Square should be reported for inaccurately calculating sales tax!!

[JBsBarnyard]

For almost three years I have called Square and filed multiple complaints about the rounding errors we experience with our sales tax in Square. Every single time, I get the response from Square that there is nothing they can do about it. Square should be reported for inaccurately calculating sales tax!! 

For years, I have manually calculated my sales tax because Square does not accurately calculate sales tax. In this thread, I have posted pictures with three examples. Square says that the rounding differences is because they use "bankers rounding". If they use bankers rounding, then someone please explain these examples (see attached screen shots). I have attached three different screen shots of the same product in Square. With each value, Square is calculating a different amount in sales tax. On the final item, with a total sales value of $1,320, Square is almost $0.43 off from what I SHOULD be paying in sales tax. 

Every single business that uses Square is experiencing this problem and their sales tax is not calculated accurately. Similar issues occur when your item price does not include sales tax and square calculates your sales tax for you. 

Square is not listening to their loyal customer when we ask them to please resolve this issue. The best solution would be to allow business owners to manually enter the EXACT amount of sales tax the customer should pay per item. 

Example 1Example 2Example 3Example 4

[Lovewell]

@JBsBarnyard Okay, first off. Using example 4 as the go to example. 
if you add 1227.60(before tax) and 85.93(tax) that equals 1313.53. So I am trying to understand that math on that as well since the total of 1320.

Second you are doing your items as tax included. So $1 tax included. So I would think that for example 4 again you are saying your item is .93 (technically tax on that is .0651) so rounding up to .07.

each item is tax included meaning each individual item is being taxed. That tax isn’t coming from your overall total. (Seems like it wouldn’t make a difference but it does.)

so .07 (tax on .93 item) x1320 is $92.40

if I was figuring out how to do this before computers that is how I would see the tax. So your total without tax is 1227.60 plus $92.40 in tax = 1320

Looking at the way square did it.

$86.36(tax) divided by the number of items sold (1320 is .0654 per item.

1320 - 86.36 = $1233.64

1233.64 (total without tax) divided by 13200 =.9345 per item. 

Our tax is 7.75 percent. 
We have our total and have tax added on after. I just ran multiple different scenarios through our system and the tax comes back perfect. So my only thought is that the tax and such begins to get hairy when you are doing your items as tax included. Especially because working with percentages and algebra believes in number larger than 2 decimal points but money only deals with 2 decimals and you can’t have a partial penny. Which would also explain why the margin of error becomes larger and larger the more quantity you are adding. I believes that’s where the flaws happen. Because a computer is trying to make as much sense as it can. And it’s technically getting a correct answer but I am also getting a correct answer and you too are also getting a correct answer all because of the rounding and decimals. 

I would be intrigued if you still had a problem if you were to change your items to have tax added after the fact. 
I honestly love algebra and trying to figure out problems so although this is an issue for you and I am so sorry it is, I had a blast doing these calculations and letting the wheels in my brain turn. 

@TheRealChipA i am so interested on your thoughts on this!!

[TheRealChipA · Accepted solution]

Hi @JBsBarnyard.  The answer to this is actually simpler than it looks.  Both you and the Square support folks you talked to are incorrect, actually.  Here is why.

In all 50 states, when you include sales tax in the price AND when the sales tax percentage is not evenly divisible by 100, there are going to be differences in the amount due.  In your case, you assume (incorrectly) that your item price should be $0.93.  This is wrong.  Your item price is going to be:

$1.00 / (1.07)

This calculates to an item price of $0.9346 (rounded to 4 decimal places)

This means that your included sales tax is $0.0654 per item, or $6.54 per 100 items.  Square is calculating this correctly, and using accepted accounting practices that have been adopted by all 50 states.  In my state (Kentucky), they include the same formula that I did above to determine sales tax due and using their form for your examples above returns the exact same numbers that Square is calculating for you.

