[mmorales]

Hi,

It would be perfect if we can charge sales tax on the payments received instead on the invoice total in the layaway cases.



For example:

Let's say we have a layaway of $400.00 and we collected $100.00, and the sales tax is 7% (actual percent in PR). In our scenario the sales tax should be $7.00 ($100.00 * .07), because in Puerto Rico we pay sales tax on monthly basis for the amount of money we receive from Customers. If the customer does not pay the remaining balance of $300.00, we as businesses are not required to pay the sales tax for the uncollected balance.


We will appreciate any help or suggestion.

[RetailEdge Moderator]

Actually a layaway is not considered a sale in RetailEdge for that very reason. Sales tax is collected on completed sales only. When you do a Layaway in Retail is is actually not treated as a sale. Since you are not giving the merchandise to the customer it is treated as a liability. The reason it is not treated as a sale is because of the sales tax ramifications on selling items with long lead times. Many businesses (furniture stores etc.) have long lead times on orders and do not want to be liable for taxes on items that they have never received (2 months plus). In addition there are inventory issues. When you sell an item in RetailEdge it will be removed from your inventory. If you have never received and you sell it then you will have incorrect inventory quantities. When RetailEdge creates a layaway, the Allocated amount is adjusted, but the actually inventory quantity is not since you in theory still have the item in your inventory (what if the place burns down at night don't you want to show that you had the item in inventory?)

That being said there are a few things that you can do.

1. You can set your layaway minimums to your sales tax percentage. This can be done in the location settings. This will ensure that you collect at least what you are required to pay the government. Closing Reports will indicate the amount of Layaway Payments taken for the period, and so you would know that you need to add this into your tax liability at the end of the month. Closing reports can be summarized for any period so you can get a total for the month. You would need to be careful, in that RetailEdge will also show sales and sales tax collected when a layaway is completed. But this information is also shown on the closing report, so it should be easy to back out.

2. If the layaway option does not work, you can always treat these sales as account charges. That way when you put these items on "layaway" they will be sold and sales tax collected. RetailEdge will also track dating and can print statements so depending on your volume of layaways and your other invoicing needs this might work better for you.

The way Puerto Rico handles the collection of tax really does point to you doing it the second way. One of the issues you are going to have with a layaway, is that if you collect sales tax on money received, then what do you do when you cancel the layaway and give the customer his money back? Do you file for a credit from the Tax Department?

Let us know if you have any more suggestions.

Hi,

It would be perfect if we can charge sales tax on the payments received instead on the invoice total in the layaway cases.

For example:

Let's say we have a layaway of $400.00 and we collected $100.00, and the sales tax is 7% (actual percent in PR). In our scenario the sales tax should be $7.00 ($100.00 * .07), because in Puerto Rico we pay sales tax on monthly basis for the amount of money we receive from Customers. If the customer does not pay the remaining balance of $300.00, we as businesses are not required to pay the sales tax for the uncollected balance.


We will appreciate any help or suggestion.

[mmorales]

Thanks for your reponse.

The way Puerto Rico handles the collection of tax really does point to you doing it the second way. One of the issues you are going to have with a layaway, is that if you collect sales tax on money received, then what do you do when you cancel the layaway and give the customer his money back? Do you file for a credit from the Tax Department?

Answering your questions:

1) If we cancel layaways where we collected any money, we will make a credit to the sales tax liability in the month we canceled the layaway. In that way, we receive a credit for the money we paid up front to the government.

2) We don't have to file for the credit we just make a credit to the Sale Tax Liability in the month we canceled the layaway if there was a payment involved.

I would appreciate if you can elaborate in the second idea, I am new with Retail Edge and I need to know how I can manage Layaway using the Account Charges feature. How can I maintain control of what is in layaway if I use the Account Charges feature instead of the Layaway feature?. For what I understand, every sale posted as Account Charges will affect inventory as the final sales do, and these items will not be allocated as layaways and orders do.

I will appreciate your comments.

Regards and Happy Holidays,

Michael

[RetailEdge Moderator]

After a little more thought I don't think house charges is the best solution for you because it will not allow you to track inventory allocation the way I think you want to and also it will collect the sales tax when the initial sale is done, which you will need to adjust. I think that the layaway will give you better reporting.

