dax finance - sales tax set up

Microsoft Official Training Materials for Microsoft Dynamics ™ Your use of this content is subject to your current services agreement

Chapter 5: Sales Tax Setup

CHAPTER 5: SALES TAX SETUP Training Objectives

The objectives are:

• Provide an Overview on Sales Tax • Create Ledger Posting Groups • Create Sales Tax Authorities • Create Sales Tax Settlement Periods • Create Sales Tax Codes • Create Sales Tax Codes Intervals • Create Sales Tax Groups • Create Item Sales Tax Groups • Create Sales Tax Transactions • Create Sales Tax Exempt Data • Calculate and Post Withholding Sales Tax

Introduction The requirements for tax calculation and tax reporting differ greatly for different countries. Therefore, the tax module of a true international Enterprise Resource Planning (ERP) system must be comprehensive. In Microsoft Dynamics™ AX 4.0, the tax module offers a variety of options for:

• Tax calculation • Posting • Reporting

This chapter explores the extensive functionality for sales tax handling.

27


Microsoft Dynamics AX 4.0 Financial Series I

Sales Tax Overview All businesses must collect and pay taxes to various tax authorities. Different countries have different rules and rates. In some countries there are different rules between the different states or counties. This topic provides a general overview on taxes, with the focus on Sales taxes, although the tax system in Microsoft Dynamics AX 4.0 can process many types of taxes and duties. The sales tax system within Microsoft Dynamics AX 4.0 functions as follows:

• Where to post sales taxes in the General Ledger is specified in the Ledger posting groups.

• The sales tax authorities are specified under Sales tax authorities. • When and how frequently to settle is specified under Sales tax

settlement periods. • How much to collect or pay is defined as a certain amount or

percentage and is set up under the Sales tax codes. • Whether a sales tax should be imposed on a sale or purchase order is

determined by a combination of the Sales tax group and the Item sales tax group.

The image below illustrates the steps for setting up tax information. It is not required to follow this order; however, following these steps helps avoid jumping back and forth between dialogs in Microsoft Dynamics AX 4.0.

FIGURE 5−1: SALES TAX SETUP

Page 128



When buying an item from a vendor or selling an item to a customer, the system must calculate all the applicable sales taxes. The calculated sales tax in Microsoft Dynamics AX 4.0 is based on the Sales tax codes included in both tax groups attached to the Customer/Vendor and the Item. The following table shows the:

• Sales tax setup for a Customer and an Item. • Attached tax groups and the associated tax codes.

If selling the item "P Lamp" to customer TL Tire, the system calculates the sales taxes based on tax codes "CA," and "Fed" as those codes exist in both groups.

FIGURE 5.2: AFFECT OF SALES TAX CODES ON SALES TAX CALCULATION By attaching Settlement period and Posting group to the Tax codes, this specifies how the taxes are posted and paid. Finally the Tax reporting can be set up on the sales tax code.

Ledger Posting Groups The ledger posting groups control the automatic posting of sales taxes in Microsoft Dynamics AX 4.0. The accounts that are used in the General Ledger must be created in the Chart of Accounts before they can be used to set up the ledger posting groups.

• A ledger account is updated when taxes are calculated and updated on invoice posting.

• The ledger accounts the taxes are posted in are attached to the sales tax code.

• Because each ledger account can use several tax codes, posting is determined by a ledger posting group.

• Each ledger posting group can contain several ledger accounts. How each account is used is indicated in the description field for that account.

Page 129



• Set up ledger accounts that have the posting type Sales tax to select the accounts in the Account group form.

• Changes made to the ledger account numbers in Ledger posting groups, only affect transactions not yet posted.

The number of accounts required to be set up depends on the use of the group and national law. For example, accounts can be set up for:

• Sales tax payable • Use- tax payable • Settlement account

Procedure − Create Ledger Posting Groups Follow these steps to create ledger posting groups.

GENERAL LEDGER→SETUP→SALES TAX→LEDGER POSTING GROUPS→OVERVIEW TAB

FIGURE 5−3: ACCOUNT GROUP − LEDGER POSTING GROUPS FORM

1. Enter a unique name for the ledger posting group, in the Ledger

posting group field.

2. Enter a meaningful name for the ledger posting group, in the Description field. The description appears on reports and other areas throughout Microsoft Dynamics AX 4.0.

Page 130



HINT: Describe the groups so that they are easily recognizable. This description appears with the code of the ledger posting group.

3. Select the ledger account, in the Sales tax payable list, where the

outgoing sales tax should be posted as part of the company's revenue. The outgoing tax is debited in Customer and credited to this account. Debits are recorded in the account and settled upon payment of the taxes. The ledger accounts available in the Sales tax payable list are specified as a Sales tax posting type on the Setup tab in the Chart of accounts form. However, to select other ledger accounts, click According to account type in the Sales tax payable, Use tax payable or Settlement account lists. These sales taxes are collected on behalf of the tax authority when taxable goods and services are sold, and the amount received includes the sales tax.

For example, if a customer makes a purchase of $95.00, and the tax amount is $5.00, the ledger transactions may be as shown:

Ledger account Debit ($) Credit ($) Customer account (Accounts Receivable)

100

Sales tax payable* 5 Sales account (domestic)

95

* The sales tax payable line above represents the ledger account

specified in the Sales tax payable field on the Ledger posting group form. Sales tax amounts received from customers are credited to this account and debited to appropriate customer accounts.

4. Select the ledger account for incoming taxes (receivable from the tax authority), in the Sales tax receivables list. Vendors collect these taxes on behalf of the tax authority when taxable goods and services are purchased, and the amount paid to the vendor includes taxes. For example, if a vendor sends an invoice of $100, of which $5 is value-added tax, the ledger transactions may be as shown:

Page 131



Ledger account Debit ($) Credit ($) Vendor account (Accounts payable)

100

VAT paid (Sales tax receivable)**

5

Inventory account (Expense account)

95

** This account represents the ledger account specified in this field.

Sales tax amounts paid to vendors are debited to this account and credited to appropriate vendor accounts.

NOTE: If the Apply US sales tax and use tax rules check box is selected on the General Ledger Parameters form on the Sales tax tab, this field is unavailable. Instead, sales taxes paid to vendors are debited as expenditures (costs) to the same accounts as the purchases.

5. Enter the ledger account for posting deductible incoming taxes that are not claimed or reported to the tax authority by vendors, in the Use-tax expense list.

NOTE: If the Apply US sales tax and use tax rules check box is selected on the General Ledger Parameters form on the Sales tax tab, the Sales tax payable field is unavailable. Instead, sales taxes paid to vendors are debited as expenditures (costs) to the same accounts as the purchases.

