Keeping your tax rules accurate and organised is an essential part of running your business. DEAR allows you to specify tax rules for whole orders, individual order lines, products, customers and suppliers. Tax Rates can have multiple tax components (e.g. a Sales Tax which includes a City Tax and State Tax components).


Prerequisites:


Table of Contents


Creating Tax Rules

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The method for creating Tax Rules depends on if you are using DEAR Inventory as a standalone system, or if you have integrated DEAR with Xero or QBO accounting systems. 


If your store country is located in Australia, UK, USA or New Zealand, default taxes are pre-loaded. If you are not sure what tax rules you need to include or their value, please consult with your accountant or bookkeeper. 


Tax Inclusive vs Tax Exclusive

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It is important to specify whether a transaction is Tax Inclusive or Tax Exclusive for accurate bookkeeping. For tax inclusive transactions, the tax value is included in the total amount. For tax exclusive transactions, the tax value is added to the total amount. 


Example: Consider a $100 transaction, subject to 10% GST.

  • If the transaction is Tax Exclusive, the value of the order is $100. Calculated GST is 10% of $100.

  • If the transaction is Tax Inclusive, the value of the order + 10% tax is $100. $100 is 110% of the value of the order. 


Each tax rule created will be set by default to be tax inclusive/exclusive, but this can be changed at the order level. 



DEAR Standalone

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If you are using DEAR without integration with Xero/QBO, Tax Rules are created and managed from DEAR. 


Creating/modifying a Tax Rule:

  1. Navigate to Settings -> Reference Books -> Financials -> Taxation Rules
  2. Click + to add a new tax rule or select an existing tax rule to modify. 
  3. Enter the details of the new tax rule. Fields marked with an asterisk (*) are mandatory fields. 
    • Tax Inclusive/Tax Exclusive: Identify whether the default setting for this tax rule is tax inclusive or tax exclusive. This can be changed at the order level in the document header by checking/unchecking the Tax Exclusive/Tax Inclusive box. 
    • Active/Deprecated: Tax rules cannot be deleted once they have been created. To stop using a tax rule and remove it from the Tax dropdown fields, change the tax rule status to Deprecated. 
    • Tax Type: Choose from the default tax types for your country in this dropdown list. This affects how the tax will be classified in your reporting.
    • Liability Account: This is the liability account that will hold the taxes from transactions using this tax rule. You may use a single account for all tax liability or separate accounts for multiple tax components. Consult your bookkeeper or accountant if you are uncertain of which liability account to use. 
    • Tax Components: All taxes require at least one component. See Taxes with Multiple Components for more information on setting up multi-component, multiple tier tax rules. 
  4. Save your changes to finish. 




DEAR with Xero/QBO Integration

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If you are using Xero or QuickBooks Online as your accounting system, all tax rule creation must take place in Xero/QBO. The tax rules are then imported into DEAR during synchronisation. Once a tax rule has been created and synced, it can be modified within DEAR. Available modifications include:

  • changing the tax inclusive/exclusive status
  • changing the % value of the tax rule
  • adding/removing/modifying tax components of a tax rule. 


Once a rule has been created in Xero/QBO and synced to DEAR, any of these changes made in DEAR or Xero/QBO will be synced both ways. 


More information: What happens if I create a tax rule in DEAR and not in Xero/QBO?


Creating/Modifying Tax Rates in Xero:

  1. From your Xero account, go to Accounting -> Advanced -> Tax Rates
  2. Click Add New Tax Rate or select an existing Tax Rate to modify. 
  3. Fill in the tax rate fields. 
    • Tax Type: Choose from the default tax types for your country in this dropdown list. This affects how the tax will be classified in your reporting.
    • Tax Component: All taxes require at least one component. See Taxes with Multiple Components for more information on setting up multi-component, multiple tier tax rules.
  4. Save your changes to finish. 
  5. Don't forget to sync your changes with DEAR!




Creating/Modifying Tax Rates in QBO:

  1. From your QBO account, select Taxes in the left menu.
  2. Under the Related Tasks list on the right, choose Add/edit tax rates and agencies.
  3. Fill in the tax rate fields.
  4. Save your changes to finish. 
  5. Don't forget to sync your changes with DEAR!


