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After defining tax classes, you must define sales tax codes in Sales Tax Code Maintenance. You must set up a tax code for each tax jurisdiction (such as state, county, local or province) to which your business reports sales tax information. The sales tax codes defined determine the rate to calculate for each tax class defined in Sales Tax Class Maintenance and are used to determine if sales tax is calculated on both items sold and purchased.

Examples of tax code include CA (California), OC (Ocean County), WI (Wisconsin), and ON (Ontario). Tax codes are grouped together using Sales Tax Schedule Maintenance.

For more information, see Sales Tax FAQs.

 

To set up tax codes

1. Select Library Master Setup menu > Sales Tax Code Maintenance.

2. Enter a code in the Tax Code field and type a description in the Description field. For more information, see Sales Tax Code Maintenance - Fields.

3. If the tax code you are defining has a limit, enter the Taxable Limit field. For example, some tax jurisdictions have a limit for the amount of sales tax that can be defined on an invoice, sales order, or receipt.

4. In the Short Desc field, type a short description. This description will be used when printing tax detail on forms.

5. Complete one of the following options:

6. Select the Calculate Sales Tax on Retention check box to calculate sales tax on the invoice amount less retention.

7. Clear the Calculate Sales Tax on Retention check box to calculate the sales tax on the full invoice amount, regardless of retention.

6. Complete one of the following options:

7. Select the Expense to Vendor/Item check box to allocate the nonrecoverable portion of purchase's sales tax to the vendor's Expense account in Accounts Payable or to the Inventory account in Purchase Order.

8. Clear the Expense to Vendor/Item check box if the nonrecoverable portion is not to be allocated.

7. Complete one of the following options:

8. Select the Tax on Tax check box if this tax code is subject to taxation by other tax jurisdictions, and proceed to step 8.

9. Clear the Tax on Tax check box if the tax code is not subject to tax on tax, and proceed to step 9.

8. If you selected the Tax on Tax check box, enter a class to be used for Tax on Tax calculations at the Tax Class field (next to the Tax on Tax check box).

   Note The Tax Class field next to the Tax on Tax check box is the only place you can enter a "tax on tax" tax class; you cannot enter this in Sales Tax Class Maintenance.

9. For each tax class defined (except for tax class NT which cannot be maintained or deleted), complete the following fields:

1. Select the Sales check box to calculate sales tax for this code, or clear the Sales check box if sales tax should not be calculated.

2. In the Tax Rate field, type the tax rate percentage to use for calculating taxes.
   
   Note If your tax jurisdiction charges tax on freight, you must set up a tax rate for the TF tax class in each applicable tax code.

3. Select the Purchases check box if purchases are taxable for the tax class entered and proceed to step d. Clear the Purchases check box if the purchases are not taxable and proceed to step e.

4. If the Purchases check box is selected, type the percentage of the purchase tax that cannot be recovered in the Nonrecoverable % field. Enter 0 (zero) in this field if all purchases sales tax is to be posted to the Accounts Payable Sales Tax account. Enter 100 in this field to post all of the purchases sales tax to the Nonrecoverable account.

5. Click OK.

10. Click Accept.

Sales tax codes are defined.

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