Use Tax : The other sales tax
As a retailer, in general you buy your merchandise tax free due to the inherent fact that you are reselling it and will collect the sales tax at the time of resale. (Unless, of course, your dealership is in Canada or some other tax municipality that charges you with a form of sales tax at the time of your purchase). However, tax municipalities all have the same thing in common… they want their money, and specifically, if you don’t resell an item, but instead use it in your business, they want the tax that should have been due on the item at the time of purchase.
One type of use tax is paid on inventory that is originally purchased for resale, but then instead is used in your business (a quart of oil, or a tool you sell that your repair shop instead opens for internal use, etc). The question is how do you track this in Lizzy, so that you can correctly report it on your regular sales tax contribution?
Expensing of inventory is pretty automated in Lizzy as long as you are set up for it. First, go to Settings > General > Tax Rates. Then scroll down and click the Edit Pencil next to a given tax rate that needs USE tax charged on it. Then make sure that State USE Tax is checked. Do this for every municipality you will be charging USE tax for. Once that is set up, use tax is activated when you adjust your inventory. On the inventory adjustment screen ( Inventory > Management > Adjust Inventory ), there is now an Apply USE Tax check box. This defaults to unchecked due to the fact that by default you are tied to the Inventory Shrinkage account for your adjustment. Naturally, when you increase inventory, nothing happens regarding use tax. Also, by default, if you reduce inventory into Shrinkage, the Apply check box stays unchecked, and it won’t charge USE tax on shrinkage (as you don’t want to have to pay use tax on stolen merchandise). However, if you change the account to a different account ( some other expense, or asset account ), then the Apply USE Tax check box will get checked.
PLEASE NOTE: The check box is what tells the system to calculate use tax… if the user unchecks the box when expensing out oil to the shop (a clear case of USE tax), then use tax will NOT be calculated. On the same token, if the user checks the box when shrinking inventory (hitting inventory shrinkage – a clear case of not wanting to charge use tax), Lizzy will charge use tax, because the user told her to.
Once the use tax has been calculated, it will appear on the Sales Tax report in Lizzy under the USE heading.