Tax on Prepaid and Service
Explains how tax is calculated on prepaid commitments and service invoices, including how prepaid tax is offset when credits are applied.
How it works
Tax is applied to the prepaid invoice.
Tax is applied to the service invoice.
When prepaid credit is applied, the related prepaid tax is offset.
Example
Prepaid Invoice
Line | Amount | Tax |
|---|---|---|
| Prepaid Commitment | $1,200 | $120 (10%) |
| Total Tax | $120 | |
| Total | $1,320 |
Service Invoice
Line | Amount | Tax |
|---|---|---|
| Service Usage | $100 | $12 (12%) |
| Prepaid Credit Applied | -$100 | -$10 (10%) |
| Total Tax | $2 | |
| Total Due | $2 |
Key Rule
Prepayment tax is charged when the prepayment is invoiced and offset when the prepaid amount is consumed. Service tax is charged when the service is invoiced. The prepaid balance is tracked before tax.