How to setup and use a cost tax


In some states a tax is assessed on the cost of parts when they are sold. This is different from a normal retail tax where the tax is assessed based on the price of the parts sold to the customer. This article will show you how to handle this.


Before you can use a cost tax on an invoice, you must set one up. Use the directions below to make this happen.

  1. Create a tax code (Sales → Enter Tax Codes) and change the type from Retail to Cost.
  2. In the Cost Account field, enter some sort of cost of sales account. This is important because this tax is actually increasing the cost of the parts you are selling.
  3. Fill out the rest of the tax code normally. Make sure that only the necessary items are checked. Cost tax is generally only applied to Material, but other conditions may exist.


When you are ready to create invoices that need to have the cost tax applied, simply change the tax code on the invoice to be the desired cost type tax code you just created. The cost increase this causes will show up in the Other Cost area in the bottom left-hand corner of the invoice.

Additional Notes:

If you wish to recoup the cost tax you have to pay, simply increase your markup percentages by the amount of the cost tax (Inventory → Enter Markup Codes) and recalculate your inventory prices (Inventory → Update Inventory Pricing).

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