Setting Up Tax Rates

You set up tax rate areas to accurately calculate taxes for customers, based on their geographic locations. When you set up a tax rate area, you can apply the tax code to customer's master record. You can run a report to review all of the tax areas that have been set up and applied to a customer's record.

Access the Tax Rate/Area Revisions form.

Tax Rate/Area

Enter a code to calculate taxes for a geographic area. This code identifies a tax or geographic area that has common tax rates and tax authorities. The system validates the code you enter against the Tax Areas table (F4008). The system uses the tax rate area in conjunction with the tax explanation code and tax rules to calculate tax and GL distribution amounts when you create an invoice or voucher.

Effective Date

Enter the date when a transaction, contract, obligation, preference, or policy rule becomes effective.

Expiration Date

Enter the date when a transaction, contract, obligation, preference, or policy rule ceases to be in effect.

Tax Auth (tax authority)

Enter the address number of the tax authority for the area. You pay and report sales, use, or VAT taxes to this agency. Examples include states, counties, cities, transportation districts, provinces, and so on. You can specify up to five tax authorities for a single tax area.

You can enter up to five tax authorities.

G/L Offset (general ledger offset)

Enter a code that indicates how to locate the tax account for general ledger entries. This field points to automatic accounting instructions (AAIs) that, in turn, point to the tax account.

Examples are:

PTyyyy - for AP (VAT only)

RTyyyy - for AR (VAT only)

GTyyyy - for GL (VAT only)

4320 - for Sales Orders

4400 and 4410 - for Purchase Orders

When setting up VAT and Canadian GST, PTyyyy, RTyyyy, and GTyyyy are the only values. For the AP system, a second GL Offset (PT_ _ _ _) is required when the tax setup involves VAT plus use taxes (tax explanation code B). Use AAI PT_ _ _ _ to designate the use tax portion of the setup.

For sales taxes, the Accounts Payable and Accounts Receivable systems ignore the values in this field. However, the Sales Order Management and Procurement systems require values in this field.

Tax Rate 1

Enter the percentage for the tax rate in the area. This number identifies the percentage of tax that should be assessed or paid to the corresponding tax authority, based on the tax area.

Enter the percentage as a whole number and not as the decimal equivalent. For example, to specify seven percent, enter 7, not .07.

Compound Tax

For Canadian companies, click this option to calculate PST tax after GST has been added to the product value.

For example, suppose that you have a tax area set up with seven percent GST and eight percent PST, and you select the option to calculate tax on tax. If you enter a voucher for a taxable amount of 1000 CAD, the system calculates the GST as 70 CAD, adds it to the taxable amount, and multiplies the PST by that result (1070 CAD). If you do not use compound taxes, the system calculates PST on the taxable amount only.

Note: This option is valid only for tax explanation codes that begin with the letters B and C. To calculate compound taxes for tax explanation code V, use tax explanation code V+. This code is available only for the second tax authority (line 2 in the list on this form) and must identify a non-GST tax authority.

VAT Expense

For Canadian companies, select this option to indicate the percent of VAT that is not recoverable. You enter the nonrecoverable percentage in the Tax Rate field to the left of this option. The system multiplies the percentage that you specify by the total tax amount and reduces the amount of VAT that is recoverable from the first tax authority.

Note: This option is valid only with tax explanation codes that begin with the letters C, B, and V. This code is available only for the third, fourth, fifth tax authorities (lines 3 through 5).

Item Number

Enter the number of the item or item grouping to which the tax applies for inventory and sales order information.

Values for item groupings are 3 through 8.

If you specify a value for an item grouping, you must ensure that the processing option to validate item numbers, which appears on the Edit tab, is set to 0 (off). If this processing option is not set correctly, the system attempts to validate the item grouping number as an actual item number.

Maximum Unit Cost

Enter a number that identifies the maximum amount that an item can be taxed. If the unit cost of an item is more than the amount that you specify in this field, the maximum unit cost becomes taxable.

Note: This field is used for processing sales and purchase orders only. This field is required for processing taxes in the state of Tennessee.

To run the tax report, select Tax Area Report from the Report menu on Work With Tax Rate Areas.

On Work with Batch Versions, select the version that you want to print and click Select.