Automatic Tax Calculation Overview
If you enable the Automatic Tax Calculation feature, Payables will automatically calculate invoice sales tax and create Tax type distributions for you. Payables automatically calculates tax for manually entered invoices and recurring invoices. During Payables Invoice Import, Payables also automatically calculates tax for invoices it creates from expense reports. You enable the Automatic Tax Calculation feature by enabling the Use Automatic Tax Calculation Payables option.
If you do not enable Automatic Tax Calculation, Payables does no tax calculation, but it will automatically create a tax distribution during invoice entry if you enter values for Tax Name and Tax Amount in the Invoices window. Payables copies the invoice tax name and tax amount values you enter when it creates the tax distribution but it does no tax calculation. However, it will validate the tax amount during Approval.
Automatic Tax Calculation Level
If you use automatic tax calculation, Payables calculates tax for your invoices at the level you specify, Header or Line. The Calculation Level option you select determines whether Payables calculates tax based on the invoice information (Header), or based on individual invoice distribution information (Line). The value of the Calculation Level option defaults in the following order: Payables Options window -> Suppliers window -> Supplier Sites window -> invoice entry. You can override the Calculation Level at any level (supplier, supplier site, invoice entry) if the Allow Calculation Level Override check box is checked at the previous level. If you override the calculation level you can change the calculation level to Header or Line or you can disable tax calculation by choosing None.
You choose the automatic tax calculation level in the Calculation Level fields of the Invoice Tax regions of the Payables Options, Suppliers, and Suppliers Sites windows. If you have enabled the Allow Calculation Level Override option at the suppliers site, when you are entering an invoice for the supplier site, after you enter a Tax Name, Payables opens the Tax Calculation window. In this window you have one last opportunity to change the tax calculation level for the invoice.
If you automatically calculate tax at the Header Level, then during invoice entry, when you enter a Sales type Tax Name in the Invoices window Payables automatically calculates and enters the Tax Amount. Payables calculates the tax amount based on the gross invoice amount and the tax rate of the tax name you enter. In the Tax Names window you assign a tax rate to each tax name.
When you navigate to the Distributions window, Payables automatically creates a tax distribution with the Tax Amount and Tax Name from the Invoices window. See: Header Level Automatic Tax Calculation.
Payables does not calculate tax amounts for Use type tax names.
If you automatically calculate tax at the Line level, after you enter non-Tax (Item, Miscellaneous, or Freight type) distributions in the Distributions window, Payables creates Tax type distributions. When you enter distributions, you use the Includes Tax check box to indicate if a distribution line amount is inclusive or exclusive of tax.
Payables calculates the tax amount for distributions with Sales type Tax Names based on the distribution Amount, the Includes Tax check box for the distribution, and the tax rate of the distribution Tax Name. In the Tax Names window you assign a tax rate to each tax name. Payables creates a tax distribution for the appropriate amount, and assigns the same Tax Name to the distribution. When Payables calculates tax for distributions that include tax, it also reduces the amount of the distribution by the calculated tax amount and unchecks the Includes Tax check box. Payables creates tax distributions automatically either when you choose the Calculate Tax button in the Distributions window, or when you submit Approval for the invoice. See: Distribution Line Level Automatic Tax Calculation.
If you choose None as the calculation level, Payables disables automatic tax calculation for associated invoices. In the Suppliers window, the Supplier Sites window, and during invoice entry, you can choose None as your Calculation Level if you have enabled the Allow Override option at the previous level. When automatic tax calculation is disabled, you can create tax distributions by matching to purchase orders, by prorating, by using Distribution Sets, or by entering tax distributions manually. See: Entering Taxes When You Do Not Use the Automatic Tax Calculation Feature.
If you enter a Tax Name and Tax Amount in the Invoices window and automatic tax calculation is not enabled for an invoice, Payables will automatically create a tax distribution, but it will not calculate the tax. It will not verify the tax amount until Approval. See: Tax Amount Verification During Approval.
Overriding Tax Calculation Level
The automatic tax Calculation Level value defaults in the following order: Payables Options -> Suppliers -> Supplier Site -> Invoices. You can adjust the default calculation level in the Suppliers, Supplier Sites, and Invoices windows only if the Allow Calculation Level Override option is currently enabled in the preceding window. You cannot enable the Allow Calculation Level Override check box in the Suppliers or Supplier Sites window if the Allow Calculation Level Override check box is not currently enabled in the previous window. If you adjust an Allow Calculation Level Override check box, it immediately affects your ability to change the Calculation Level and the Allow Calculation Level Override check box in the succeeding window for existing and new records.
The value of the Allow Calculation Level Override check box does not default. The Allow Calculation Level Override check box is always disabled for all new suppliers and supplier sites.
Setting Up Automatic Tax Calculation
You control invoice tax calculation in the Payables Options window, the Suppliers window, the Supplier Sites window, the Invoices window, and the Distributions window. Most tax calculation options default or cascade from the Payables Options window to suppliers, from suppliers to supplier sites, and from supplier sites to invoices. You can control tax options and defaults at any level, including invoice entry. This allows you to set up individual tax calculation methods for each supplier site. If you allow override options, you can select individual tax calculation methods for each invoice you enter.
Invoice tax options you select also determine the exact calculated tax amount. At the Payables option level you select the last decimal place in the tax amount or the smallest monetary unit to which the tax is calculated. You also choose for each supplier site whether Payables rounds up, down, or nearest. You can agree on these rules with each of your suppliers so that your accounts will match each of your supplier's accounts.
Discuss with your supplier what rounding rule you will both use to calculate tax so that your accounts will match.
Define tax names in the Tax Names window. See: Tax Names.
To set up Automatic Tax Calculation:
1. Enable the Use Automatic Tax Calculation option in the Invoice Tax region of the Payables Options window.
Select any remaining Automatic Tax Calculation options in the Invoice Tax region of the Payables Options window. See: Invoice Tax Payables Options.
3. For each supplier site, adjust tax options in the Invoice Tax region of the Supplier Sites window.
Disabling Automatic Tax Calculation
If you have enabled Automatic Tax Calculation, you can disable it throughout the Payables system, or you can disable it only for specific suppliers, supplier sites, or invoices you select.
To disable Automatic Tax Calculation throughout Payables:
- In the Invoice Tax region of the Payables Options window, disable the Use Automatic Tax Calculation option.
To disable Automatic Tax Calculation for a particular supplier site:
1. Enable the Allow Override option in the Payables Options window and the Supplier window.
2. In the Supplier Sites window choose None as the Calculation Level. Do not enable the Allow Override option.
3. Save your work. Payables will disable automatic tax calculation for all invoices for this supplier site.
To disable Automatic Tax Calculation for a particular invoice:
1. Enable the Allow Override option in the Payables Options window, the Suppliers window, and the Supplier Sites window.
2. When you enter a new invoice for the supplier site, after you enter a Tax Name in the Invoices window, Payables opens a window. Choose None as the Calculation Level.
Entering Taxes on Invoices