Here is what I think you should do:

1. Do the layaway sales as layaways. Or you can consider doing them as open orders. Open orders will work similarly to Layaways, but open orders give you the flexibility to change the items on the order once they are posted. Whichever way you like. Both will give you the inventory allocation adjustments I think you are looking for.

2. To report your sales tax collected on layaways the way Puerto Rico wants them (Sales Tax only on Money Collected you should do the following:

a. At the end of the month run a Summary Close Report (Reports|Sales|Register - Today). This will give you a large closing report that will show all the adjustments for layaway Completed, Sales Tax Collected, Layaway Payments Made, etc.

b. Use the following formula to adjust the Sales Tax that you need to pay the government. (It looks like it is a complicated adjustment, but it really is not that bad.)

Sales Tax to be paid = Sales Tax Collected + (Layaway Payments * Tax Rate) - (Layaways Completed * Tax Rate).

This will also take into account any cancellations (negative Layaway payments) and so you won't have to make a separate adjustment for this. The one thing that will be a little different, is that layaway payments are actually total for the sale including sales tax. So you would be paying more on the payments (tax on tax). But the adjustment will balance with the layaway completed. Most of the time this won't even be an issue, because the layaway payments will complete the layaway before you start getting into the tax portion of the layaway.

Hopefully this helps.

Thanks for your reponse.

The way Puerto Rico handles the collection of tax really does point to you doing it the second way. One of the issues you are going to have with a layaway, is that if you collect sales tax on money received, then what do you do when you cancel the layaway and give the customer his money back? Do you file for a credit from the Tax Department?

Answering your questions:

1) If we cancel layaways where we collected any money, we will make a credit to the sales tax liability in the month we canceled the layaway. In that way, we receive a credit for the money we paid up front to the government.

2) We don't have to file for the credit we just make a credit to the Sale Tax Liability in the month we canceled the layaway if there was a payment involved.

I would appreciate if you can elaborate in the second idea, I am new with Retail Edge and I need to know how I can manage Layaway using the Account Charges feature. How can I maintain control of what is in layaway if I use the Account Charges feature instead of the Layaway feature?. For what I understand, every sale posted as Account Charges will affect inventory as the final sales do, and these items will not be allocated as layaways and orders do.

I will appreciate your comments.

Regards and Happy Holidays,

Michael

[mmorales]

I understand what you are trying to say but I think the best approach for us is as follow:

Use the Summary Close Report as you mentioned but using the following formula:

Note. The sale tax percentage in Puerto Rico is 7% in total.

Sales Tax Liability = Sales Tax + (Layaway Payments - (Layaway Payments / 1.07)) - (Layaway Completed - (Layaway Completed / 1.07))

Let me know your thoughts about this formula. I made an example and it worked, I hope I did not missed something. hehehe!

Regards and Happy Holidays,

Michael

[RetailEdge Moderator]

I would say that this would work and is technically correct. However, my concern an why I did not discuss it later, is that I thought that Puerto Rico was collecting sales tax on payments made. In my scenario, you receive a layaway payment of $100 and you pay tax on that. When you complete a layaway and RetailEdge credits you back the $100 it is clear what is going on and you don't have to explain the 1.07 adjustment. You don't have to say "well I am doing the adjustment to take into account the tax being collected on the layaway" which some people may not understand.

Another thing to consider is when you divide by the tax rate, you are averaging the tax collected over the entire layaway. So in your example if I have a layaway for $100 my total layaway payments would be $107 (Sales + Tax). If you receive $50 in layaway payment for the first payment, would the government consider this a payment towards the $100 part of the sale including the taxable portion of the sale and tax. Someone could come back and say that you should be paying tax on the first $100 and then backing out the last $7.00 (which would be really complicated to figure out.

But it is up to you as to what you want to do and it is correct technically.

I understand what you are trying to say but I think the best approach for us is as follow:

Use the Summary Close Report as you mentioned but using the following formula:

Note. The sale tax percentage in Puerto Rico is 7% in total.

Sales Tax Liability = Sales Tax + (Layaway Payments - (Layaway Payments / 1.07)) - (Layaway Completed - (Layaway Completed / 1.07))

Let me know your thoughts about this formula. I made an example and it worked, I hope I did not missed something. hehehe!

Regards and Happy Holidays,

Michael

[mmorales]

Thanks for your response.

It is a good point what you mentioned about maintaining the clearest way of the calculation. I will present the two options to the clients in order for them to decide which route to take.

Take Care,

Michael