Tax Setup Follow

Estimates and orders must be configured correctly to ensure applicable taxes are calculated accurately and displayed on customer-facing documents such as Estimates, Orders, and Invoices.

Tax configuration is managed through the Administration area of Midnight and is ultimately applied to estimates and orders based on settings defined in the customer CRM records, Standard Services, and the tax setup tables. This article focuses on the administrative tax setup process.

Midnight's tax structure consists of three administrative tables:

• Tax Codes
• Tax Jurisdictions
• Tax Exemptions

The two most commonly used tables are Tax Codes and Tax Jurisdictions.

• Tax Codes: Define individual tax rates (for example: state tax, city tax, county tax).

• Tax Jurisdictions: Group together multiple Tax Codes to determine the total tax applied to an estimate or order based on the Tax Jurisdiction assigned to the customer’s record, ensuring that the appropriate taxes are automatically calculated based on the customer's location and tax requirements.

This structure allows you to configure locations that require multiple stacked taxes.

For example, if taxable sales in your area require both state and county tax, you would create separate tax codes for each tax and then combine them into a single tax jurisdiction.

Tax Codes

• TX-STATE: 6.25%
• TRAV-CNTY: 1.0%

Tax Jurisdiction

• TX-STATE + TRAV-CNTY: 7.25%

In this example, the TX-STATE + TRAV-CNTY tax jurisdiction combines both the State and County Tax, resulting in a total tax rate of 7.25%.

The Tax Codes screen is used to create and maintain the individual tax rates that will be applied within Midnight. As discussed previously, tax codes represent the specific taxing authorities that make up a tax jurisdiction, such as state, county, city, or special district taxes.

The available fields are:

• Code: A short abbreviation used to identify the tax code.
• Description: A detailed description of the tax code.
• Percent: The tax rate percentage to be applied.
• GLID: The General Ledger ID used to map collected tax dollars to the appropriate account in your accounting system.
• Inv Item: The invoice item code used when exporting tax transactions to your accounting system.
• Payable Account: The sales tax payable account configured in your accounting system where collected taxes will be recorded.
• Service Tax: Select this option if the tax should be applied to taxable services.
• Postage Tax: Select this option if the tax should be applied to postage charges. Whether postage is taxable depends on your local tax requirements and business practices. Consult your accountant or tax advisor to determine whether this option should be enabled.
• Active: Indicates whether the tax code is currently active and available for use in the system.

Once tax codes have been created, they can be combined into Tax Jurisdictions, which are then assigned to customer records. This approach provides flexibility for managing multiple tax rates across different geographic areas while ensuring accurate tax calculation on estimates, orders, and invoices.

To create a new Tax Jurisdiction:

1. Open the Tax Jurisdictions screen.
2. Select Add from the dropdown menu.
3. The Add Jurisdiction screen will open.
4. Enter the jurisdiction information, such as the jurisdiction name and description.
5. Select the appropriate tax code(s) that should be included in the jurisdiction.
6. Click Save & Close to save the jurisdiction.

A Tax Jurisdiction can contain a single tax code or multiple tax codes, depending on your local tax requirements.

When creating or editing a Tax Jurisdiction, the following fields are available:

• Name: The name of the tax jurisdiction. This should clearly identify the geographic area or taxing authority the jurisdiction represents.
• State: The two-character state abbreviation associated with the tax jurisdiction (for example, TX for Texas or FL for Florida).
• Description: A detailed description of the tax jurisdiction.
• Active: Select this option if you want the tax jurisdiction to be available for selection on Customer records.
• Tax Code: Select the tax code(s) that belong to this jurisdiction. After selecting a tax code from the dropdown list, click the Save button at the end of the row to add the tax code to the jurisdiction. Repeat this process for each additional tax code that should be included.

Editing a Tax Jurisdiction

To edit an existing Tax Jurisdiction, select the jurisdiction from the Tax Jurisdictions search screen. The selected jurisdiction will open in the same form used to create it.

From this screen, you can:

• Update the Name, State, Description, or Active status.
• Add additional Tax Codes to the jurisdiction.
• Remove tax codes that were added incorrectly or are no longer applicable.
• Modify the tax structure as tax rates or taxing authorities change.

Any changes made to the jurisdiction will affect future estimates, orders, and invoices that use that jurisdiction.

Note: Tax Exemptions can be used to exclude specific services or products from being taxed by a particular tax code.

To ensure taxes are calculated correctly on estimates, orders, and invoices, you must assign a Default Tax Jurisdiction in your Company Setup settings. While Midnight supports multiple tax jurisdictions for customers in different cities, counties, states, or regions, the default jurisdiction should represent the tax structure that applies to the majority of your customers.

