In some jurisdictions, tax must be calculated on the full billable amount, including both the base expense and any markup charged to the owner. VRTrust supports this scenario by calculating tax on the combined total and correctly routing amounts for both owner billing and accounting.
This article explains how to apply taxes on expenses and expense markups, and how the related accounting entries are handled.
How Expense Tax Calculation Works
When tax is configured to apply to Expense + Markup, VRTrust calculates tax on the entire amount of the expense, not just the vendor expense.
Example
Base expense: $100
Markup: $10
Tax rate: 15%
Bill to: Owner
Tax base:
$100 (expense) + $10 (markup) = $110
Tax amount:
15% of $110 = $16.50
Total charged to owner:
$110 + $16.50 = $126.50
Add Tax to the Base Expense Amount
Before applying tax to a markup, you can also apply tax directly to the base expense amount.
To add a tax rate to the expense amount in VRTrust:
Go to Expenses
Click Add expense (or open an existing expense)
Under Amount, click the field to edit the expense amount
Enter the expense amount
Click Select tax to open the list of available tax rates
From here, you can:
Select an existing tax rate from the list, or
Add a new tax rate directly by clicking Other Rate → Add tax rate
Once selected, the tax will be applied to the base expense amount according to the tax rate’s existing configuration.
Add Markup + Markup Tax
To create an expense where tax is calculated on the expense plus markup, follow these steps in VRTrust:
Go to Expenses
Click Add expense
Add one or more expense lines as needed
Under Markup, click the markup field to open the Markup Editor
Enter the markup amount
Click Select tax to open the list of available tax rates
From here, you can:
Select an existing tax rate from the list, or
Add a new tax rate directly by clicking Other Rate → Add tax rate
7. Save the expense
Once saved, VRTrust will automatically:
Calculate tax on the combined expense + markup amount
Route tax using the selected tax rate’s existing account configuration
How Amounts Are Treated
Vendor Payment
The vendor is paid only the base expense amount
Example: $100
Markup and tax are not paid to the vendor
Markup and Tax
Markup is always billable to the owner
Tax on Markup is always billable to the owner
Tax on the base expense (when enabled) is treated the same way as markup:
Expense to the owner
Revenue or liability to the property manager
Accounting & Journal Entry Logic
When Expense + Markup tax calculation is enabled:
The system computes tax as the sum of:
Tax on the base expense amount
Tax on the markup amount
Both tax amounts are:
Included as billable items to the owner
Routed through the existing tax rate configuration
Important Notes
No new tax accounts are required
The configured tax rate continues to determine:
The tax expense account, or
The tax liability account (depending on setup)
Why This Matters
This approach ensures:
Compliance with jurisdictions that require tax on the full billable amount
Accurate owner billing that reflects all taxable components
Clean separation between:
Vendor payments
Property manager revenue and tax liabilities
Consistent accounting using existing tax configurations