For cost-based and contract-based invoicing:

When the Tracking taxes check box is selected in AR Settings in Accounts Receivable, Billing looks for an exempt status to determine whether or not to calculate taxes. Depending on the Billing type specified on the contract item (Billing tab) in Contracts, Billing looks in different locations for the exempt status.

For taxes to calculate for a contract item on a cost-based invoice, the status Taxable must be found in all of the locations in the below list. If any one does not have a Taxable status, taxes do not calculate for the contract item.

For cost-based billing types (Time & Materials and Cost Plus to Maximum), Generate Work-In-Progress looks for an exempt status in these locations:

1. Contracts application, contract item - Tax tab (from the amount type that corresponds with the work-in-progress record cost type).
2. Billing application, standard item setup - General tab (only if using standard items).
3. Job Cost application, category setup - General tab.
4. Job Cost application, cost code setup - Contract Info tab (only if not using categories).

For cost-based billing types, Change Work-In-Progress looks for the exempt status in these locations:

1. Contracts application, contract item - Tax tab.
2. Billing application, standard item - General tab (only if using standard items).

For contract-based billing types (Progress Billing, Lump Sum, and Unit Price), Billing retrieves the exempt status during the Contract-Based Invoices task from the Total billed field on the contract item in Contracts (Tax tab).