collected for inventory purchases

Let’s say you do not have to pay sales tax on inventory purchases, and you want to perform setup in ProContractor to automatically handle this situation.

First, set up a cost type for inventory purchases. In Administration > Setup > Cost Type, enter the cost type name and code (INV) in the screen header. Select to use the cost type for general ledger only transactions

Next, set up the tax authority in which the warehouse is located so that tax is not collected on inventory purchases. In Administration > Setup > Tax Authority, enter the tax authority name and code (ST5) in the screen header. In the General tab, enter the applicable tax rate. In the Vendor Taxable Default tab, move the inventory cost type lines to the Taxable (No) grid.

Now, set up your warehouse in ProContractor with ST5 as the tax authority. In Materials > Setup > Warehouse, enter the warehouse name and code in the screen header. In the Default Tax Authority field, select ST5.

For each vendor that you normally purchase inventory from, specify the appropriate sales tax authority and specify inventory as the default cost type. In Vendors > Setup > Vendor, enter the vendor name and code in the screen header. In the General tab, specify the tax authority for the vendor in the Sales Tax Authority field and enter INV in the Default Cost Type field. In the example below, the vendor Acme Materials, Inc. is based in the local tax authority LO5.

Once the setup is complete, let’s say that you want to enter a purchase order for inventory. In the shipping information for the purchase order on the General tab, make sure you enter the warehouse where the inventory will be received. Based on these specifications and the previous setup, new line items added to the purchase order have a default sales tax authority of ST5, which is the tax authority for the warehouse. In addition, the default cost type for each line is inventory, which is not taxable under the tax authority.