6. Enter the ledger account that offsets the Use tax expense for taxes not claimed by vendors, in the Use tax payable list. The use of this account depends on the type of tax system a company chooses: Non-U.S. taxes − A Use tax expense account must be indicated, and for the sales tax groups that contribute amounts to this ledger account, the Use Tax field must be selected on the Setup tab on the Sales tax group form. U.S. taxes − The amount in this account offsets the taxes posted as expenses if the Apply US sales tax and use tax rules check box is selected on the Parameters form. The vendor is not required to collect the tax, but the company may still owe taxes to a sales tax authority and must track such taxes. For example, a company buys office supplies on the Internet from an out-of-state vendor. The vendor charges $100.00 for the supplies and no tax. The company may still owe use taxes to the sales tax authority in its own state. The ledger transactions might be shown as:

Page 132



Ledger account Debit ($) Credit ($) Vendor account (Accounts Payable)

100

Use tax payable*** 5 Office supplies (Expense account)

105

***This account represents the ledger account specified in this field.

NOTE: This field is only visible when the Apply U.S. sales tax and use tax rules check box is selected in the General ledger parameters form on the Sales tax tab.

7. Select the ledger account, in the Settlement account list, that is

debited when taxes are paid. The account should be put with other ledger accounts that contain posted taxes. The sum of these accounts is the total balance of taxes due.

8. Perform the following on the General tab:

– Select the ledger account for posting gains on cash discounts, in the Vendor cash discount list. This is used for a more accurate audit trail on the transaction.

– Select the account for posting loss on cash discounts, in the Customer cash discount list. This is used for a more accurate audit trail on the transaction.

The ledger posting groups:

• Are attached to individual sales tax codes. • Determine the ledger accounts to which the sales taxes calculated for

the sales tax code are posted.

Page 133



Lab 5.1 − Create a Ledger Posting Group Scenario: You are the accounting manager for Global Trade & Manufacturing Company. Global Trade & Manufacturing Company has a new customer in Michigan. A ledger account must be set up to automatically record the sales tax liability and payments made (settlements) to the taxing authority in Michigan.

Challenge Yourself!

• Create an account to be used to record the sales tax payable and the sales tax settlements for the Michigan customer.

• Set up a new ledger posting group to be assigned to the Michigan customer to automate postings of sales tax transactions.

Need a Little Help?

1. When creating a new account for the sales tax liability for the Michigan customer, in the Chart of Accounts, use account 220650.

2. Create a new ledger posting group for the Michigan customer in the Ledger posting form using the Ledger posting group MIST (Michigan State Tax).

Page 134



Sales Tax Authorities Companies pay and report taxes to authorities. The authorities determine when and where the company pays its taxes. Tax authorities can be Countries, States, Regions and Cities. Sales tax can be paid through a vendor or to the sales tax authority. To pay sales tax through a vendor, specify the vendor's account number together with the correct sales tax authority. Sales tax payments are transferred to the vendor making the payment. To make payments to the sales tax authority, enter the sales tax authority's address information.

Procedure − Create a Sales Tax Authority Follow these steps to create a sales tax authority.

GENERAL LEDGER→SETUP→SALES TAX→SALES TAX AUTHORITIES→OVERVIEW TAB

FIGURE 5−4: AUTHORITY FORM

1. Enter a unique code for the authorities that tax declarations and

payments are sent to, in the Authority field. This code is used throughout the Microsoft Dynamics AX 4.0 system to refer to a particular authority.

2. Enter the name of the tax authority, in the Name field, given on reports and in other areas throughout the Microsoft Dynamics AX 4.0 system.

Page 135



NOTE: Give the tax authority a name that easy to identify. The name is displayed together with the tax authority code.

3. Select the vendor that should make tax payments to the appropriate authorities, in the Vendor account list. The sales tax payments are then posted to the settlement account specified in the Ledger posting group. When a vendor is selected, the vendor's address is automatically filled in. If left blank, the tax authorities must be paid directly.

4. Select the report layout to be printed for the tax authority, in the Report layout list.

5. Select what rounding form to use for rounding the sales tax amount, on the General tab in the Rounding form list. This is a special feature for the German and standard sales tax reports. The following rounding forms are available:

– Normal − Round up numbers five and bigger and round down numbers lower than five to the right of the unit specified.

– Downward − Round down any number to the right of the unit specified.

– Rounding−up − Round up any number adjacent to the unit specified.

– Own advantage − Round any number to the company's advantage. When settling sales tax the total sales tax amount is rounded according to the setup on the sales tax authority.

6. Specify:

– The general unit for rounding sales tax amounts in the Round-off field.

– The ledger accounts to post gains and losses for rounding. EXAMPLE: Selecting Own advantage, with a Round-off of 0.10, rounds a figure of 10.16 to 10.10 and -10.16 to -10.20. This makes sure the rounding is always to the advantage of the company. Round-off − Specify the general unit for rounding sales tax amounts, according to the chosen Rounding form. Account gain − Ledger account to post gain for rounding of VAT payments. Account loss − Ledger account to post loss for rounding of VAT payments.

7. On the Address and Contact Info tab, enter the address and contact details of the sales tax authority.

Page 136



Create as many sales tax authorities needed, each with specific address and contact information and report layout. The company can pay sales taxes to the authority directly or through a vendor account that is created for the sales tax authority. NOTE: If the tax authority is not set up as a vendor, remember to prepare a manual payment to the tax authority on the appropriate due date.

Page 137



Lab 5.2 − Create a Sales Tax Authority Scenario: You are the accounting manager for Global Trade & Manufacturing Company. Global Trade & Manufacturing Company recently started doing business with a customer in Michigan. A new sales tax authority must be set up to use to report sales taxes to the Michigan authorities.

Challenge Yourself! Set up a Michigan sales tax authority.

Need a Little Help?

1. Click GENERAL LEDGER→SETUP→SALES TAX→SALES TAX AUTHORITIES.

2. Create a new sales tax authority, Global Trade & Manufacturing Company uses normal for the rounding method and rounds to the nearest penny.

Page 138



Lab 5.3 − Create and Assign a Vendor to the Sales Tax Authority

Scenario: You are the accounting manager for Global Trade & Manufacturing Company, and discover that assigning a vendor to a sales tax authority has the following advantages:

• Payments can be done as a part of the typical payment routines. • When the Sales tax payment periodic job is run, the amount the

company owes the sales tax authority is transferred to the sales tax authority's vendor account.

• During the company's usual payment routine, the payment to the sales tax authority is created together with payments to other vendors.

To automate payments to the Michigan sales tax authority, you decide to set the Michigan sales tax authority up as a vendor. Use the following information for the vendor. Field Value Name State of Michigan Search name MI tax Group Domestic vendors Terms of payment M15-Current month plus 15 days Method of payment USD_CHK

Challenge Yourself!

• Create the vendor for Michigan sales tax. • Assign the vendor to the Sales tax authority for Michigan.

Need a Little Help?

1. When adding a vendor, because of the Accounts Payable setup in Global Trade & Manufacturing Company, Microsoft Dynamics AX 4.0 will assign the vendor number.

2. Assign the new vendor to the sales tax authority for the state of Michigan.

9



Sales Tax Settlement Periods Sales tax settlement periods specify at what intervals the company reports and pays taxes. This makes it easy to determine which sales tax transactions are reported to the authorities and which are not. The system automatically marks the settlement period the transaction should be reported in. After reporting to the authorities, the system prints transactions from the current period. NOTE: If the Include corrections field on the Sales tax tab page in the General ledger parameters form is checked, Microsoft Dynamics AX 4.0 automatically prints all transactions that should be included in previous periods. Reporting periods depends on the size of the company, laws, and the authorities. Typical periods could be:

• Monthly • Quarterly • Yearly

Procedure − Create Sales Tax Settlement Periods Follow these steps to create sales tax settlement periods.