Taxes with Multiple Components

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In some cases, you may require to create taxes with multiple components. This can be done either in DEAR or through Xero/QBO. Taxes with multiple components can be simple (i.e. each component of the tax rule is calculated as a percentage of the transaction value) or compound (i.e. one tax rule component is calculated as a percentage of the transaction value, another tax rule component is charged as a percentage of the taxed subtotal).


NOTE: If you are using Xero/QBO, remember that tax rules must first be created in Xero/QBO. Once a rule is created, you can add, remove or modify tax components either via DEAR or via Xero/QBO. The examples in this section are shown in DEAR, but the process is very similar in Xero and QBO. 


Example 1: Simple tax with multiple components. In this example, a transaction is subject to a multi-component sales tax (3% City Sales Tax, 4% State Sales Tax, 5% Federal Sales Tax). The total effective tax rate is 12%. In this example, the user has created multiple liability accounts to keep each sales tax component organised.



For a transaction value of $50, the breakdown will be:

  • City Sales Tax: 0.03 x $50 = $1.5
  • State Sales Tax: 0.04 x $50 = $2
  • Federal Sales Tax: 0.05 x $50 = $2.5
  • Total transaction cost: $56



Example 2: Compound tax with multiple components. In Australia, those who make wine, import wine into Australia or sell it by wholesale, generally have to account for wine equalisation tax (WET). First, the WET of 29% is applied to the order total, then the GST of 10% is applied to the taxed subtotal. In this example, the user has created multiple liability accounts to keep each sales tax component organised.



For a transaction value of $50, the breakdown will be:

  • WET: 0.29 x $50 = $14.5
  • GST: 0.1 x ($50 + $14.5) = $6.45
  • Total transaction cost: $70.95


Assigning Tax Rules

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Tax Rules in DEAR can be assigned to customers, suppliers, products, the sale/purchase process and individual order lines to allow fine-grained control of your transaction process. Tax rules at the order line level override all other tax rules. 


 The order of priority is as follows:

  • Order line 
  • Product 
  • Purchase/Sale process document header
  • Supplier/Customer.


NOTE: If you are using DEAR B2B Portal, tax rules are handled slightly differently. It is not possible to manually override a tax rule during the sale. The tax rule specified for the customer/supplier is used for the sale order/purchase order unless a tax rule has been specified at the product level. 


Order Line Tax Rules

This is the highest priority tax rule and will override any other assigned tax rules. 





Product Tax Rules

Tax rules assigned to a product will appear pre-filled in the order line. You can optionally specify a purchase and sale tax rules. If left blank, the order line will not be pre-filled, and the sale/purchase header tax rule will be used instead. The user can manually change the order line tax rule during the transaction if necessary, and this will take priority. 




Sale/Purchase Header Tax Rules

The tax rule in the sale/purchase process document header will be used for any order lines that do not have a tax rule assigned at the product level. You can also specify whether this tax rule is tax inclusive or tax exclusive here. It is mandatory to select a tax rule for a sale/purchase order. 


NOTE: If different tax rules are assigned at the order line level, the Tax Inclusive/Tax Exclusive status of the document header will be applied to the entire order, regardless of the default setting for the order line tax rules. 




Customer/Supplier Tax Rules

Tax Rule is a mandatory field when creating a customer or supplier. The tax rule specified here will be automatically pre-filled in the sale/purchase order document header. 




Tax Rules in DEAR POS

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See DEAR POS - Getting Started and Information for more info about DEAR Point of Sale. 


Default tax settings for each POS can be set in Integrations -> POS -> [POS Name] -> Setup. You can choose a default sales tax, default tax-free rate and whether POS sales are tax inclusive or tax exclusive. You can choose different default tax settings for each of your POS points. 





Tax rules for sale items can also be changed during the sale. 


Manually changing tax rules in DEAR POS:

  1. Add products to the sale through DEAR POS. Tax is shown at the bottom right of the screen. 

  1. Click the tax line to open up a pop-up window. 
  2. Select tax rules from the dropdown fields.
  3. Save your changes to finish.