Gross Profit Sales Tax Calculation

Overview

Updated 07/09/2021

How it works

GP Sales Tax states that services rendered are taxable for their profit, Sales less Cost, rather than the entire bill amount.

The two states that currently utilize this method are Pennsylvania and New Mexico. If the worksite address was within either of those states, their profit is subject to tax.

The calculation goes like this:

Gross Profit: (Total Bill – (Total Pay + Employer Taxes + Worker Comp Cost + Burden + Other Cost)

Sales Tax Amount: Sales Tax Rate x Gross Profit

For instance: PA has a tax rate of 6% and a county tax rate of 1% within Philadelphia. The employee has been paid $400 and the bill went for $600. Worker comp cost is $10, Burden is $2, and Employer Taxes is $50. This makes the Gross Profit equal to 600 – (400 + 10 + 50 + 2) = $138. The Sales Tax Amount would be $9.66. The bill that would be sent to the customer for that employee would be $609.66.

Setup

1. From the Admin Tools System menu, select Sales Tax.
   
   
2. On this page click Add New.
   
   
   
3. Enter the name of the state in the Name field.
   
   
4. Enter a description of the sales tax in the Description field (i.e., PA Sales Tax, NM Sales Tax, etc).
   
   
5. Select the state from the Statedrop-down menu.
   
   
6. For Gross Profit Tax, enter into the CalcMethod field dbo.bil_ProcessSalesTax_GPInvoice.
   
   
7. Check the Show Zero Bill By Default box.
   Note: This should be checked for all Gross Profit sales taxes, not checking this box may cause incorrect calculations.
   
   
   
   
   
8. Enter a rate for the state in the Sales Tax Rate Table.
   Note: This will only be necessary if there is no state sales tax with defined county taxes.
   
   
   
   
   
9. Click theSave button. A save confirmation message then appears.

Separate State and County Taxes

1. If there are state and county taxes to be separated out, click on Sales Tax State Rate.
   Note: There can be only one record per state.
   
   
   
   
   
2. Select the state from the State Code drop-down menu.
   
   
   
   
3. Enter the state's rate in the Rate field.
   
   
4. Enter the start and end dates in the respectiveStart DateandEnd Date fields.
   
   
5. In the Sales Tax Rate State County table, enter the county rates under the Rate (%) column, and the start and end dates under the respective Start Date and End Date columns.
   
   
6. Click the Save button. A save confirmation message then appears.

Billing Process

In the customer address section, the sales tax needs to be setup on every address that is used as a worksite for orders for the state. To do this:

1. Navigate to the Customer item on the Main Tree and select your customer.
   
   
2. Under the customer Address section, click the See All button.
   
   
   
   
3. Once under the See All menu of the Customer Address section, select your sales tax name from the Sales Tax drop-down menu.
   
   
   
   
4. Navigate to the Time Entry item and select your Accounting Period. Be sure to click Create Transaction if your transaction is not currently available.
   
   
5. Under the Card View for your specific employee you'll be able to verify the Show Zero Bill field which will be automatically checked provided that the Show Zero Bill By Default field was checked under Config Sales Tax from the Sales Tax section of Admin Toolswhen the transaction was created.
   
   
   
   
6. Run your transaction through the Payroll process. Be sure to do this prior to starting your Billing process, as this will make it so that Employer Taxes are calculated into the gross profit. Doing this will also prevent an error at Billing which will prevent the billing batch from being processed.
   
   
7. Run your transaction through the Billing process.

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