Note: Canadian customers work slightly differently. Please visit this article to see how it works for QBO Canada.
This article explains how sales tax, down payments, and invoicing works with SynkedUP and QuickBooks Online integration.
We have had some questions from users that noticed the down-payment invoice does not show any sales tax, even if the work has been marked as taxable. Here's why:
Down-payment invoices do not collect sales tax in SynkedUP. I'll explain why later in this article. Basically, all the sales tax for the whole job gets collected on the next invoice after the down payment, the final payment.
I have added a video showing how it works and below the video, I have added a written explanation
So the workflow works like this:
You send a proposal to the customer, and let's assume you turn on the Auto-Submit Down-Payment Invoice upon Customer Approval toggle
The customer gets the proposal and approves it in the Customer Portal.
Because the Auto-Submit Down Payment toggle was on, the customer immediately gets a follow-up email with the invoice for the down payment. This gets generated from QBO. That down payment invoice does not show any tax, even if the work or items are marked as taxable.
As soon as the customer pays that down payment invoice, the job automatically gets marked as Sold.
Now let's assume you have completed the project and you're ready to invoice the customer for the remaining amount that is still due.
You go to the invoicing tab of that job and create an invoice. There you notice that there's an alert message notifying you of the down payment already collected that will get deducted off this final invoice total.
This will only happen if that down payment invoice has already been paid. If the down payment invoice has not been paid yet, it will not create this deduction and invoice for the full amount automatically.
When you open that invoice in QBO, you see that it took that previously paid down payment invoice, and deducted it off this final invoice, but it's collecting tax for the full amount of the job. In other words, it's collecting the sales tax for the down payment amount and the final invoice amount
So in the end, all sales tax gets collected correctly.
Ways this could behave not as desired:
If you create a down payment, and then immediately create the final payment invoice before the down payment invoice got paid, then it will see that the full amount is still due, and produce a final invoice for the full amount. If your customer later paid both the down payment invoice and the final invoice, they could overpay.
Why does SynkedUP not collect sales tax on down payment invoices?
It is a little hard to explain concisely, but I'll try. Most of the complexity revolves around automatically calculating the amount due on T&M and Flat Rate workareas.
SynkedUP automatically calculates the invoice amount due on T&M and Flat Rate workareas. The invoice price is based on the actual items and labor you log in that work area.
Actual items are items and labor logged in the mobile app on each Visit, or on the actual side of the workarea.
Because this is how we produce the invoice price, but we collect a down payment on T&M or Flat Rate workareas before any actual items are yet logged. This means that we have to create the down payment and collect the money without attaching it to any actual items or workareas because there are no actual items to be billed for yet.
So we create that down payment, and the system knows it is there but it's waiting to collect sales tax until we have real-world time and materials to tax. Once we have those real-world items that got added in Visits in the mobile app, now we have some actual data to base our sales tax collection on. We now know what happened in the real world, we now know what items we ended up using and how much labor we spent.
Now that we have that actual data, the next time you create an invoice the system will remember that down payment you collected. It will generate an invoice with the full final price of the whole job, collect tax for all taxable workareas and items, and then lastly, deduct the down payment from the due amount.
In summary, you collected a down payment on estimated values. We wait until you have actual values and we know what you need to collect tax on before we collect the tax. It looks like this:
down payment collected (with no tax)
you complete work
final invoice created, all tax is collected on final payment, down payment amount is deducted from the amount due.
So to avoid getting into a situation where you may have collected too much tax, the best way to deal with it is to wait to collect tax until we know for certain what tax needs to be collected.
Anyway, if you need any help or clarification, just hit us up in the chatbox. I'm going to go rest my brain 😅