Set up taxes

Overview

Find out how to set your default tax rate, how to set up alternative tax rates, and how Cin7 Omni calculates taxes on financial transactions.

About tax

Tax is a liability attached to the sale of goods and services and payable to the government. The size of each transaction’s tax liability is a percentage of the value of the transaction. The tax liability of every transaction must be calculated in order for accurate financial statements to be prepared.

How Omni calculates tax

By default, to calculate tax on your sales orders, purchase orders, and other transactions, Cin7 Omni uses the default tax rate in your admin accounting settings:

For tax-exclusive transactions, the tax liability equals the value of the transaction multiplied by your default tax rate.
For tax-inclusive transactions, the tax liability equals the value of the transaction divided by 1 + your default tax rate.
For tax-exempt transactions, the tax liability equals 0.

If you sell into multiple tax jurisdictions, however, Omni needs to calculate tax at varying rates. You must set up alternative tax rates. When an alternative tax rate is applied to a transaction, Omni will calculate the tax for that transaction at the alternative tax rate instead of the default.

Omni doesn’t calculate tax for the total value of a transaction. Instead, it calculates tax for four separate parts of the transaction. The total tax liability is equal to the combined tax liability of those parts, which are:

Line items
Surcharges
Discounts
Freight

This enables Omni to calculate tax on each part of a transaction at a different rate. For example, Omni can calculate tax for surcharges, discounts, and freight at your default tax rate and each line item at an alternative tax rate.

Omni may not calculate tax for certain transactions if you use QuickBooks Online’s automated sales tax (AST) system. For more information on AST, see Calculate US sales tax (QuickBooks Online).

Omni doesn't calculate tax on ecommerce transactions. Instead, Omni downloads the tax liability of each transaction from the ecommerce platform. Then it applies a tax rate to the transaction so Xero and QuickBooks Online can recalculate that tax liability correctly. For more information, see Tax on ecommerce sales(Xero) and Tax on ecommerce sales (QuickBooks Online).

Setting your default tax rate

Set your default tax rate in your admin accounting settings:

From the user menu, open Settings.
Under Accounting, select Admin Accounting Settings.
Set your Default Tax Rate.
Select Update.

Creating alternative tax rates

How you create alternative tax rates depends on whether you use an accounting integration—namely, Xero or QuickBooks Online. Once you’ve created your alternative tax rates, you must apply them to transactions (see below).

Create alternative tax rates without an accounting integration

We strongly recommend signing up for Xero or QuickBooks Online and integrating your accounting platform with Omni. By integrating Omni with Xero or QuickBooks Online, you can avoid manually setting up and maintaining the many alternative tax rates needed to track your tax obligations.

If you do use Omni without an accounting integration, you must create an alternative tax rate for each rate at which a part of a transaction may need to be calculated:

From the user menu, open Settings.
Under Accounting, select Tax Rates.
Select Add New.
Set Active to On.
Enter a short, descriptive Name.
Enter a unique Code.
If this alternative tax rate will never apply to freight, set Applies To to Goods. Else leave it blank.
Set Purchase or Sales to Purchases or Sales, depending on whether this alternative tax rate is for purchase or sales transactions.
Set the Tax Rate.
Optionally, enter the name and abbreviation of the State, region, or country where this tax rate applies, to ensure Omni applies this tax rate to ecommerce transactions belonging to that jurisdiction—find out more about taxes on ecommerce sales (for Xero users) and taxes on ecommerce sales (for QuickBooks Online users).
Select Insert.

Create alternative tax rates with an accounting integration

If you’ve integrated Omni with Xero or QuickBooks Online, your alternative tax rates will be created automatically when setting up your accounting integration—just make sure you’ve set up your taxes in Xero or QuickBooks Online before integrating with Omni.

Optionally, if you use the matching tax rates method for ecommerce transactions and make ecommerce sales in multiple jurisdictions with the same rate of tax, make sure you’ve specified the jurisdiction of tax rates without unique rates:

From the user menu, open Settings.
Under Accounting, open Tax Rates.
For each tax rate without a unique rate (Tax Rate):
1. Open the tax rate.
2. In State, region, or country, enter the name and abbreviation of the state, region, or country where this tax rate applies exactly as it appears in the Delivery State/Region or Delivery Country of your ecommerce transactions.
3. Select Update.

