Where does Square take its sales taxes from

[kmsiler]

Hello there,

My question is which number on the Sales Summary Tab on the reporting Page is the Tax referencing when the Tax is included in the item price?

Is it Gross Sales? Gross Sales minus CC fees? Is it Gross Sales plus tips less CC fees? I've done the math every which way and I can't seem to get my numbers to match up with my spreadsheet so I'm hoping someone may have some insight since Square's customer service seems to have no idea what I'm talking about and there is nothing in that field that indicates any type of formula used to calculate that sales tax.

[TheRealChipA]

@kmsiler As long as you didn’t define your sales tax as being included in the item price, sales tax is calculated on gross sales.  It does NOT include tip, since you don’t know the tip until after the customer pays and they enter a tip amount, if any.  If you have service charges defined, they are taxed based upon how you set them up.  Same for sales taxes for services.  

Also, if you have discounts, you define in the discount definition whether it is applied before or after sales tax.    The default is not to calculate taxes on the discount amount since most states do it that way.  But there are exceptions.

Square’s card fees are based upon the check total, which is gross sales + sales tax + tips, since that is the amount that Square is processing for you.

If that information still doesn’t help you reconcile things, can you possible reply with a screen shot of your sales tax setup, as well as a report that shows what you believe to be incorrect information?  Try not to include anything sensitive or personal, but it would help to be able to see what you believe is the problem.  It shouldn’t be too hard to track it down.

[kmsiler]

Hey Chip,

I did have my sales tax included in the item price.

I'll give you a breakdown of one of my sales days to show you where the issue is.

Gross Sales (including taxes): $975.00

Tips: $22.75

Total Collected (including taxes + tips): $997.75

Fees: $19.55

Net Total (Total Collected - Fees): $978.20

Sales tax rate: 8%

Sales Tax according to Square: $72.16 (This is the number giving me issues)

So, my assumption would be that to get the sales tax it would be off of just the Gross Sales (Total collected minus tip)

If that were the case my math looks like this with tax as a divisor since its included:

$975/1.08 = $902.78 for Net sales (Gross less tax) with the tax being $72.22. I just have no idea where Square is getting the $72.16 from.

As im typing it looks like someone mentioned since it does the tax at an item level there might be a discrepancy with rounding.

[TheRealChipA]

@kmsiler You’re numbers aren’t wrong.  As @ryanwanner correctly pointed out in his post, this is most likely a rounding error, which happens A LOT with sales-tax-included items.  A penny here, a penny there, adds up eventually.

Often, by the end of the period, this has a way of evening itself out.  I’d just go with Square’s numbers In this case.  If you want to double check, figure out each individual item’s sales tax and I’ll bet you start to see what happens with the cumulative rounding.  You’re only 6 cents off, which is the same as 6 items not making the cutoff for rounding up, rather than rounding down.

[ryanwanner]

Hello @kmsiler !

Taxes are taken from your gross sales. To be more exact, taxes are taken from every item that has that tax rule applied to it. It's better to think of it at an item level while trying to chase down discrepancies. Since Square does calculate taxes on an item level sometimes rounding of fractional percentages can come into play as well.

When you have the tax included in the item price, it's a little more difficult to track but it is doable. The gross sales amount listed on the sales report will be your sales less the tax amount. Take a look at this thread where @VanKalkerFarms showed some screen shots of what it should look like.

So if your taxes are off and it's not by an extreme amount, my bet is it's due to rounding. If it's off by a lot I'd recommend checking your item library and making sure that all the items that need to be taxed are, and if you have multiple tax rates set up, make sure the items are only taxing on the correct rates.

[VanKalkerFarms]

yup, definitely rounding of the individual items that make up the total.  It is easy to say this total doesn't work out correctly but that isn't where the calculations are happening.  Just say there were 50 items and 28 rounded up and 22 rounded down you could end up with a few cents more like in this case.  overall at the end of 1,000s of items averages tend to find their way to being rounded correctly.