GENERAL LEDGER→SETUP→SALES TAX→SALES TAX SETTLEMENT PERIODS

FIGURE 5−5: SALES TAX SETTLEMENT PERIODS FORM

0



1. Enter a code, in the Settlement period field, used in the other forms in Microsoft Dynamics AX 4.0 to refer to the settlement period. For example, sales tax codes are associated with a settlement period through the Settlement period field in the Sales tax codes form.

NOTE: Always create enough periods into the future to cover cash flow forecasts horizons.

2. Enter the name of the settlement period that appears on reports and in other areas throughout Microsoft Dynamics AX 4.0, in the Description field.

3. Select the tax authority that taxes are reported and paid to for each settlement period, in the Authority list.

4. Select the terms of payment for the sales tax settlement, in the Terms of payment list. Create and manage terms of payment in the Terms of payment form in Accounts Receivable or Accounts Payable.

NOTE: The Terms of payment field, attached to the settlement period, only applies if a vendor account is set up on the sales tax authority. In this case, this payment term overrules any terms of payment set on the vendor in the Accounts Payable module. Also be aware that the Due date is calculated based on the date set when running Sales tax payment from GENERAL LEDGER→PERIODIC→SALES TAX PAYMENT.

5. Select the reporting interval in days, months, or years, in the Period interval list, on the General tab.

6. Enter the length of the settlement period in the Number of units field. Based on how Period interval is defined, the settlement period is given in days, months, or years.

EXAMPLE: For example, if the Period interval is set to Month(s) and the Number of units is set to 1, a new period is automatically one month. However, if the Period interval is set to Month(s) and Number of units is set to 12, the length of one period is one year or 12 months. Automatically create new periods by clicking New periods.

7. Press CTRL+N to create a new period or click New period, on the Periods tab. In the From date and To date fields enter the first day and last day of a period interval. An updated period interval cannot be changed. This means that tax transactions cannot be removed from the original period interval. Errors are corrected with an offset transaction identical to the original transaction but with the opposite mathematical sign.

Page 141



For example, in the year 2006, Global Trade & Manufacturing Company settles its sales taxes every quarter. To create the first period enter January 1, 2006 in the From date field and March 31, 2006 in the To date field. To create the other quarters of the year, click New period three times.

CAUTION: The sum of period intervals must cover whole periods, so that no tax transactions fall outside the calculation periods. Period intervals may not overlap. When the sales tax settlement periods are set up, it is possible to inquire, report and pay sales tax for specific settlement periods.

Inquire about Sales Tax Settlement Periods In the Sales Tax Settlement Periods form, there are several methods to inquire on Sales tax transactions:

• View the sales tax payments for a specific sales tax authority by selecting a sales tax authority on the Overview tab and clicking Sales tax payments. Additionally, view sales tax payments for a specific period by selecting an interval on the Periods tab and clicking Interval sales tax settlements.

HINT: Click GENERAL LEDGER→REPORTS→EXTERNAL→SALES TAX PAYMENTS to print a report about all settled sales taxes.

• View posted sales tax transactions for a specific sales tax authority by selecting a sales tax authority on the Overview tab and clicking Posted sales tax. This provides an overview of each sales tax transaction, which is posted in Microsoft Dynamics AX 4.0 with a sales tax code. Alternatively, click Sales tax per interval to view posted sales tax transactions for a specific interval.

Use settlement periods to create and manage the periods the company uses to report sales tax.

Page 142



Lab 5.4 − Setup of Sales Tax Settlements Scenario: You are the controller for Global Trade & Manufacturing Company, and want the accounts payable coordinator to pay Global Trade & Manufacturing Company’s Michigan sales tax liability quarterly. The sales tax authorities expect settlement 14 days after the close of the quarter. The sales tax settlement period and deadlines are laid out in the following table. Settlement period Deadline for reporting January 1 – March 31 April 14 April 1 – June 30 July 14 July 01 – September 30 October 14 October 1 – December 31 January 14, the following year

Complete the setup for the MI sales tax settlement so that the accounts payable coordinator can generate tax payments automatically.

Challenge Yourself! Set up the required sales tax settlement for Michigan.

Need a Little Help?

1. Create the sales tax settlement period.

2. Attach the terms of payment to the settlement period.

3. Set up the period length.

4. Create the individual settlement periods.

Page 143



Sales Tax Codes The Sales tax code is a central part of the setup, it specifies:

• How taxes are calculated • The value that is used for tax calculation

The sales tax value is very important as no tax is calculated without it. A sales tax code includes information about the following:

• How the tax is calculated • How the tax is posted • How the tax is reported • When payments are made • To whom payments are made

The sales tax rate can be defined for:

• Various intervals and periods in Values • Limits on sales tax amounts can be defined in Limits

Create sales tax codes when initially setting up the system. Update the sales tax codes when changes to existing taxes are made or when new taxes are added. Because taxes frequently depend on geographic location, changes to the company's market can result in the need for new sales tax codes. NOTE: If a company operates in the United States, sales tax jurisdictions must also be set up, as well as sales tax codes, and attach sale tax jurisdictions to sales tax groups. Sales tax codes are attached to the sales tax group through the sales tax jurisdictions. For more information, see the Online help on how to set up sales tax jurisdictions for the United States.

Page 144



Procedure − Create a Sales Tax Code Follow these steps to create a sales tax code.

GENERAL LEDGER→SETUP→SALES TAX→SALES TAX CODES→OVERVIEW TAB

FIGURE 5−6: SALES TAX CODES FORM

1. Press CTRL+N to create a line for the new sales tax code.

2. Enter a unique identifier for the sales tax code, in the Sales tax code field. This is the basis for calculation of tax, purchase duty, and packing duty throughout Microsoft Dynamics AX 4.0.

3. Enter a meaningful name for the new sales tax code, in the Name field. This describes the function of the code and appears on reports, and throughout the Microsoft Dynamics AX 4.0 system.

NOTE: If a company operates in the United States, set up sales tax jurisdictions in the Sales tax jurisdiction list.

4. Select the period and the sales tax authority used to calculate the sales tax code, in the Settlement period list.

5. Select ledger posting group for a sales tax code, in the Ledger posting group list. The posting group contains information about which accounts should be used when the sales tax amounts are automatically posted in the General Ledger. The posting groups are created in the Ledger posting groups form.

Page 145



6. Select from the following options, in the Origin list:

– Percentage of net amount − Percentage of purchase or sale, excluding any other taxes.

– Percentage of gross amount − Percentage of purchase or sale. This includes any other taxes. Sales tax is calculated as a percentage of the purchase or sale amount. This includes all other taxes or duties.

– Percentage of sales tax − Percentage of another tax. This tax must be indicated in Sales tax and is based on this other sales tax. On the Calculation tab, set up the specific sales tax code the current sales tax code is based on in the Sales on sales tax field.

