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Fix sales tax on purchases for U.S. clients

Started by Aaron Angel in Feature Requests | Idea

Xero considers sales tax on purchases a decrease in liability. This is not correct treatment in the U.S, where sales tax incurred on purchases is itself an expense.
Hiya Aaron - so typically, US customers don't use the purchases tax feature. In all other regions and most countries outside the US, the taxes on sales and purchases offset to create the net tax liability which is paid, but in the US whoever collected the tax typically pays.

In this case, you just don't need to use the purchases tax feature Xero has and you can just record the line items of your bills as expenses, liabilities, etc as needed. Are you currently using Xero's purchase tax system in a US org?

Tim S (Community Manager)

Hi Tim. Thanks for that explanation. I suspected this might be the case, but wasn't certain as I am not familiar with tax treatment outside the US.

We are a US org. We filled out the bill screen as accurately as we could, and expected Xero to do the right thing. As you explained, it didn't; not for the US anyway. If Xero doesn't expect US clients to use this feature, perhaps they could remove it from the US edition. Or tailor it to US practice, as they have done with other parts of Xero.

Aaron Angel

No problem. There are some occasions in the US where this feature could be used for tax purposes, depending on the industry/location etc. I'm fairly sure removing this part of the tax treatment would be a huge project and require a rewrite of the sales tax system in Xero for the US and maybe other regions, but that doesn't mean it couldn't happen. The team will be sure to check this thread for votes to get an idea for demand if this project is considered in the future. :-)

Tim S (Community Manager)