Understanding Use tax in Floorzap
A clear guide to help you understand how Use Tax works in Floorzap and how it applies to your jobs and materials.
Overview
This guide explains what Use Tax is, why states require it, how it works inside Floorzap, how to configure it correctly, and how to troubleshoot common issues. It is designed for stores, installers, and admins who need accurate tax handling for jobs that include materials and labor.
Use Tax vs Sales Tax Quick Reference Table
Scenario |
Who Pays the Tax |
Type of Tax Applied |
Why This Happens |
How Floorzap Handles It |
|---|---|---|---|---|
Material and Labor Job |
Store | Use Tax | The store purchased materials tax free using a resale certificate. The state requires the store to pay tax because the material is being used, not sold. | Floorzap calculates use tax based on material cost × tax rate. Automatically added to job cost and reduces profit. |
Material Only (Cash and Carry) |
Customer | Sales Tax | This is a retail sale of materials, so the customer must pay sales tax based on the selling price. | Sales tax applies automatically when the service is marked Cash and Carry. |
Labor Only Job |
No one | No Tax | No materials means no taxable product. | Floorzap does not calculate any tax for labor only. |
State Specific Exceptions (ex: FL cabinets or countertops) |
Customer | Sales Tax | Some states tax certain services as retail sales even if other materials fall under use tax rules. | Configure these services under Enable Sales Tax for Selected Services so use tax does not apply. |
Use Tax with Location Based Rates |
Store | Use Tax | Some states require use tax based on the job site location rather than the store’s location. | Turn on Autotax Calculation to use customer zip code for rate lookup. |
Freight / Shipping Taxed State |
Store | Use Tax (manually adjusted) | Few states require tax on freight, but Floorzap does not automatically tax freight. | Manually adjust use tax for individual products in the shopping cart. |
Job Not Appearing in Reports |
Not applicable | Not applicable | Jobs must be signed to be included in tax reports. | Sign the job to push data into Tax Reports and Tax Journals. |
Understanding Use Tax
What is Use Tax
Use tax is a type of sales tax that states created to prevent contractors from avoiding tax on materials. Historically, contractors would give away materials for free or at a very low price and then raise labor costs to avoid paying tax on the materials.
Use tax closes this loophole.
If your business is using the materials (for example, installing a floor), then your business is responsible for paying tax on the cost of those materials.
Key Concepts
• Use tax is based on your cost of the materials, not the selling price.
• The store pays the tax, not the customer.
• Use tax applies when both materials and labor are involved in a job.
• Cash and carry customers always pay sales tax instead of use tax.
When Use Tax Applies
Use tax typically applies in these situations:
Scenario |
Does Use Tax Apply |
Explanation |
|---|---|---|
Material and Labor Jobs |
Yes | When materials are used on a job and the customer is not paying sales tax, the store owes use tax because those materials were originally purchased tax free under a resale certificate. |
Material Only (Cash and Carry) |
No | The customer pays sales tax at the time of purchase, so there is no use tax owed by the store. |
Labor Only |
No | No materials are used, so there is nothing to tax under use tax rules. |
Creating Jobs with Use Tax
When a job is created after configuring use tax:
Sales tax defaults off
This prevents accidental double taxation.
How Use Tax is calculated
Use tax is calculated as:
Material Cost × Tax Rate = Use Tax
Use tax is added to the internal cost of the job and reduces net profit.
Customers do not see use tax on their invoice.
Manual Adjustments
You can manually change:
• The use tax rate
• The use tax amount per product
• Rates for shipping if your state taxes freight (rare)
These adjustments are made in the shopping cart on the work order.
Important Behavior You Should Know
Sales Tax Will Not Stick on Use Tax Jobs
If use tax is enabled:
• Manually toggling sales tax on will not stay after refreshing
• This is an intentional safeguard
If you need a job to always be sales tax, ensure the service is selected under:
Sales Tax for Selected Services > Enable Sales Tax for Selected Services
Shopping Cart Use Tax Controls
In the work order shopping cart, you can:
• See use tax calculated per product
• Manually edit line level use tax
• Correct rounding
• Add shipping tax if needed
Floorzap does not automatically calculate use tax on freight.
Troubleshooting Guide
Issue |
Cause |
How to Fix |
Notes |
|---|---|---|---|
Use Tax is not showing on invoice |
Use Tax is disabled in settings | Enable Use Tax in Settings > Tax Configuration | Confirm jurisdiction is set |
Use Tax amount looks wrong |
Incorrect product cost or tax rate | Check product cost in inventory and verify tax rate | Cost based tax must match actual cost |
Use Tax triggered when it should not |
Product incorrectly marked taxable | Update product to non taxable if needed | Verify with customer accounting rules |
Sales Tax charged instead of Use Tax |
Invoice is set to charge customer tax | Change invoice tax selection or customer tax settings | Customer should be marked tax exempt if appropriate |
Use Tax report is empty |
No qualifying transactions | Review date range or confirm internal usage took place | Ask customer for example transactions |
Customer cannot locate Use Tax report |
Report permissions disabled | Enable Reports access in their role settings | Confirm user role and permissions |