I recently was asked about managing US taxes in iDempiere and ADempiere open source ERP. The comment was:“I see absolutely no mention whatsoever about how this works in Adempiere. The wiki has information about India, Europe and Canada, but nothing about the States”
Generally speaking, managing US sales tax in ADempiere and iDempiere is simple compared to other countries. Some states, like Texas, have only one tax rate for a given tax district or region. Other states, like Colorado, have a state tax, a county tax, and a city tax. There is no concept VAT or GST taxes in the US.
iDempiere and ADempiere calculates tax rates based on zip/postal codes. This is both good and bad.
- It is good because finding tax rates based on zip code is easy. For example, you can down them for free from www.taxrates.com. They will even send you notifications when rates change.
- This is bad because zip code and tax jurisdictions do not perfectly align. For example, there are times when a zip code can have more than one rate to choose from.
Assessing Tax Based on Zip Code
To use zip code or postal code based rate assessment, add your downloaded rates into the ‘Tax Rate’ window in iDempiere or ADempiere
There is a general understanding that zip code based tax assessment is not accurate; however, it is deemed accurate enough with most of the controllers and CFOs I work with. The biggest issue is that the burden of accuracy is pushed to the audit before tax remittance. There is some chance of under charging a customer. States will gladly accept over payment; however, you will be liable for underpayments in an audit.
If your transaction volume is great and your audit costs are beyond what you deem acceptable, then you can consider integrating a service like Avalara.com where you calculate the exact rate at the time of transaction. I previously worked with a customer to integrate Avalara into iDempiere/ADempiere/Compiere. Just be aware that Avalara is pretty expensive. The resulting Avalara service costs from a high-volume web store were significantly greater than originally expected.
Accounting and Taxes
When you download taxes from www.taxrates.com, you have some choices to make regarding how you record you tax liability at the GL.
- The most simple configuration is to record all taxes for all states to the GL account. I do not recommend this option because your remittance reporting becomes more challenging.
- My preferred option is to record tax liabilities by state. This means that you will have a GL account per state. The benefit of this approach is that you can easily defend the amount you owe to any state. When you go to pay, you simple map the payment to that state’s tax liability account.
- The most complex option is to differentiate between state, county and local/city liabilities by GL account. You can accomplish this by using iDempiere and ADempiere parent/child tax relationship. As you can imagine, this option get much more difficult to administer.
Handling Tax Complexities
There are times when taxes get complex. For example, in New York you might not need to collect tax if you are selling shoes less than $100. I know this seems random; however, there are such laws all over the country.
There are two options to handle these scenarios.
- At time of Order Line entry: It is important to know that when iDempiere and ADempiere evaluate tax, it puts the resulting tax rate to the order line. If this tax is not correct, the user and the system have the option to change it. You can either modify the code to catch and change your unique circumstances, or you can create an order validation process to notify the user of the order meets known exceptions.
- At time of audit: You can catch these scenarios at the time of tax preparation audit.
I hope this helps! Let me know if you have feedback.
What is the best way to Learn iDempiere and ADempiere?
I teach an on-line class that covers how to learn, configure and audit open source ERP. It uses iDempiere as the reference ERP. Here are more details. I have learned much over the last ten years, and I have much to share. I look forward to seeing you there!!
Why consider Open Source ERP
Open source ERP gives you every opportunity to prove or disprove its ability to support your company’s ERP needs on a timeline that satisfies your organizational needs. With open source ERP, you do not face the same financial constraints nor do you face the same conflicts of interest as with commercial ERP. Instead, you invest in the appropriate skills and knowledge for your people and processes. Best of all – if open source ERP cannot solve your company’s needs, you can safely justify spending the additional $2K to $5K per person per year for life of your commercial ERP to help drive your organization’s success.
ADempiere vs iDempiere vs Openbravo vs Compiere
The ADempiere, iDempiere, Openbravo and Compiere environments are amazingly similar. iDempiere came from ADempiere. ADempiere and Openbravo came from Compiere. Compiere came from Jorg Janke. Jorg came from Oracle. As a result, iDempiere and ADempiere have much in common with Oracle’s ERP in terms of the financial feature set.
This is both good and bad. Good because iDempiere and ADempiere are quite capable to help a company grow beyond $500M USD. Bad because they tend to be more complex in that they account for multiple languages, accounting schemas, currencies, calendars, costing types, costing methods, etc…. If you are a growing organization, and you need a system that will grow with you, and you have the right internal talent/resources, iDempiere or ADempiere will be a big asset for you.
The biggest difference between these products is that ADempiere and iDempiere are pure open source. ADempiere and iDempiere make all feature available for free. Compiere and Openbravo hold back features behind a commercial or paid license.
iDempiere and ADempiere vs OpenERP
iDempiere/ADempiere (iD/AD) and OpenERP approach ERP from two very different directions. OpenERP comes out of the box with very simple options. If you are coming from QuickBooks, and you need a simple ERP system help you manage your business, OpenERP will look and feel comfortable.
iD/AD comes out of the box with every feature installed and configured to run a $200M+ USD business. If your business is growing rapidly, and you are willing to invest the time to learn an enterprise accounting system, then iD/AD will give you confidence.
Which one is best for you depends on your internal talent, growth and business complexity. Here is a post to help you learn more.
About Chuck Boecking: I am an ERP educator. I believe that open source ERP have achieved mainstream capabilities, and as a result, more companies can create greater efficiency across their organization. I started using the iDempiere code base in 2003. Back then, it was called Compiere. In 2006, I started my first multi-million dollar installation. Since then, ADempiere has helped me create great success with distribution and manufacturing companies all over the world. My vision of success is to find companies that can best use open source ERP to help them achieve a single, global instance that drives a discontinuous increase in profitability. I believe that organizations win when they own their technology.
If you have questions, comments or concerns, let me know. I definitely want your feedback.
You can contact me by phone using 512.850.6068.
My email is firstname.lastname@example.org.
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Thank you for taking the time. I look forward to speaking with you.