Find out more about taxes on ecommerce sales (for Xero users) and taxes on ecommerce sales (for QuickBooks Online users).

Applying alternative tax rates to transactions

Typically, you won’t apply alternative tax rates directly to your transactions.

Instead, you’ll apply alternative tax rates to your contacts, branches, and products. Then, when you create a transaction, the alternative tax rates applied to the transaction’s contact, branch, and products will take effect. For example:

If you’ve applied an alternative tax rate to a customer, then that alternative tax rate will be applied to that customer’s transactions.
If you’ve applied an alternative tax rate to a branch, then it will be applied to transactions from that branch.
If you’ve applied one to a product, then it will be applied to sales and purchases of that product.

Applying alternative tax rates to contacts, branches, and products

To apply an alternative tax rate to a contact, branch, or product, you can do one of two things:

Apply the alternative tax rate directly to a contact, branch, or product.
Apply the alternative tax rate to an alternative general ledger (GL) account, and then apply that alternative GL account to a contact, branch, or product.

A. Apply alternative tax rates directly

From the navigation, open CRM (for contacts and branches) or Products.
Open the contact, branch, or product.
Set Alternative Tax Rate (contacts and branches) or Import Customs Duty (products) to the alternative tax rate.
Select Save.

B. Apply alternative tax rates indirectly (via alternative GL accounts)

First, get the Tax Rate, Code, and c values of the alternative tax rate:

From the user menu, open Settings.
Under Accounting, open Tax Rates.
Find your alternative tax rate in the list and note its Tax Rate, Code, and Purchases and Sales.

Now apply the alternative tax rate to the alternative GL account:

From the user menu, open Settings.
Under Accounting, open Alternative GL Accounts.
Find the alternative GL account and select Change.
Enter the Code into Tax Rate Code.
Enter the Tax Rate into Tax Rate.
Enter the Purchases or Sales into Purchases or Sales.
Select Update.

Finally, apply the alternative GL account to the contact, branch, or product:

From the navigation, open CRM (for contacts and branches) or Products.
Open the contact, branch, or product.
Then either:
1. For contacts and branches, set Alternative GL Account to the alternative GL account.
2. For products, set either Sales Account or Purchases Account to the alternative GL account.
Select Save.

Find out more about setting up alternative GL accounts (for Xero users) and setting up alternative GL accounts (for QuickBooks Online users).

How Omni prioritizes tax rates

Say you’ve created a sales order and applied different alternative tax rates to the customer, the branch, and the products. At what rate will Omni calculate the order’s tax liability?

Omni will calculate tax for each part of the order at these rates:

Line items:
- The alternative tax rate (Import Customs Duty) of the product, if any, or else
- The Total Tax rate of the order.
Surcharges and discounts:
- The Total Tax rate of the order.
Freight:
- The Total Tax rate of the order, if and only if the Total Tax rate applies to freight (see below), or else
- 0%.

This answer prompts one question: What is the Total Tax rate of the order? Answer: The Total Tax rate of the order, shown at the bottom right-hand side, is:

The Alternative Tax Rate of the order, if any, or else
The alternative tax rate of the Alternative GL Account of the order, if any, or else
Your default tax rate.

This answer prompts two more questions:

1. What is the Alternative Tax Rate of the order? Answer: The Alternative Tax Rate of the order, shown in the Contact section, is:

The Alternative Tax Rate manually selected for the order, if any, or else
The alternative tax rate (Alternative Tax Rate) of the contact, if any, or else
The alternative tax rate (Alternative Tax Rate) of the branch, if any, or else
None.

2. What is the Alternative GL Account of the order? Answer: The Alternative GL Account of the order, also shown in the Contact section, is:

The Alternative GL Account manually selected for the order, if any, or else
The alternative GL account (Alternative GL Account) of the contact, if any, or else
The alternative GL account (Alternative GL Account) of the branch, if any, or else
None.

When Omni calculates tax on freight

The Total Tax rate applies to freight if and only if:

The Total Tax rate is your default tax rate and your default tax rate applies to freight (to change whether your default tax rate applies to freight, contact Cin7 Omni Support), or
The Total Tax rate is an alternative tax rate whose Applies To does not equal Goods.