This is not really a rounding error as you were informed by Square support.  It is really what happens when we try to include a sales tax rate that is not an even divisor of 100.  If your state tax rate were, say, 5% which 100 is a multiple of then you would not see this difference.  You only see a difference between included and non-included tax because 100 is not an even multiple of 7%.  In fact, the only tax rates that don’t show this difference are the following:

1%, 2%, 4%, 5%, 10%, 20%, 25% and 50%

All other tax rates will cause the discrepancy you describe for included sales taxes.  This is why all states that allow included sales tax ask us NOT to list sales before sales tax, but rather ask us to list total collected (including sales tax) and divide that by the formula (1 + (sales tax rate / 100)), in your case 1.07%.  This is the most exact sales tax, but it is also the most confusing as you have already seen.

I would strongly recommend talking with your accountant or CPA about this.  Because, Square is doing nothing wrong here, as I’ve pointed out.  They are being exactly correct in their calculations.  You only think there is a problem because you start with the incorrect assumption that the item price is $0.93 when it is really $0.9346 because of your state’s sales tax rate.

 I hope that is clear enough.  And I hope that I have not insulted you here.  This is a complex math issue and sometimes when I try to explain these (I was a Mathematics Minor in college) I can come across as condescending when I do not mean that at all.  If I have done so here, I offer my sincere apologies.

[SwimCrew]

Very good explanation.  That's all well and good, but when filing and paying sales tax online, North Carolina ONLY gives the option of reporting ALL sales.  The online filing tool then automatically calculates your sales tax due.  Other states may have similar issues.  Every month we have to pay a fraction more than what Square has recorded.  It's not a huge deal for us, as we are seasonal and taxable sales are not our main source of revenue, but Square should be taking all of this into account.

[Candlestore]

@SwimCrew ;

The issue I see you are having is that this seems to be a rounding issue.  Square calculates sales Tax per Item, other accounting software may calculate sales Tax per Sale, and your State is calculating Sales tax by the time frame (Month in this case).  I am in PA, and my state has me enter Total Sales, and Total Taxable sales.  Then the State says you owe $XX.xx in sales tax.  Similar to my understanding of yours.  Mine is usually off by .25 to .50 cents in a month.  Now if I pay my taxes early I get a % discount which basically covers rounding errors that Square and the State calculate and differ by.  

I think Square does the Sales tax per item, so the tax is easy to show returned on your transaction sheet and in Squares books.  

The other thing you may want to look into is that your entering the correct numbers on the States web page.  Is your state asking for Total Gross sales or are they asking for total Taxble Sales?  Since I sell T-Shirts (non taxable) and candles (Taxable) my Gross sales and my Gross Taxable can be very different and give a larger discrepency than the early payment discount and I would owe in some small amount.  You may want to look at the states wording and talk to your accountant as @TheRealChipA said.  I can not see which numers for Sales your entering or your state is asking, but I can show you links to where Square does show you these numbers for easy reporting to your state. 

So if I use only my Monthly sales Summary Data I owe in

( Link: https://app.squareup.com/dashboard/sales/reports/sales-summary )

If I use the Tax page on the reports page my Taxable sales are less and I owe a fraction less

( Link : https://app.squareup.com/dashboard/sales/reports/taxes )

[JBsBarnyard]

Hi @TheRealChipA 

I wish I would have contacted you three years ago about this! I have been manually calculating my sales tax based on define amounts rounded to the nearest hundredth place instead of fully understanding that quite frankly, math isn't that simple and you need to use the decimals allll the way out for complete accuracy. 

I am not going to lie, this is a hard concept for me to wrap my head around. However, after doing the math the way you explained in your above comment, I see how you do it. After reviewing the numbers you explained to me, I actually feel confident in moving forward with allowing Square to calculate my sales tax for me instead of manually doing it myself each month. I am going to continue to choose the option in Square that enables "sales tax will be included in the item price". For my business, we use concession style pricing where every item comes out to an even dollar amount. We do not deal with change. The downside to this is because of the slight rounding differences between doing the math on paper vs how Square rounds sales tax, for some of my items, I will actually be paying more in sales tax than I have budgeted for. In addition, over the course of several thousands of items being sold, I will actually end up paying a little more in sales tax with squares rounding (vs if I calculated sales tax manually based on decimal places to the hundredths place). However, if I am understanding everything correctly, that is the true tax I should be paying anyways, since the US dollar does not go any lower than 1 cent. Therefore, even though it is more than my manually calculated sales tax, it is probably more accurate. 