CAUTION: If the Sales on sales tax field is blank, this indicates the amounts include all other taxes.

– Amount per unit − Indicate the unit with a Unit. If the transaction is in another unit, it is converted automatically based on Unit conversion in Inventory.

On the Calculation tab in the Unit list, select the unit used when taxes are calculated. If the transaction is expressed in another unit, it is converted automatically, according to the Unit conversion. Calculate percentage of net amount. NOTE: If the basis for tax is the number of units, this field is mandatory.

7. Enter the Percentage/Amount in the Values form. Click Values to set up the sales tax rate. Also refer to the procedure on how to create sales tax codes intervals.

8. Select the currency in which tax is to be calculated, in the Sales tax code form on the General tab in the Currency list. If the original transaction is in another currency, the tax is converted automatically.

NOTE: Also set up a Purchase duty on a sales tax code by selecting the Purchase duty check box. The purchase duty is typically used if, for example, a European company imports goods from a non-European company. Set up the Purchase duty in the GENERAL LEDGER→SETUP→POSTING→PURCHASE DUTY form.

9. Select if a code or the sales tax rate should be printed with the sales tax specifications in invoice documents, in the Print code list.

10. Define an identifier that specifies the sales tax code on printed invoices in the Print code field, if Print code is selected in the Print list. The sales tax code identifier is an alphanumeric string that may include special characters.

Page 146



11. Enter the lowest absolute value of a calculated tax, on the Calculation tab in the Round-off field. If taxes should be rounded off to a unit that is 1/100 of the currency of the tax, enter the value as a decimal (0.01). Rounding form indicates the type of rounding that should be used. Refer to the following table for rounding on the amount $98,765.435 with different rounding values set up.

Round-off = 0.01 Round-off = 0.10 Round-off = 1.00 Round-off = 100.00 98,765.43 98,765.40 98,765.00 98,800.00

NOTE: There is no requirement that the value be less than 1. If the value should be rounded to the nearest 10, enter 10.00 in the field.

12. Insert these numbers to make reporting easier, on the Report setup and Report setup - credit note tab pages. Often the tax authorities have special forms with numbered cells for reporting of taxes. For example in the Taxable sales list, select the number of the field in the tax report that contains, for example, taxable sales. There is a series of forms with numbered cells for reporting to various authorities. The sales tax code is included in these reports in the cell indicated in this field.

NOTE: Click GENERAL LEDGER→REPORTS→BASE DATA→SALES TAX CODES to print a report listing all the sales tax codes. NOTE: In the Parameters form, select the Calculation date type to determine on what date that sales tax is calculated. In the Method of calculation list, also select if the sales tax should be calculated per line or on the total amount.

Page 147



Lab 5.5 − Calculation Methods for Sales Tax Codes Scenario: You are the accounting manager of Global Trade & Manufacturing Company. Global Trade & Manufacturing Company 's customer base includes many international customers. To increase the understanding of sales tax, you are reviewing the calculation of sales tax using various options available in Microsoft Dynamics AX 4.0. The following table is developed based on your review of setups in Global Trade & Manufacturing Company. Setup 1 – Use percentage

of amount Setup 2 – Use percentage of sales tax

Rate

Duty 1 Percentage of net amount Percentage of net amount

10%

Duty 2 Percentage of net amount Percentage of sales tax (Duty 1 in the sales tax on sales tax list)

20%

Sales tax calculation

Percentage of gross amount Percentage of gross amount

25%

Apply the information in the table above to determine the effect of each setup on an invoice for $10.

Challenge Yourself! Complete the following table with the information provided. Setup 1 Setup 2 Rate Formula Calculation Formula Calculation Duty 1 10% Duty 2 20% Gross Amount


25%

Duty + Sales Tax

Total Sale

Page 148



Need a Little Help? Complete the table, some information has been provided. Setup 1 Setup 2 Rat

e Formula Calculati

on Formula Calculation

Duty 1 10%

$10 * 10% $1.00 $10 * 10% $1.00

Duty 2 20%

$10 * 20% $2.00 ($10+1)*20% $2.20

Gross Amount


25%

Duty + Sales Tax

Total Sale

Page 149



Sales Tax Codes Intervals Use Microsoft Dynamics AX 4.0 to specify:

• What sales tax rates to use in different intervals. • A lower and upper amount limit for sales tax calculations.

Sales taxes lower than the minimum limit amount are dropped and sales taxes over the upper limit amount are set to the upper limit amount. The limits can be attached to specific dates. Limits are defined by the sales tax code. Changes to minimum and upper limits do not affect sales tax that is already updated and posted.

Procedure − Create Sales Tax Codes Intervals Follow these steps to set up a minimum and upper limit: GENERAL LEDGER→SETUP→SALES TAX→SALES TAX CODES→LIMITS OR GENERAL LEDGER→SETUP→SALES TAX→SALES TAX CODES→VALUES

FIGURE 5−7: SALES TAX VALUE FORM

1. Enter the first date the tax limits apply, in the From date field. If left blank, the limit applies forward from the date indicated in the To date field.

NOTE: The previous limits can be seen, because they are not overwritten when changes are made.

2. Enter the last date the tax limits apply, in the To date field. If left blank, the limit applies forward from the date indicated in the From date field. With From date and To date, indicate a period the calculated tax applies to. The posting date determines when the tax falls outside the given period.

Page 150



If changes are made to the limits, close the old period to indicate an ending date in To date and creating a period with a new starting date in From date. Extend the old period by changing the date in the To date field. Change the limits taking effect at a later date.

3. Enter the lower sales tax limit, in the Minimum sales tax field. If the tax is lower than this minimum amount, it is reduced to zero. The amount in this field should be the same currency as the currency specified in the sales tax code.

4. Enter the upper sales tax limit, in the Maximum sales tax field. If the tax is more than the amount indicated, it is adjusted to match this amount. The amount in this field should be the same currency as the currency specified in the sales tax code.

NOTE: In the Values form, specify a sales tax rate for the different intervals. In the Value field, define the tax percentage, or amount per unit. If the basis for the calculation of tax is an amount, value is indicated as a percentage of that amount. If the basis is several units, such as Purchase duty or Packing duty, value is indicated in amount per unit. Define units using Unit.

5. In the Sales tax code form on the Calculation tab, specify the origin for the sales tax limits in the Marginal base list.

– Net amount per line − Value of the line, excluding any other taxes.

– Net amount per unit − Value of the unit, excluding any other taxes. This can involve the unit price specified by using a Unit.

– Net amount of invoice balance − The total value for the invoice, excluding any other taxes.

– Gross amount per line − Value of the line. This includes any other taxes. Only one tax code with this or the next property may be included in the individual calculation.

– Gross amount per unit − Value of the unit. This includes any other taxes. Only one tax code with this or the previous property may be included in the individual calculation.

– Invoice total incl. other sales tax amounts − The total value for the invoice. This includes any other taxes. Only one tax code with this property may be included in the individual calculation.

Page 151



6. Specify the origin for the sales tax limits in the Method of calculation, in the Sales tax code form on the Calculation tab, select from the following options:

– Whole amount − The sales tax is calculated for the whole amount, determined by the tax rate for the interval that includes the transaction.

