ConnectWise Agreements with Sales Tax
Tax ConnectWise agreements at invoice time by selecting Billing Amount Taxable in the Recurring Invoicing Parameters section and assigning a tax code to the agreement.
How taxable agreements affect applied items
When an agreement is marked taxable and invoiced, ConnectWise suppresses sales tax on any items later applied against it. The logic:
- Applied items are covered by an allocation that was already taxed when the agreement invoice was generated — taxing them again would be double taxation.
- If an applied item exceeds the allocation and gets billed separately, ConnectWise does calculate sales tax on that remainder, because no tax has yet been collected on it.
For amount-application agreements with the prepayment option enabled, you can choose whether the allocation covers sales tax on time, expenses, and products. If you turn on Sales Tax coverage in the Agreement Covers section, ConnectWise applies the calculated sales tax for covered items against the block amount rather than billing it separately.
Scenario 1: Application limit does not include sales tax
In this setup, the Agreement Covers section has the Sales Tax checkbox cleared.
The agreement has a $15,000 billing amount with Billing Amount Taxable selected and a 6% tax code. When you generate the agreement invoice:
- Invoice total: $15,900 ($15,000 billing amount + $900 tax)
- Application limit stays at $15,000
Because the system treats the $15,000 principal as already-taxed, it does not calculate sales tax as hours are consumed against the agreement. The $900 tax collected upfront covers the tax liability for the full allocation.
Scenario 2: Application limit covers sales tax
In this setup, the Agreement Covers section has the Sales Tax checkbox selected.
Same billing amount and tax rate. When you generate the agreement invoice:
- Invoice total: $15,900 ($15,000 billing amount + $900 tax)
- Application limit is set to $15,900
With the larger application limit, ConnectWise does calculate sales tax as hours are used against the agreement — and that calculated tax comes out of the $15,900 block rather than being invoiced separately.
Note: The agreement type must have the Prepayment checkbox selected for the agreement to cover sales tax. Without it, the Sales Tax option in Agreement Covers has no effect.