Erply's tax system supports two somewhat similar, but different concepts:
- Sales tax (commonly used in the US);
- Value-added tax (VAT, common in many other countries around the world).
An Erply account can use either one or the other, but not both at the same time. Selected system (sales tax / VAT) depends on the account's country. In the sales tax system, prices are displayed generally without tax (as net price), and tax is added at point of sale. In the VAT system, prices are displayed to the customer with VAT included.
Tax is used on sales documents, and amount of tax collected can be retrieved from sales reports. Tax can also be applied on purchase documents, but this is mainly so that the entered document would match the payable amount. Tax on purchase invoices is not included into the cost of purchased goods.
On a sales document (invoice), each line can have a different tax rate — but only one tax rate.
In US, the "sales tax" actually consists of taxes imposed by the state, by the county and/or by the city, and there might be additional taxes only collected from certain items. To support that, a tax rate can have "sub-components", eg. a 8% tax consisting of 5% state tax and 3% city tax. This is an additional module that customer support can enable.
The list of tax rates can be configured in Erply back office.
API Endpoints
In Erply API, the following endpoints are available:
1. calculateShoppingCart in Erply API
2. GET /v1/products/tax-rate in Pricing API
Algorithm
There are seven rules that define which tax rate gets picked for a line item. These rules below are presented in order of priority: Erply starts at the top of the list and uses the first applicable rule.
Parameters
The tax rate of a line item can depend on:
- Sales document type
- Customer
- Location
- Register
- Product
- Product price
- Customer or transaction type (Domestic / EU / EU with VAT / Outside EU)
- Tax exemption flag (yes / no)
1. Tax-Free Sale
If customer / transaction type is “Non-EU” or “EU”, or the type of the sales document is “Export invoice” (this is a type which we do not actually use on new accounts any more), Erply will make the transaction tax free.
Erply will pick the rate defined in back office settings:
If the settings have not been configured, Erply will use the first 0% rate in tax rates.
2. Tax Exemption
If the calling application sets the “tax exempt” flag, or the customer is marked as “tax exempt”, Erply will make the transaction tax free.
Erply will pick the rate defined in back office settings:
If the setting has not been configured, Erply will use the last 0% rate in tax rates.
3. Tax-Free Product
If the product has the check box “tax free in all locations” checked, Erply will make the item tax free.
Erply will pick the rate defined in back office settings:
If the setting has not been configured, Erply will use the last 0% rate in tax rates.
4. Product Group-Specific Tax Rate
If there is a tax rate defined for location + product group, Erply will apply that. This can be configured on product group form.
Currently, a group’s tax rate does not propagate to child groups.
This setting can be useful for companies in Canada — where tax is defined province-wide (GST + PST, or HST), but provinces have different rules which items are taxable and which are not. To use this feature, items must be organized into product group by taxation pattern: a product group should only contain items that are taxed the same way.
5. Location Multi-Tier Tax
Multi-tier tax is used in New York: an item's tax rate depends on what price bracket it is in.
A location can have four optional properties: threshold 1 & 2 and the corresponding tax rates that apply above those thresholds.
If the thresholds and tax rates have been set, Erply will apply these settings.
If a threshold has been left to 0, it means that the specified tax will apply to all items regardless of price.
6. Register Tax
If there is a tax rate defined on register form, Erply will use that rate.
This is the setting we recommend to most US-based stores. In the majority of situations, an item is either taxable or tax-free — but the rate varies per state and county. We recommend to create a separate rate for each county in which the company operates, and configure it on the register.
7. Product’s Tax Rate
If none of the above apply, Erply will use the tax rate defined on product card.
This is the recommended approach in VAT-using countries. Taxation is typically uniform across the country, but products can have different VAT rates.
Special Features
Additionally, Erply supports Massachusetts price-based taxing: for items with a sales price over a certain threshold, the part over the threshold is taxed at a different rate. This can be configured on the tax rate form. The tax rate itself is special, but it can be used in any of the abovementioned slots — on product card, register card, or for a product group + location combination.