– Interval − The base is divided into intervals. The part within a given interval is calculated based on the tax rate for that interval.

NOTE: Click INQUIRIES→INCLUDED in sales tax groups or item sales tax groups to view or attach sales tax codes to Sales tax groups or Item sales tax groups. Click INQUIRIES→POSTED sales tax to display posted sales tax transactions for a sales tax code, and an itemization of each tax. This is used for inquiries and error detection. In the Sales tax transactions form, click Voucher to view related ledger transactions.

Page 152



Lab 5.6 − Set Up Sales Tax Codes Intervals Scenario: You are the controller for Global Trade & Manufacturing Company. A notification is received from the State of Florida that as of 07/01/2006, there will be a tiered tax on lamp sales. The notice specifies the following rates.

Minimum limit Maximum limit Tax rate 0.00 50.00 10% 50.01 100.00 9% 100.01 0.00 8%

Challenge Yourself!

• Use sales tax code intervals to structure the LA_FLST tax rate in Microsoft Dynamics AX 4.0 for the new rates.

• Microsoft Dynamics AX 4.0 will require an 'ending' date for the tax. Plan to enter an artificial date of 12/31/2020.

Need a Little Help?

1. Before adding a new line to the Values form, dates must be entered on the existing line, suggested dates are 01/01/2001 − 06/30/2006.

2. Add three lines to the Values form, all of them will have the same date range assigned.

Page 153



Sales Tax Groups A sales tax group includes all sales tax codes applicable when trading goods or services with customers and vendors. In most countries different tax rules apply when trading with domestic and foreign customers. The tax rules for foreign trade are frequently split up based on bilateral and multilateral trade agreements. Therefore, it is necessary to create tax groups depending on the taxes that may apply for a certain group of customers or vendors. The different types of customers and vendors are a good starting point when setting up Sales tax groups. If a company has the need for the following tax codes:

• VAT (only applies for domestic customers) • Export Tax (only applies for foreign customers) • Environmental duty (applies to all customers)

In a table they appear as follows: Domestic

customers Foreign customers

VAT Yes No Export Tax No Yes Environmental Duty

Yes Yes

FIGURE 5−8: SALES TAX GROUPS The two groups of customers (domestic and foreign) are not identical when it comes to taxes. Therefore, it is necessary to create two different sales tax groups that reflect the differences. When the sales tax groups are created, attach the sales tax group to:

• Customers • Vendors • Ledger accounts

Page 154



Procedure − Create a Sales Tax Group Follow these steps to create a sales tax group. GENERAL LEDGER→SETUP→SALES TAX→SALES TAX GROUPS→SETUP TAB

FIGURE 5−9: SALES TAX GROUP FORM Because taxes are determined by the geographic location of the customer or the supplier, it helps to group trading partners in the sales tax groups. The sales tax group is associated with the correct sales tax codes. The sales tax group is then associated with a customer specified in the Customers form.

1. Enter a unique name for the sales tax group, in the Sales tax group field, and a name that identifies the sales tax group in the Description field.

2. Select Sales tax code, in the Sales tax group setup list. If the company is located in a country with sales tax jurisdiction then select the Sales tax jurisdictions value.

NOTE: If the Sales tax jurisdictions value is selected in the Sales tax group setup list a new tab appears called Jurisdictions setup.

3. Select the rounding criteria for the sales tax group, in the Rounding by list.

4. Enter a form of identification to identify a sales tax group based on specific criteria, such as country, state or county, in the Country/State and − County/Purpose fields. This provides another method to identify the group.

5. Select the Reverse sales tax on cash discount check box to reverse sales tax on a cash discount, on the Setup tab. Whether to do this or not varies from state to state in the U.S. That is why this must be set up on the sales tax group. When creating a sales tax group, the selection in the Reverse sales tax on cash discount field in Parameters is defaulted to the field.

Page 155



6. Select one or more Sales tax codes to use with the Sales tax group, on the Setup tab. The fields on the Setup tab are automatically filled in with values from the Sales tax codes form.

NOTE: Select the Use-tax check box to indicate whether the company is responsible for calculating and paying use-tax on the purchase. This is U.S. specific functionality. If not, the tax is calculated and paid by the vendor. If the vendor did not charge tax, it is credited to the account shown in Use-tax payable in Ledger posting groups. How the tax is debited depends on how the Use sales tax module for the U.S. tax system in Parameters is configured. If selected, the tax is posted to the same account as the expense. If the tax is posted to the account specified in Use-tax expense in Ledger posting groups there are no deductions for taxes on purchases, and the tax is posted together with the expense. The value is filled in from the Use-tax field in Sales tax groups, but can be changed.

7. Attach a sales tax group to a customer or vendor on the Setup tab of the Customers or Vendors form. This is the default sales tax group for transactions involving the customer. As with all defaults, the sales tax group can be changed on individual transactions, if it is necessary. Additionally, attach a default sales tax group to each ledger account for purchases or sales excluding a customer or vendor are posted, for example, the ledger account for office equipment.

The default sales tax group appears automatically on transactions for the customer or vendor; however, the sales tax group can be changed on individual transactions before transactions are posted. NOTE: Indicate if the amounts entered in journals include sales tax or do not include sales tax. For example, if The total invoice amount is EUR 110.00, is entered in the appropriate Debit or Credit field in a journal. This amount includes the sales tax. Microsoft Dynamics AX 4.0 uses this information to calculate the net amount and sales tax amount. In this example, the net amount is EUR 100.00 (110.00/1.10), and the sales tax amount is EUR 10. Specify this information by selecting the Amount incl. Sales tax check box: In the General ledger parameters form on the Sales tax tab. In the Journal Names form on the General tab.

Page 156



Item Sales Tax Groups Because taxes are generally determined by items, it is necessary to indicate how taxes are calculated for each item. The Item sales tax group includes all the sales tax codes that apply when that item is sold. It may also include most of the sales tax codes in the system. When the Item sales tax groups are created, attach the group to Items. NOTE: This information is stored in Item sales tax group. The association between sales tax codes and the item sales tax group is stored in Item sales tax group setup.

Procedure − Create Item Sales Tax Groups Follow these steps to create item sales tax groups. GENERAL LEDGER→SETUP→SALES TAX→ITEM SALES TAX GROUPS

FIGURE 5−10: ITEM SALES TAX GROUP FORM

1. Enter a unique name for the item sales tax group, in the Item sales tax group, on the Overview tab, and a description in the Description field, that appears on reports and in other areas throughout Microsoft Dynamics AX 4.0.

2. Select the sales tax code for an item sales tax group, on the Setup tab. For a sales tax code to be valid, it must be specified for the sales tax group, and the item sales tax group. The sales tax codes calculated are determined upon posting.

Page 157



Procedure − Set Up Default Item Sales Tax Groups for an Item To make sure sales tax is calculated on all transactions for a specific item, set up a default item sales tax group for an item, by using these steps:

1 Click INVENTORY MANAGEMENT→ITEMS.

2 Select an item, on the Overview tab.

3 Select a value in the Item sales tax group lookup field, on the References tab, in the Purchase order section. This value is the default item sales tax group for the selected item when it is entered on a line in a purchase order.

