Tips and Tricks #4

Studio Designer frequently fields questions from users on how to report and pay sales tax on items that designers aren’t paying for themselves. Every now and again, designers have clients who want to pay the vendor directly with their own credit card in order to accumulate credit card rewards. Consequently, they are unsure how to track client purchases for tax purposes when it is not recorded in the Studio Designer system.

In this Tips and Tricks article found in the User Guide, Wallene details the steps on how to make these tax payments. She describes each step of the process to calculate the sales tax and record the vendor payment and client receipt.

Paying Sales Tax on Items that your Client Paid the Vendor for Directly

Normally when you want to keep track of an item that your client is paying for themselves, you will create a normal item, but on the Codes tab, you’ll select Specify Only = Yes.  This makes it so you have a record of the item, and can create an Order, but Studio Designer doesn’t expect you to pay a vendor, or collect anything more than a markup (or commission) from your client.  This means that it doesn’t accumulate accounts payable, and because you’re not invoicing the client for the cost of the item, it also doesn’t calculate or expect you to pay sales tax.

But, we frequently get requests from designers who want to collect and remit the sales tax on these types of items.  Here we detail one way to collect and remit sales tax on an item that you, the designer, will not be paying for.

This requires that you create a normal item where specifier = No and you’ll post a payment to your vendor, and from your client where the net amount will be equal to the amount of the sales tax only.

In the example below, we assume that your client has paid you the amount of the sales tax only, and you did not enter a markup.

1. Create an item where purchase cost equals the selling price.  Make selling taxable = Yes, if you’re charging a markup, you can also enter it on this item.  

In the example below, the client would have written you a check for $100.00 just to pay for their sales tax.

3. Create an Order and an Invoice for the item.

4. In Accounting/Money In, Receive & Apply a payment for the amount of the selling price + the tax ($2,100.00).

5. Post a manual payment to the vendor for the purchase cost, use the same check # you used when you recorded the client payment. ($2,000.00)

The net amount being deposited into your checking account is $100.00.

When using this method, you will see two entries in your bank reconciliation. $2,100.00-$2,000.00 = $100.00