@TheRealChipA if you work for Square, could you please make a suggestion for Square to add your explanation of sales tax rounding to their website? I have hunted for years for an explanation for this, but have never found anything on the internet. In addition, Square's sales team is not educated on the subject, making the confusion for the customer even worse. 

@TheRealChipA thank you tremendously for taking the time out of your day to ease this frustration I have been dealing with for a very long time. You have now given me back almost 1 hour per month since Square will now be calculating my sales tax for me. Thank you!

[TheRealChipA]

@JBsBarnyard I am very happy to have been able to help you here.  I am not Square, but a fellow Square seller who volunteers my time with other Super Sellers here in the Community.  Our purpose is to do exactly this — help other sellers resolve concerns and issues so that they can concentrate on their businesses rather than their tools.  

Having said that, I do somewhat have the ear of various Square product teams.  I’ll see what suggestions I can make to them to clarify their help documentation and their reports so that future sellers who find themselves in your position hopefully won’t have to go through what you went through.  I will say that, honestly, there is no way to “educate” the Square support staff about all of the intricacies of running a business.  I’ve owned various businesses for the past 3 decades (I’m 62, so…..) and even I get tripped up sometimes.  That’s why the Community is here — to fill in the gaps with real-world experiences and knowledge.  In their defense, there is no way that Square Support staff can be as knowledgeable as I and other business owners.

Thank you for taking the time to let me know that you can put this issue to rest and get back to your real job — making your business successful.  I wish you well in that.

Oh… one more caution.  If, as it seems, for the past few years you have been reporting your sales tax to your state as non-inclusive, if you now make a change to report it the correct way as inclusive you might raise a red flag.  I would strongly suggest that you pay your accountant/CPA to sit down and discuss this in case this change causes you to be audited as it would in Kentucky.  if you don’t have an accountant, I’d recommend getting one.  There is a great small business mentoring organization called SCORE that should have a local chapter can help you find someone.  That is their entire reason for existing!  The money you spend to help you make this transition correctly will be money well spent, trust me.

Let me know if you have any other questions!

[Candlestore]

@JBsBarnyard ;

With everything @TheRealChipA stated I agree with and usually I see some differences between Square and QuickBooks and then Monthly with my States collection calculations,

Square bases the % per item

Quickbooks bases the Tax on the Sales of taxable items Total.

Then the State bases my Sales tax on the TOTAL of all Taxable sales for a Time period, A month in my case.

Square for a Month calculated my Sales tax due at 1255.31

QuickBooks might have been at 1254.93

The State calculated my tax at 1254.76

Then If I pay on time or early I get a small discount..... So my state if this would be paid on Time might only want 1249.65 for example.

As long as I can print out or have my accountant get my sales data and my fair and recorded sales data which matches my States website for what I entered and they calculated for me to pay all should be good.   

This might be why Square uses the Blanket statement it is because of rounding errors.  Even though all 3 are reporting the SAME Taxable income, the rounding makes the Tax collected / Due different.

I have found that Square actually is usually Higher than what my state wants, as for QuickBooks, I started having my actual Taxes collected by Square imported to Quickbooks so I stop trying to find .25 cents at the end of the month that is due to rounding.  After doing this my numbers match at the end of the month and taxes due to the state are usually lower than what Square states I should owe, especially after the ontime payments are made.

I never really fully understood it all untill reading the best answer here from Chip.

[JBsBarnyard]

@TheRealChipA Thank you for your additional feedback. I will check with my accountant. 

You have saved me time and frustration, and I am forever thankful for that! 

@Candlestore You make a very valid point about different systems will use different rounding. I am glad to know I am not the only one experiencing these discrepancies across my platforms. I agree with you, with paying our sales tax on time and getting the added discount, almost any way you calculate it I am still covering what I should owe. This is still a difficult concept to wrap my brain around, as I think very literally, but I have to realize rounding differences can occurs between systems.