4 Select a value in the Item sales tax group lookup field, in the Sales order section. This value is the default item sales tax group for the selected item when it is entered on a line in a sales purchase.

Procedure − Set Up a Default Item Sales Tax Group for a Ledger Account To make sure sales tax is calculated on all journal transactions that are posted to ledger accounts:

• Set up a default item sales tax group for all ledger accounts. • Set up default item sales tax groups for particular ledger accounts, if

it is necessary. Any default item sales tax group that appears automatically on a journal line can be changed as appropriate before the transaction is posted. NOTE: In sales journals, purchase journals, and other journals where an item number is entered, the item sales tax group attached to the item is automatically entered on the journal lines. To select a default item sales tax group for all ledger accounts:

1 Click GENERAL LEDGER→SETUP→PARAMETERS.

2 Select the default item sales tax group in the Item sales tax group list, on the Sales tax tab.

The item sales tax group in this field is entered automatically on journal lines as they are created, unless a specific item sales tax group is attached to the ledger account that is entered in the line.

Page 158



To set up a default item sales tax group for a particular ledger account:

1 Click GENERAL LEDGER→CHART OF ACCOUNTS, and select the ledger account.

2 Select the default item sales tax group in the Item sales tax group list, on the Setup tab.

Page 159



Lab 5.7 − Comprehensive Set Up of Sales Tax Scenario: You are the controller for Global Trade & Manufacturing Company. Global Trade & Manufacturing Company is doing business with a new vendor, The Delta Group, located in Tennessee where business has not previously been conducted. The accounts payable coordinator receives an invoice for $50,000 from Delta, and comes to you for help because the necessary setups are not in Microsoft Dynamics AX 4.0. You determine to do the following:

• Set up a vendor for The Delta Group. • Set up a vendor for The Tennessee Department of Revenue. • Set up two accounts in the Chart of Accounts for the Tennessee and

Memphis state and city sales tax payable (accounts 221050 and 221060).

• Set up ledger posting groups. • Set up a sales tax authority. • Set up sales tax settlement periods. • Set up sales tax codes. • Set up sales tax code intervals. • Set up sales tax groups. • Set up item sales tax groups.

The vendor's information is in the following table.

Field Value Name The Delta Group Street name 1437 Poplar Avenue City Memphis State TN ZIP Code/Postal Code

38106

Group Domestic vendors Currency USD Terms of payment M30-Current month plus 30 days

Page 160



The information for Tennessee is:

Field Value Name The Tenneessee Department of Revenue Search name TN tax Group Domestic vendors Terms of payment M15-Current month plus 15 days Method of payment USD_Check

The sales tax authority is set up using the U.S. Report layout. Plan to round taxes in a typical manner to the nearest penny. Any gain or loss from rounding will be posted to account 618160. Enter a sales tax settlement period (TN) to use for each code. The term of payment is fifteen days. The settlement period is an interval of one month. Set up three new periods starting with the beginning of the current month. Plan to set up two sales tax codes, one for each authority, using the codes ALL_MPHCITY and ALL_TNST. Use the standard ledger posting group for each tax code. The tax breakdown for city and state taxes is as follows:

• City of Memphis: 3%; only have to pay a maximum of $1000 in sales tax

• State of Tennessee: 2%. Add the two new sales tax codes to the ALL item tax group.

Challenge Yourself!

• After completing the sales tax setup, record the invoice in an accounts payable journal.

• Review the tax calculation in the journal.

Need a Little Help? For a visual representation of the process of setting up sales tax, refer to Figure 5−1.

Page 161



Lab 5.8 − Including Sales Tax in Journal Amounts Scenario: You are the controller for Global Trade & Manufacturing Company, and want to include sales taxes in journal amounts to make it easier to create journal entries. For example, suppose the sales tax is 10% and the total invoice amount is USD 110.00. If it is specified that the journal amount includes sales tax the net amount is USD 100.00 (110.00/1.10), and the sales tax amount is USD 10.

Challenge Yourself! Identify the two forms that can specify if the journal amounts include sales tax.

Need a Little Help? Check the General ledger parameters and the Journal names form.

Page 162



Sales Tax Transactions

Procedure − Run a Sales Tax Payment Report Run the sales tax payments report to calculate the sales tax that is due for a given period. GENERAL LEDGER→PERIODIC→SALES TAX PAYMENT→SALES TAX PAYMENT

FIGURE 5−11: SALES TAX PAYMENT FORM

1. In the Settlement period list, select the settlement period the sales tax payment is being calculated for.

2. In the From date field, specify the first day of the sales tax settlement period to be calculated. This corresponds to the date in the From date field on the Sales tax settlements period form.

3. In the Transactions date field, specify the date for which the sales tax report is calculated. The default value is the system date, but this date can be changed. For example, if entering the end date of the settlement period, the sales tax payment is calculated for all transactions that are posted in the settlement period.

4. Select the kind of transactions to include in the sale tax payment calculation:

– Original − Sales tax transactions of the first posted settlement calculation for the period interval.

– Corrections − Sales tax transactions not included in the first posted settlement calculation for the period interval. The report includes all subsequent payments that are posted for the settlement period.

–

Page 163



Latest corrections − Sales tax transactions included in the most recent settlement calculation made for the period. If selecting the Update check box and this option, the settlement calculation of the current job is the most recent settlement calculation.

– Total list − All sales tax transactions to be settled in the current period.

NOTE: This field is not available if selecting the Include corrections check box on the Sales tax tab of the General ledger parameters form. The settlement calculation only includes the sales tax that has not yet been paid to the sales tax authority. Several payments can be made for a single period. To post the settlement automatically, specify a number sequence for the Sales tax payment voucher on the Number sequences tab in the General ledger parameters form. If a vendor account is created for the sales tax authority on the settlement period, a vendor transaction is created automatically when selecting the Update check box and then clicking OK. If no vendor account is specified, an employee must manually create a payment to the sales tax authority to pay the sales tax owed for the settlement period. HINT: To report the sales tax payment correctly to the sales tax authority, select the correct report format in the Report Layout list on the Sales Tax Authority form. Run the Sales tax payment report without posting to check the status of the outstanding sales taxes. Run the report without selecting Update. HINT: Click GENERAL LEDGER→REPORTS→TRANSACTIONS→PERIODIC→SALES TAX LIST to print a report about sales tax postings not yet updated.

Procedure − Revise the Sales Tax Amount on a Transaction Before Posting In Microsoft Dynamics AX 4.0, most of the sales tax posting and calculation is handled automatically. However, occasionally a company may receive several invoices where the sales tax amount differs from what Microsoft Dynamics AX 4.0 calculates automatically. To make the sales tax amounts match the invoices it may be necessary to change the sales tax amount on a transaction before posting. Follow these steps to change the calculated sales taxes in a journal line, purchase order line, or sales order line:

1. Select the transaction line which needs the sales tax to be revised.

2. Click Sales tax to open the Temporary sales tax transactions form.

Page 164



NOTE: If working on purchase order or sales order lines, it is necessary to first click Setup, and then click Sales tax to open the Temporary Sales tax transaction form.

