Sales Tax FAQs

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General

How do I set up sales taxes?

Sales tax calculations are set up using Sales Tax Class Maintenance, Sales Tax Code Maintenance, and Sales Tax Schedule Maintenance.

Use Sales Tax Class Maintenance to set up different types of tax classifications used by your company. For more information, see Sales Tax Class Maintenance.
Use Sales Tax Code Maintenance to set up tax codes for every tax jurisdiction (such as state or country). Tax codes determine the tax rate to charge for each tax class. For more information, see Sales Tax Code Maintenance.
Use Sales Tax Schedule Maintenance to set up tax schedules that group tax codes to assign to customers. For more information, see Sales Tax Schedule Maintenance.

For more information, see Set Up Sales Tax Information.

Why are the default tax code and schedule set up?

The default tax code and tax schedule were set up for the Purchase Order module. When the current tax structure was implemented for the Purchase Order module, a default tax schedule had to be created to be assigned for existing purchase orders.

What is the relationship between tax schedules and tax exemption numbers?

The tax schedule and exemption numbers are tied directly to each other. If you change the tax schedule for a customer, you must reenter any exemption numbers for new tax codes.

For example, if tax schedule A is for California, Orange County, and Irvine; and is replaced with tax schedule B for California, Orange County, and Santa Ana; California and Orange County exemption numbers will remain unchanged. The tax code for Irvine and the associated exemption numbers will be removed. Santa Ana will be added, but you must click Exemptions on the Customer Maintenance Main tab in Accounts Receivable and enter or apply the applicable exemption number.

The tax schedule and tax exemption numbers are directly tied to each other. For instance, a customer is located in CA (California) and OC (Ocean County), which is also located within the USD (Unified School District); this customer is exempt from all taxes and has a resale exemption number for all three of those jurisdictions. You would enter each exemption number for the tax schedule CAOCUSD; however, if you change the tax schedule for a customer, you must reenter any exemption numbers (by using the Exemptions feature on the Customer Maintenance Main tab) for the new tax codes.

In this example, if the customer moved his office to a location that is not within the Unified School District boundaries, the tax schedule would be changed from CAOCUSD to CAOC. The applicable exemption numbers would also need to be entered for that tax schedule in the Customer file.

For more information, see:

Customer Maintenance

Set Up Sales Tax Information

How are sales taxes processed with invoices?

Data entry windows, such as Repetitive Invoice Entry, Invoice Data Entry, Sales Order Entry, and Sales Order Invoice Entry, process sales tax in the same way. The Header tab provides the tax schedule for each customer or ship-to address from the Customer file or for each vendor or purchase address from the Vendor file. The tax schedule can be overridden at any time, resulting in recalculation of taxes.

Note Tax limits are not applicable to any Accounts Payable data entry tasks. If the taxing jurisdiction has a tax limit for each document, you must manually change the sales tax on the Tax Detail window.

During line entry, the tax class will be defaulted and, again, can be overridden. All line entry tasks contain a Subject to Exemption check box. When a line is selected and an exemption number exists, it is treated as an exempt sale. To override the exemption number for specific lines, clear the Subject to Exemption check box and the tax will be calculated.

The Tax Detail window, accessed from the Totals tab, displays all tax-related information for each defined tax code in the tax schedule for the document for example, invoice, purchase order, or manual check. Information displayed for each tax code includes the exemption number, taxable sales, taxable freight, taxable tax, nontaxable sales, nontaxable freight, exempt, and sales tax amount. Only the exemption number and sales tax amounts can be maintained. If a tax amount is changed, an asterisk (*) will print on each changed line on the Sales Journal, Tax Journal, and Sales Tax Report.

Note The taxable and nontaxable fields can only be viewed and are based on the primary tax code in the tax schedule.

Note Sales tax is recalculated when performing routines such as Repetitive Invoice Selection, converting a sales order to an invoice, or generating sales orders or invoices automatically.

The system checks for an invalid tax code or tax class and subsequently displays a warning. If the error condition is not corrected, a flag will be set. During document printing, a message will print on the Sales Tax Amount line, indicating a tax calculation error. If you attempt to update, an error will be written to the error log, preventing the update. You must first correct the error condition and recalculate taxes for the document before normal processing can resume. When accessing a document that created an error and only if an error exists, a Recalc Tax button will appear in all data entry tasks, except Repetitive Invoice Entry. This button recalculates taxes based on the current tax schedule, tax codes, and tax classes.

When printing in detail, the short description set up in Library Master Sales Tax Code Maintenance is used.

For more information, see:

Set Up Sales Tax Information

Invoice Data Entry

Repetitive Invoice Entry

How are use taxes processed with invoices?

Use tax is sales tax that is due for an item purchased for internal use. In this case, the vendor has not charged sales tax and it becomes the responsibility of the company to track and remit sales tax on these purchases. When entering data in the Accounts Payable module, the user can flag each invoice as being subject to use tax by selecting the Use Tax check box. In the Purchase Order module, the user can flag individual lines of a purchase order, receipt of goods, receipt of invoice, or return of goods as subject to use tax. In these cases, sales tax will be calculated, but recorded as use tax in the Tax Detail window (where it can be changed).

Use tax does not affect the invoice total. During general ledger posting, the use tax amount is posted to the Nonrecoverable Tax account and offset to the A/P Use Tax account, as defined in Division Maintenance or Sales Tax Account Maintenance. In addition, use tax is recorded for each invoice and printed on the Sales Tax Report.

For more information, see:

Set Up Sales Tax Information

Can I have different sales tax rates for goods and services in the same jurisdiction?

Yes. In fact, some tax jurisdictions require that certain types of goods or services be taxed at different rates. For example, a county may charge 3 percent tax on goods, but only 2 percent tax on services. The following paragraphs illustrate how you would calculate sales tax for both goods and services on the same invoice.