To set the Default Tax Jurisdiction:

1. Click the Admin gear icon in the upper-right corner of the screen.
2. Select Global Settings.
3. Locate the Default Tax Jurisdiction dropdown field.
4. Select the appropriate Tax Jurisdiction from the list.
5. Click Save to apply your changes.

Once configured, the Default Tax Jurisdiction will be automatically assigned to new customer records and used as the default tax structure throughout the system unless a different jurisdiction is specified on an individual customer record.

Best Practice: Set your most commonly used Tax Jurisdiction as the default. For customers located in different taxing regions, you can override the default by assigning the appropriate Tax Jurisdiction directly on the customer record. This ensures taxes are calculated accurately based on each customer's location and tax requirements.

If you have customers who require a different tax rate than your default company tax rate, you will need to assign the appropriate Tax Jurisdiction directly to their customer record.

To do this:

1. Open the desired Customer record.
2. Locate the Tax Jurisdiction field.
3. Select the appropriate Tax Jurisdiction for that customer.
4. Save the customer record.

Once assigned, all future estimates, orders, and invoices for that customer will use the selected Tax Jurisdiction when calculating taxes.

Note: If a customer is marked as Taxable and no Tax Jurisdiction has been assigned to their customer record, Midnight will automatically use the Default Tax Jurisdiction configured in Global Settings at the company level.

This allows you to maintain a default tax structure for most customers while accommodating customers located in different cities, counties, states, or other taxing regions that require a different tax calculation.

Best Practice: Always verify the Taxable status and Tax Jurisdiction on customer records during implementation and customer setup. Correct tax jurisdiction assignment helps ensure taxes are calculated accurately and reduces the need for invoice adjustments later.

Tax Exemptions provide an additional level of control over how taxes are applied in Midnight. While the Taxable checkbox on a Standard Service determines whether a service is generally subject to tax, Tax Exemptions allow you to create exceptions to those rules based on specific tax situations.

A Tax Exemption is typically used when a service should be taxable in some jurisdictions but exempt in others. Rather than creating duplicate services or marking a service as completely non-taxable, you can use Tax Exemptions to selectively exclude certain services from a specific tax code while still allowing other taxes to apply.

For example, a company may have a Mailing Service that is normally taxable. However, state regulations may exempt mailing services from a particular state tax while still requiring county or local taxes to be charged. Instead of marking the service as non-taxable in Standard Service Setup, you can create a Tax Exemption that excludes the Mailing Service from the applicable tax code. Midnight will then calculate only the taxes that should apply.

Another common use case is when certain products or services are exempt from one taxing authority but not another. Tax Exemptions allow you to maintain a single service setup while accurately accommodating those special tax requirements.

Benefits of Using Tax Exemptions

• Maintain one Standard Service instead of creating duplicate taxable and non-taxable versions.
• Exempt services from specific tax codes while allowing other taxes to calculate normally.
• Support complex state, county, city, or provincial tax rules.
• Simplify tax maintenance when tax regulations change.
• Improve tax accuracy on estimates, orders, and invoices.

Taxable Service vs. Tax Exemption

Standard Service Taxable Checkbox

• Controls whether the service is generally taxable.
• If unchecked, the service will not be taxed by any tax code.

Tax Exemption

• Used when a standard service remains taxable, but should be excluded from specific tax codes or tax situations.
• Allows more granular control over tax calculations.

Example

Assume your Tax Jurisdiction contains:

• State Tax: 5.00%
• County Tax: 2.00%

A Graphic Design Service is taxable by default. However, local regulations state that design services are exempt from County Tax but are still subject to State Tax.

Using a Tax Exemption, you could exempt the Graphic Design Service from the County Tax code while still allowing the State Tax code to calculate. This would result in a 5.00% tax instead of the full 7.00%.

Best Practice: Use the Standard Service Taxable setting when a service should never be taxed. Use Tax Exemptions when a service is taxable in some situations but requires exceptions based on specific tax codes, jurisdictions, customers, or regulatory requirements. This provides the greatest flexibility and helps keep your service setup clean and easy to maintain.

After creating a Tax Exemption, you must assign it to the appropriate Customer record for it to take effect. Tax Exemptions do not automatically apply to all customers; they must be explicitly selected on the customers who qualify for the exemption.

To assign a Tax Exemption:

1. Open the desired Customer record.
2. Locate the Tax Exemption field.
3. Select the appropriate Tax Exemption from the dropdown list.
4. Save the customer record.

Once assigned, Midnight will apply the Tax Exemption whenever estimates, orders, or invoices are created for that customer. Any services included in the Tax Exemption will be excluded from the specified tax code(s), while all other applicable taxes will continue to calculate normally.