3. Select one of the three types of revisions:

– Enter a correction of the sales tax amount in the Adjusted amount field, for a selected sales tax code line, on the Adjustment tab. This amount appears in the Adjusted amount in total field at the top of the form.

– Enter an adjustment amount in the Adjusted amount in total field, if the transaction has several sales tax code lines. This amount is then distributed among the sales tax code lines that are shown in the Temporary sales tax transactions form.

– Enter adjustments to the use tax amount in the Adjusted sales tax charge field, if the sales tax code line pertains to use taxes, on the Adjustment tab. View the original use tax for the sales tax code line in the Sales tax charge field.

4. Click Apply to close the form and to save the changes, or click

Reset to cancel changes.

5. Press ESC to close the Temporary sales tax transactions form and return to the journal lines or order lines.

Procedure − Post Sales Tax on Prepayments A tax authority can require a company to record sales taxes on prepayments from customers, although a sale is not made. Follow these steps to set up sales tax on prepayments:

1. Click ACCOUNTS RECEIVABLE→SETUP→PARAMETERS.

2. Select the Sales tax on prepayments check box, on the Ledger and sales tax tab. Sales tax is calculated and posted whenever a prepayment is posted.

3. Select a posting profile, in the Posting profile with prepayments list that defines the ledger account where the sales tax transactions on prepayments are posted temporarily.

NOTE: Create a posting profile for this purpose in ACCOUNTS RECEIVABLE→SETUP→ POSTING PROFILES, in the Posting profiles form and specify the appropriate ledger account on the Setup tab in the Sales tax prepayments list.

4. Select the Prepayment check box on the Payment tab, when posting a prepayment through a journal. If this step is omitted, the sales tax is not posted correctly.

Page 165



When a sales invoice is created and the prepayment is settled, an automatic transaction on the sales tax prepayments account offsets the first temporary sales tax transaction.

Procedure − Create Transactions with Conditional Sales Tax Sales taxes are generally reported in the period where the invoice is created. When using conditional sales tax, only report the sales tax and base amount to the sales tax authorities when the invoice is paid. If the invoice is not settled 100% with a single payment, the sales taxes are reported proportionally to the actual amount paid on the invoice. EXAMPLE: On June 10 the Global Trade & Manufacturing Company creates an invoice of EUR 10,000 plus EUR 2,500 in sales tax. On July 10 the company reports taxes for June. The EUR 2,500 is not included in the sales tax payment because the invoice is not yet paid. On July 15 the customer pays half. This is EUR 5,000 plus EUR 1,250 in sales tax. On August 10 the company reports taxes for July. The EUR 1,250 is included in the sales tax payment because only part of the invoice is paid. When the rest of the invoice is paid, the rest of the sales tax is reported. In some countries, the sales tax authorities do not care if the whole invoice amount is paid, the tax should be reported for the full invoice amount. Conditional tax involves the following setup:

1. Create separate ledger account(s) for posting sales taxes for invoices awaiting settlement (Optional). This step is optional, because a choice exists to post the conditional tax on the same account as the ordinary sales tax. However, in many countries, it is a legal requirement to separate these postings.

2. Create separate ledger posting group for posting the conditional tax to the separate ledger accounts (Optional). If the conditional tax is posted to a separate ledger account, it is necessary to create a separate ledger posting group to control the postings.

3. Create two settlement periods; one for controlling conditional tax and one for reporting sales taxes to the authorities. A separate settlement period for the conditional tax has the following advantages:

– It prevents the conditional sales tax from being reported incorrectly.

– There is the opportunity to generate a report displaying conditional sales tax amounts not declared yet.

4. Create two sales tax codes; one for the conditional tax and one for the sales taxes that have to be reported.

Page 166



5. When the sales tax code is created for the conditional sales tax, select the General tab and in the Payment sales tax code list, select the sales tax code used for real sales taxes. Conditional sales tax is transferred to the sales tax code selected.

NOTE: The sales tax rate, set up in the Values form must be the same for both.

6. Set up sales tax groups and item sales tax groups.

7. Select the Conditional tax check box in the General ledger parameters form on the Sales tax tab. This parameter makes sure the sales tax amount is transferred from the ledger account for temporary posting of conditional taxes to the real sales tax account.

Sales Tax Import Recoding the import of sales tax is a situation that may require a document to be posted with the whole amount treated as sales tax. This is necessary when an invoice is received from the tax authorities for imported goods, and no base exists, and the tax amount is posted directly.

Scenario − Importing Sales Tax A European subsidiary of the Global Trade & Manufacturing Company purchased some goods from a vendor located in a non-EU country, and the vendor did not charge sales tax on the invoice. The customs office sends an invoice to claim tax, because the goods crossed the boarder and are declared at the customs.

Direct Posting of Sales Tax Import Direct posting of sales tax codes is the only situation where the sales tax code is manually entered in the invoice journal on the General tab. Follow these steps to make a direct posting of sales tax import.

1. Create a ledger account for sales tax import.

2. Create a sales tax code for import sales tax.

3. Create a ledger posting group for sales tax import and attach the ledger posting group to the import sales tax code.

4. Open an invoice journal by clicking ACCOUNTS PAYABLE→ JOURNALS→ INVOICES→ INVOICE JOURNALS→INVOICE JOURNAL LINES.

4. Select the import sales tax code, on the General tab in the Sales tax code list.

5. Enter the invoice amount and select the import sales ledger account in the Offset account, on the Overview tab.

Page 167



The invoice amount is also listed in the Sales tax amount field.

6. Click Post to post the journal. The sales tax amount is registered in the import sales tax ledger account.

Sales Tax Exemption Certain countries or regions, for example the European Union, require companies to record justification for sales tax exemption. If no sales tax is applied to trade documents, it is necessary to report why the sales order is sales tax exempted. To report sales tax exemption, it is necessary to associate a sales tax exempt description in trade documents. The sales tax exempt description is saved on sales tax transactions for history and reprinting. When posting sales orders in Microsoft Dynamics AX 4.0:

• The sales tax group and sales tax rate is recorded on the transaction. • The actual invoice groups the sales tax transactions according to

sales tax rates when the sales tax is not exempted. If the invoice has sales tax exemptions, it groups the transactions according to sales tax exempt descriptions.

Procedure − Create a Sales Tax Exempt Code Follow these steps to provide justification to sales tax exemption. GENERAL LEDGER→SETUP→SALES TAX→SALES TAX EXEMPT CODES

FIGURE 5−12: SALES TAX EXEMPT CODES FORM

1. Press CTRL+N to create a new sales tax exempt code and enter the Exempt code and the Description.

2. Open GENERAL LEDGER →SETUP→SALES TAX→SALES TAX GROUP, on the Setup tab, select the Exempt check box and select an exempt code in the Exempt code list. The description of the sales tax exemption is printed on the same line as the exempt code.

Page 168



3. Open GENERAL LEDGER→SETUP→SALES TAX→SALES TAX CODE, select the Sales tax code that was checked in step 2 of this process as exempt on the Sales tax groups form in the Setup tab.

