Certain tax jurisdictions allow refunds of sales taxes (sometimes referred to as recoverable) paid on vendor invoices. In addition, nonrecoverable percentages allow for allocating taxes to vendor expense and inventory costs. Both of these requirements can be achieved through sales tax processing. Consult with your accountant if you are uncertain as to whether your taxing jurisdiction allows for the refunding of sales taxes on vendor invoices.
Note To track nonrecoverable amounts in General Ledger by tax code, you must enter a nonrecoverable general ledger account in the Nonrecoverable Tax Account field in Sales Tax Account Maintenance or Division Maintenance.
The nonrecoverable percentage determines the amount of tax posted to the general ledger account for the vendor expense, inventory cost, or nonrecoverable account, with the remainder posted to the Accounts Payable sales tax (recoverable) accounts during the Invoice Register, Manual Check and Payment Register, Receipt of Goods Register, and Return of Goods Register updates.
If you do not want to track recoverable percentages, the sales tax code must be set up to be 100 percent nonrecoverable in Sales Tax Code Maintenance. If this is not done, the system assumes your sales tax is 100 percent recoverable, and prints this information in the Sales Tax Report.
Nonrecoverable percentages, initially set up in Sales Tax Code Maintenance, are used to calculate the nonrecoverable amounts for each tax code in the tax schedule. After the invoice amount is entered in Repetitive Invoice Entry,Invoice Data Entry, or Manual Check and Payment Entry, tax amounts are calculated automatically, based on the tax schedule and tax class for the invoice, and appear on the Tax Detail window. The nonrecoverable amounts for each tax code can then be overridden on an invoice-by-invoice basis. The recoverable tax amounts do not need to be distributed manually because they are updated automatically during the Invoice Register and Manual Check and Payment Register updates.
Example - Determining Nonrecoverable Percentage for an Accounts Payable Invoice
If the tax amount for the invoice is $7.00 and the nonrecoverable percentage for the tax code is 60 percent, $4.20 (the nonrecoverable amount) will be added to the invoice distribution amount, while the remaining 40 percent of $2.80 (the recoverable amount) will be posted to the Accounts Payable sales tax account during the Invoice Register update. In the Purchase Order module, the nonrecoverable amount will be allocated to the inventory cost of the item during the Receipt of Goods Register update if the Expense to Vendor/Item check box is selected in Sales Tax Code Maintenance.
For more information, see Set Up Sales Tax Information.
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