Sales Tax Processing Overview

If a sales order is created at a store in New Jersey, but the merchandise is delivered from a warehouse in Pennsylvania to a customer in New York, which state's sales tax is applied? What county and municipal sales taxes, if any, are added? And is sales tax charged on goods sold in and delivered from a state other than the one where the customer takes possession?

The STORIS system calculates sales tax for various pickup and delivery situations that involve multiple tax jurisdictions. It factors in state laws, local taxes, and the location where the customer physically acquires the goods. In addition, in the event of a refund or exchange, the system allows credit for the original sales tax paid, as long as the completed order is on file. This holds true even if the refund or exchange takes place in a different tax jurisdiction with different tax rates.

This topic breaks the sales tax decisions into the following five steps, handling each factor individually.

Step 1. Determine whether the sales tax is based on selling location, delivered-from location, or point-of-possession location.

• The system first determines the state where the selling location is located by checking the Store field on the order entry screen and the zip code of the selling location as established via Warehouse/Store Location Settings.

• The system then looks at the Charge By field in the Sales Tax Settings (General tab) for the selling location state. The options at this field are:

Not Applicable - Tax is not applied.

Point of Sale - If the Charge By field is set to Point of Sale, sales tax is based on the rate for the location where the items are sold. This setting overrides all other possibilities for calculating tax.

Ship From Location - If the Charge By field is set to Ship From Location, sales tax is based on the rate for the location from which the items are being delivered.

Point of Possession - If the Charge By field is set to Point of Possession, sales tax is based on the rate for the location where the customer takes possession of the merchandise.

Step 2. Once the type of location on which to base the tax is determined (Step 1), this step narrows the selection to the specific state that is to receive the taxes.

• The process checks the Fulfillment Method field on the order entry screen to determine if the order is a Customer Pickup, Delivery, Take With, or Direct Ship.

• When the Charge By field mentioned in Step 1 is set to Point of Sale, tax is paid to the selling store's state for all four order types.

• When the Charge By field mentioned in Step 1 is set to Ship From Location, tax is paid according to the following rules:

Take With Order - Tax is paid to the selling store's state, retrieved via the location code at the Store field on the order entry screen.

Delivery, Customer Pickup, or Direct Ship Order - For a Delivery, Customer Pickup or Direct Ship order, tax is paid to the state from which the goods are shipped. The state is identified using the Ship From Location field on the order entry screen.

• When the Charge By field mentioned in Step 1 is set to Point of Possession, tax is paid according to the following rules:

Take With Order - Sales tax is paid to the selling store's state, which is retrieved via the location code at the Store field on the order entry screen.

Customer Pickup - Sales tax is paid to the state where the goods are picked up, which is identified using the Pickup Location field on the order entry screen.  

Delivery or Direct Ship - Sales tax is paid to the state referenced in the Deliver To field on the order entry screen. If that field is blank, the customer's default address is used.

Step 3. Determine if this is an "out of state" or "in state" sale. To do this, two comparisons are made.

• The state for the store where the items were sold is compared with the state where the customer takes possession of the item.

• The state from where the items were delivered is compared with the state where the customer takes possession of the item.

In State - If either one of these comparisons produces a match, the transaction is treated as an “In State” sale and moves to Step 4A.

Out of State - If neither of these produces a match, the transaction is treated as an “Out Of State” sale and moves to Step 4B.

Step 4A. Determine if state sales tax is being charged for this In State sale.

• The system checks the Sales Tax Settings for the state determined in Step 2, adds the percentage from the Tax Rate field to the total on the order, and then moves to Step 5.

Step 4B. Determine if state sales tax is being charged for this Out of State sale.

• The system looks at the Tax Out of State Sales field in the Sales Tax Settings for the state determined in Step 2.

Field is Not Checked (Blank) - If the Tax Out of State Sales check box is not enabled, state sales tax is not charged for this order.

Field is Checked (Enabled) - If the Tax Out of State Sales check box is enabled, state sales tax is charged for this order. The system looks at the Sales Tax Settings for the state determined in Step 2, adds the percentage from the Tax Rate field to the total on the order, and then moves to Step 5.

Step 5. Determine which additional sales tax rates, if any, are to be used for this order.  

• The system looks at the zip code settings for the (1) selling location, (2) the delivered-from location, and (3) the point-of-possession location.

• The system checks the sales tax codes referenced in the Additional Tax Code field of the selling location’s Zip Code.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is not checked, the additional sales tax is not charged.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is checked, the additional sales tax is charged.

If this is an In State order, the additional sales tax is charged.

• The system checks the sales tax codes referenced in the Additional Tax Code field of the delivered-from location’s Zip Code.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is not checked, the additional sales tax is not charged.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is checked, the additional sales tax is charged.

If this is an In State order, the additional sales tax is charged.

• The system checks the sales tax codes referenced in the Additional Tax Code field of the point-of-possession’s Zip Code.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is not checked, the additional sales tax is not charged.

If this is an Out of State order and the Tax Out of State Sales check box in the sales tax settings is checked, the additional sales tax is charged.

If this is an In State order, the additional sales tax is charged.

Out of State Sales Tax Examples

For a sales order that meets the “Out of State Sales” test, with the “Tax Out of State Sales” setting checked, the Charge By setting for the State Tax code of the Selling Store determines which State and Local Taxes are calculated. Consider the following examples.

• Example #1: An order is written at a store in AR and the Charge By field is set to Point of Possession. The sale is determined to be an "out of state" sale; therefore the order is charged sales tax for the State and Local Tax Jurisdiction(s) associated with the Point of Possession Zip Code ONLY if those Sales Tax codes have “Tax Out of State Sales” checked. This means that if the Point of Possession Zip Code is in TN (Charge By = Point of Sale), the Sales Tax codes for TN need to have the “Tax Out of State Sales” setting checked in order for TN State and Local taxes to be calculated. If the Point of Possession Zip Code is in MO (Charge By = Point of Possession), the Sales Tax codes for MO need to have the “Tax Out of State Sales” setting checked for MO State and Local taxes to be calculated.

• Example #2: An order is written at a Store in TN and the Charge By field is set to Point of Sale. The sale is determined to be an "out of state" sale; therefore the order is charged TN State and Local sales taxes according to the Sales Tax codes associated with the Selling Store Zip Code ONLY if those Sales Tax codes have the “Tax Out of State Sales” checked, regardless of whether the Point of Possession Zip Code is in AR (Charge By = Point of Possession), OR the Point of Possession Zip Code is in MS (Charge By = Point of Sale).

Selling Store Tax Exceptions

The Selling Store Tax Exception field on the General tab of Sales Tax Settings is active only when the Charge By field is set to Point of Sale. Use this field for pickup, delivery, and direct ship orders to assign tax jurisdictions for out of state sales.

When the selling store state and possession state do not match and this field is checked, the state and local tax jurisdictions are assigned based on the zip code of where possession of the merchandise occurs (i.e. for pickups, the zip code of the warehouse where the merchandise is picked up; for deliveries and direct ships the zip code of the order’s shipping address), regardless of whether or not the possession state is set to charge tax by Point of Possession.

If this field is not checked, the state and local tax jurisdictions are set based on the selling store’s location. This field does not affect in-state orders.  

If the assigned tax jurisdictions are NOT set to tax out of state sales via the Tax Out of State Sales setting, the system calculates $0.00 tax.