4. Click Print code in the Print list, in the Sales tax code form on the General tab, to print the sales tax exemption description in trade documents. The print code and the sales tax rate are not printed on the sales tax specification line because several sales tax codes with different sales tax rates may be involved.

NOTE: It is also possible to print sales tax exempt rates on interest notes and collection letters. Select the Print sales tax exempt number on interest notes and collection letters check box in ACCOUNTS RECEIVABLE→SETUP→FORMS→FORM SETUP→ INTEREST NOTES/COLLECTION LETTER TABS.

NOTE: Tax exempt numbers can also be set up for customers and vendors in the Customers or Vendors form on the Setup tab.

Page 169



Lab 5.9 − EU 115 Sales Tax Directive Scenario: You are the controller of Global Manufacturing & Trading Company. Global Manufacturing & Trading Company has decided to specify sales tax exemptions on invoices for their European subsidiary. Before implementing the EU sales tax directive, test the setup using the California Sales tax groups.

Challenge Yourself! Set up sales tax to be printed on invoices. When sales tax is not applied to transactions, make sure the reason codes are printed for sales tax exemptions.

Need a Little Help? Use the tax information already set up for California sales tax codes.

Page 170



Withholding Sales Tax There are some countries where the buyer is legally responsible for payment of withholding tax. Withholding tax is on non-inventory deliveries, often services, delivered by a supplier who is not an employee of the company. The buyer is legally responsible for withholding a certain percentage of the invoice amount at the time of payment. The net amount (= invoice amount reduced by the withholding tax) is paid to the supplier. The tax withheld is posted to a ledger account for withholding tax, and periodically paid to the authorities. The buying company is legally responsible for submitting a report to the tax authorities and to the supplier. Withholding tax:

• Is a tax on vendors, which does not create sales tax transactions. • Calculated on vendor payments is a liability. Therefore, only balance

sheet accounts or liability accounts are valid accounts for posting withholding tax.

• Is reported in fixed reports.

Procedure − Set Up Withholding Tax in Administration and General Ledger Follow these steps to set up withholding tax in Administration and General ledger:

1. Click ADMINISTRATION→SETUP→SYSTEM→CONFIGURATION.

2. Expand the General ledger node and select the Withholding tax check box.

3. Click GENERAL LEDGER→SETUP→WITHHOLDING TAX→WITHHOLDING TAX CODES.

4. Create withholding tax codes with values and limits.

5. Click GENERAL LEDGER→SETUP→WITHHOLDING TAX→WITHHOLDING TAX GROUPS.

6. Create withholding tax groups and attach the relevant withholding tax codes on the Setup tab.

Page 171



Set Up Withholding Tax in Accounts Payable Because withholding tax applies only to vendor invoices, setup is completed in the Accounts payable section. Setting up withholding tax makes it more efficient to:

• Start the calculation of withholding tax when paying a vendor invoice.

• Keep basis data about the vendor for reporting purposes. • Allow for the journal to propose this setup by default when a

payment is entered into a journal for a vendor who is set up for withholding tax. However, it is possible to edit the calculated amounts, select a different withholding tax, or deactivate the withholding tax calculation for this particular payment.

1. Click ACCOUNTS PAYABLE→VENDORS.

2. Select the Calculate withholding tax check box and a withholding tax group to start the calculation when a payment is entered in a journal, on the Setup tab.

Procedure − Calculate and Post Withholding Tax Calculate and post withholding tax in the Payment journal form in the Accounts payable section, or in the General journal form in the General ledger section. The default withholding tax group of the vendor is displayed in the Withholding tax group list. Follow these steps to calculate and post withholding tax.

1. Click ACCOUNTS PAYABLE→JOURNALS→PAYMENTS→PAYMENT JOURNAL.

2. Create a new journal, and then click Lines.

3. Enter a payment date, and select the vendor account that is set up to calculate withholding tax.

4. Replace the default group with another group or delete it if no withholding tax should be calculated for the line. By default, the Withholding tax group list is filled in with the vendor's withholding tax group.

5. Click FUNCTIONS→SETTLEMENT and select the Mark check box on the open invoice or invoices to pay.

6. Verify the Infolog information about the calculated withholding tax.

7. Close the Infolog, and optionally click the Withholding tax tab for each selected line to edit or delete the calculated withholding tax, or create new lines and enter the information.

Page 172



8. Close the Settlements form. The payment amount on the journal line is reduced by the withholding tax amount.

9. Validate and post the payment journal.

NOTE: In the Payment journal lines form, all transactions are considered as payments and the withholding tax setup is always handled as described in the previous steps.

In the General journal lines form, withholding tax is automatically calculated when the following conditions are true:

• A vendor account set up to calculate withholding tax is selected on the journal line.

• There is no entry in the Invoice field on the journal line's Invoice tab.

Procedure − Withholding Sales Tax Reports and Inquiry Follow these steps to create Withholding sales tax reports and inquiry.

1 Click GENERAL LEDGER→REPORTS→TRANSACTIONS→WITHHOLDING SALES TAX TRANSACTIONS to view a report about posted transactions with sales tax that is withheld.

2 Click:

– GENERAL LEDGER→REPORTS→EXTERNAL→WITHHOLDING TAX − MONTHLY REPORT. The Monthly report is used to report withholding tax to tax authorities once a month.

– GENERAL LEDGER→REPORTS→EXTERNAL→WITHHOLDING TAX − YEARLY REPORT. The Yearly report is used to report withholding tax to tax authorities once a year.

– GENERAL LEDGER→REPORTS→EXTERNAL→WITHHOLDING TAX − CERTIFICATION REPORT. The Certification report is a letter sent to the supplier with the withholding tax data grouped by withholding tax source.

3 Click GENERAL LEDGER→INQUIRIES→TAX→POSTED WITHHOLDING TAX

to view withholding tax transactions with the possibility to view the ledger transactions for each withholding tax entry.

Page 173



Conclusion The requirements for tax calculation and tax reporting differ greatly for different countries. Therefore the tax module of a true international ERP system must be comprehensive. In Microsoft Dynamics AX 4.0, the tax module offers a variety of options for tax calculation, posting and reporting. Included are:

• Percentage calculation • Fixed tax amounts • Tax on tax • EU tax • Tax exemption • Packing duty • MulHINTle tax calculation • Flexible settlement periods • Country-specific tax reporting and additional options

For EU countries, special EU statistic reports such as Intrastat and EU sales list are available as well.

Page 174



Test Your Knowledge − Sales Tax Setup

1. Before creating ledger posting groups, an _________ must be created in the General ledger to link to ledger posting group.

2. Using Microsoft Dynamics AX 4.0, sales taxes can be paid in two ways. What are they?

3. What are sales tax settlement periods used to specify?

4. Sales tax code intervals are used for what purpose?

5. Microsoft Dynamics AX 4.0 has sales tax functionality that makes it a good choice for companies that need a global solution. Name two features.

Page 175



Quick Interaction: Lessons Learned Take a moment and write down three key points you have learned from this chapter: 1.

2.

3.

Page 176

dax finance - sales tax set up

Documents