Rustler’s Quickbooks Tips

Let’s say that your state only requires you to pay sales tax on 80% of the total charged for your particular service, rather than taxing the whole amount. And let’s say your normal sales tax rate is 8.25% (0.0825) as it is here in Texas.

The easiest way to accomplish this is to find what I call the effective rate. The rate where, when you apply it to the full amount, the tax calculated is the same as if you had first determined 80% of the sale and then applied the 8.25% tax rate to that total.

Pick a number, any number, how about $1,225.00.

80% of $1,225.00 is $980.00 and the sales tax on that amount at 8.25% is $80.85. So that is the amount you should collect on the sale of $1,225.00 where only 80% of the sale is taxable.

Divide $80.85 by the total sale $1,225.00 and you get .066 or 6.6%. That is the effective tax rate.

If you multiply the original sale of $1,225.00 by 6.6% you get $80.85. Pick a few other numbers and check it, it works.

So if you set your state tax rate to the effective rate, it will always calculate the tax based upon 80% of the total as the state requires. You should keep all digits after the decimal point when calculating the effective rate (do not round it), this one worked out well, another number combination might not.