1 Determine the tax class to use for taxable goods; in this case, TX will be used.

2 Set up a new tax class for taxable services; in this case, TS will be used.

3 Set up tax jurisdictions in Library Master Sales Tax Code Maintenance.

For this example, the following tax codes are set up.

Example - Tax Code: CA for California

This tax jurisdiction charges 7.75 percent tax on all taxable goods, but nothing on taxable services. Some items have no tax. The CA tax code does not assess tax on freight. The tax code setup includes the following tax classes.

Tax Class	Description	Sales Taxable	Tax Rate
TX	Taxable Goods	Y	7.750
TS	Taxable Service	N	0.000
TF	Taxable Freight	N	0.000
NT	Nontaxable	N	0.000

Example - Tax Code: OC for Ocean County

This tax jurisdiction charges 3 percent tax on all taxable goods and 2 percent tax on taxable services. Some items have no tax. This county assesses taxable freight at a rate of 1 percent. The tax code setup includes the following tax classes.

Tax Class	Description	Sales Taxable	Tax Rate
TX	Taxable Goods	Y	3.000
TS	Taxable Service	Y	2.000
TF	Taxable Freight	Y	1.000
NT	Nontaxable	N	0.000

Example - Tax Code: US for Unified School District

This local tax jurisdiction charges 1 percent tax on all taxable goods. The tax code setup includes the following tax classes.

If your tax jurisdiction charges tax on tax, you must set up a tax code that is subject to tax on tax. Select the Tax on Tax check box in Library Master Sales Tax Code Maintenance and define a tax class. You must then add the tax class to the tax code for the jurisdiction that "taxes" tax.

For example, tax code B has a tax-on-tax requirement for tax code A. Based on the above, for tax code A, you must select the Tax on Tax check box in Library Master Sales Tax Code Maintenance and define a tax class. For tax code B, you must add the tax class, select the Sales check box, and define a rate.

Tax Class	Description	Sales Taxable	Tax Rate
TX	Taxable Goods	Y	1.000
TS	Taxable Service	N	0.000
TF	Taxable Freight	N	0.000
NT	Nontaxable	N	0.000

Can tax codes be grouped for assignment to customers and can tax detail be printed on sales orders and invoices?

Yes. You can use Library Master Sales Tax Schedule Maintenance to group tax codes for assignment to customers or vendors, and establish whether tax detail prints on sales orders and invoices. The sequence in which the tax codes are entered is very important because of tax-on-tax calculations and the establishment of the primary tax code. The first tax code entered becomes the primary tax code. The primary tax code is used during the calculation of taxable and nontaxable amounts on each invoice and printing/updating of sales tax history. During System Setup, a nontaxable tax schedule is defined automatically; this schedule cannot be modified or deleted.

Example - Sales Tax Schedule

In the following example, all customers are located in California and in Ocean County; however, not all of the Ocean County customers fall within the Unified School District tax jurisdiction. Two tax schedules must be created: one for California/Ocean County customers, and one for California/Ocean County/Unified School District customers.

Tax Schedule: CAOC

Line	Tax Code	Description	Primary Tax
1	CA	California	Primary
2	OC	Ocean City

Tax Schedule: CAOCUS

Line	Tax Code	Description	Primary Tax
1	CA	California	Primary
2	OC	Ocean City
3	USD	Unified School District

For more information, see:

Assign Sales Tax Schedules

Sales Tax Schedule Maintenance

Can sales orders and invoices be set up to print one sales tax line as an accumulation of all sales tax?

Yes, when printing sales orders and invoices, you can set them up to print one sales tax line as an accumulation of all sales tax. In addition, detail can be printed for up to four tax codes by selecting the Print Tax Code Detail check box in the Library Master Sales Tax Schedule Maintenance window. Four separate tax amount, tax exemption number, and registration number fields can be configured to print from within the forms. During the print routine, the first three fields are used for the first three tax codes in the schedule. The fourth field is used for an accumulated tax amount for all remaining tax codes.

Select Database Field from the SAP Crystal Reports Insert menu and add the SalesTax1 field from the Formula page; add the SalesTaxAmount2, 3, and 4 fields to the form; remove the existing SalesTaxAmount field from the form. The SalesTax1 formula determines whether detail will be printed.

When printing in detail, the short description set up in Sales Tax Code Maintenance is used.

For more information, see Set Up Sales Tax Information.

.store Customer

How is the tax schedule determined for calculating sales tax on a shopping cart submission for a .store customer?

If the eBusiness Manager module is installed, the system uses the multi-tier approach to determine the proper tax schedule for calculating sales tax on a shopping cart submission for a .store customer. For more information, see Sales Tax Schedule Maintenance.

When a .store customer enters billing information, the system uses the 10-digit or 5-digit ZIP Code entered in the billing address to derive the proper sales tax schedule. If the shopping cart template that allows a ship-to address different from a billing address is used, the ZIP Code and state in the ship-to address is used to derive the proper sales tax schedule from the ZIP Code Cross Reference table.
If the system cannot find the proper tax schedule in the ZIP Code Cross Reference table, it will use information from the State Cross Reference table to determine which tax schedule should be used to estimate sales tax.
If the system does not find the proper tax schedule in the State Cross Reference table, the default tax schedule set up in the Default Tax Schedule field in the eBusiness Manager Options window is used to estimate sales tax.
When the tax schedule is assigned based on information in the State Cross Reference table, or the default tax schedule set up in the eBusiness Manager Options window, the order will be place on hold if eBusiness Manager Options is set up accordingly.
When the sales tax schedule is derived using the above hierarchy, it will not be saved in the Customer file or ship-to code records.