Charging taxes using invoice generator is easy and simple with Sparks Invoice Maker. We built our app to lighten the load of business owners, making the billing process much easier and efficient. And while charging taxes on invoices sound complicated and knotty, it’s actually the other way around when you use an invoice generator. 

This guide will help you understand how to charge taxes using Spark Invoice Generator and everything else you need to know about sales tax. 

Sales Tax, What Is It?

Sales tax is a tax monitored at the state level that charges a percentage of a sold product at retail. The government decides the percentage rate for its sales tax, but it usually varies depending on your location or state. The percentage rate is not permanent, and they usually change depending on the political party in charge. 

When a customer buys your item, it’s your responsibility to collect your customers’ sales tax and then pay it to the government. Customers who try to avoid sales tax by purchasing an item out-of-state cannot really dodge the responsibility of paying for the tax. For example, if a customer buys a car out-of-state, while he may have evaded the tax, he will still be charged for sales tax when he registers the vehicle in their state. 

Since you will give the sales tax back to the government (also known as tax remittance), it is practically not part of your business’ income. Paying the sales tax back to the government is usually done at specific intervals, depending on your government’s requirements. 

But how do you calculate sales tax?

How to Calculate Sales Tax

When selling products, it is generally known that the sales tax is not included until the customer purchases the product. For example, if you sell an item for $12.00 in Massachusetts, the payable price at checkout would be $12.75 because its sales tax is 6.250%. We get this amount using the following: $12.00 x 0.0625 (6.250%) = 0.75 cents. $12 + 0.75 cents = $12.75. 

Remember, sales tax differs depending on your state or country. For example, Alabama’s state rate is at 4%, while Arizona’s is at 5.6%. Make sure to check out your state’s sales tax rate. 

Some states allow non-standard rates on several products, including meals, telecommunications, lodging, and other specific items and services. Tax rates typically change on a monthly or yearly basis. 

The District of Columbia and forty-five other states impose general sales taxes that apply to all goods and services, with some exceptions. Alaska has no state tax, and thirty-seven states allow general sales taxes to be at the local level. Most states levy separate sales taxes on particular items, such as alcohol, motor fuels, and tobacco. 

Sales Tax  VS VAT

You may have encountered the words sales tax and VAT. Some people use them interchangeably, but it shouldn’t be. Sales tax is collected by the seller or retailer when the final sale from the consumer. End consumers pay the sales tax on the products they purchase. Businesses provide resale certificates to their customers when purchasing business supplies that will be resold since sales tax is not imposed. Jurisdictions in tax don’t receive the tax revenue until the sale is made to the end consumer. 

On the other hand, VAT (value-added tax) is collected by the sellers in each stage of the supply chain. Manufacturers, distributors, suppliers, and retailers collect the value-added tax on taxable items. Each business must monitor and document the VAT they pay on purchases to receive a credit for the VAT paid on their tax return. 

Tax jurisdiction receives the revenue from tax throughout the entire supply chain, unlike sales tax, which is received at the sale to the final consumer. 

Now, you might be wondering who collects and remits the tax. 

For both VAT and sales tax, it is the seller’s responsibility to collect the tax and remit it to the right authority. However, there are cases where the consumer or buyer must recognize the tax instead of the seller. 

Invoicing is especially important when it comes to taxes. When you invoice a customer, you must separately state the sales tax. The same goes for VAT. The seller must state the VAT separately. Some businesses include the registration number for a VAT invoice. In most cases, the prices are tax inclusive. 

How do I charge taxes using Spark Invoice Maker? 

Tax is imposed on the price of your products and services. It is typically charged as a percentage of the selling price and is collected at the time of purchase. As mentioned earlier, the amount of tax depends on your location, so make sure to check the tax amount in your state. In some cases, you can charge multiple or different taxes at the same time. 

Adding a tax to your invoice using Spark is easy. 

Download Spark Invoice on your mobile device. Spark Invoice Maker is currently available on iOS and Android devices. 

Add tax on business setup.

Open the Spark Invoice Maker app once the installation is complete. You don’t need to create an account to use Spark Invoice Maker. When you first open the app, it will prompt you to enter your business information, including your business name, address, and contact details. You can always change them later from the Settings page. 

After completing the fields, click Next. Then, it will ask you to add your business logo. While adding a business logo is optional, we highly recommend putting a business logo into your invoice for brand awareness. 

If you don’t have a business logo ready, you can skip this step. You may add or change your business logo from the Settings menu. Tap Next or Skip to go to the next page. 

The next page will ask you to add more information—and this is the part where you can modify your invoice’s tax type. Tap the drop-down menu under the Tax Type section. 

You have two options when it comes to taxes:

  • Items prices are tax inclusive.
  • Items prices are tax exclusive.

Tax-inclusive means the prices in your products already include the tax. When you choose tax-exclusive, you will have to input the amount of tax manually. Take note, the amount will be in percentage. 

Then, choose your estimate title and date format. Once done, you’re all set! This will be your Spark Invoice Maker’s default setting, which you can all change later from Settings. 

Change the tax amount while invoicing.

There’s a lot of fields you need to fill out when creating an invoice using Spark. First, the invoice number, which will serve as your invoice’s unique identifier. You can use the invoice number as a reference when making a follow-up or keeping track of your invoices. 

Next, the date. You can change the date format according to your preference. Some countries prefer the month-day-year format, while in some areas, they are accustomed to the day-month-year format. 

After adding the invoice number and adjusting the date, enter your client’s information. If you have your client’s information already saved on the app, you can just select the client from your list. 

Then, itemize the products or services you rendered in the Add Items section. When adding a product, you will be prompted to add product descriptions, units (or quantity), and unit price. 

All the items you add to the invoice will be calculated automatically. If your tax setting is set to Items prices are tax-inclusive, that means each product’s unit price already includes the tax. Therefore, when you check the calculations in the invoice, you will see the tax rate is at $0. 

If you want the prices to be tax-exclusive, you can go to Settings > General > Tax Rate > then change the tax type to Items prices are tax-exclusive. Then, a field will appear where you can input the tax rate manually. 

Another way is to simply tap Tax in the calculations (you will see it just below Discounts). From there, you can change the tax type to tax-exclusive. If you choose this option, Spark will automatically calculate the tax based on the amount you have inputted—the sum will be added to the sub-total and reflected in the grand total.   

Complete Your Invoice

After adding the tax, you can proceed with filling out the fields in the invoice. You can add a message in the Additional Notes section. Or, if you want to send images of your products or services, you can do so by selecting the Add Image option. You can import an image from your gallery or capture a photo straight from the app. 

Adding discounts is just as easy. Simply tap Discount, then add the discount amount. You can set the amount to fixed ($10) or percentage (10%).

Spark Invoice Maker also makes sending invoices fast and easy. Once you have completed the invoice, Spark Invoice will automatically generate a PDF version, which you can send via email or other messaging platforms.