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Adam29 asked a question on 11 Jul 2011 9:51 AM

Is it possible to calculate use tax on a sales order?  We can create a tax group with the use tax option checked on the tax code$s$ and use the tax group on a purchase order so that tax is accrued and not attributed to the vendor's ledger account.  I would like to do something similar on a sales order.  I want to calculate the sales tax on a sales order but I do not want to pass the calculated tax on to the customer.  I want the calculated sales tax to go into a separate ledger account and not to go to the customer's account.  Is it possible?

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Adam29 responded on 4 Apr 2013 3:59 PM

When giving away promotional items, the item is assigned a 100% discount so the customer is not charged.  However, the company that is giving the item away probably purchased it with a resellers exemption certificate and did not pay sales tax on it because they planned to have their customer pay tax when the item was sold.  However, now that the item is being given away for free, the company needs to self assess the tax on the item based on the cost price in order to remain compliant with US tax law.  

AX has a similar concept of use tax on purchases where your vendor has not charged you tax so instead you self assess your own use tax.  Instead of this tax amount going into vendor balance in the voucher transaction, a separate voucher transaction puts the use tax amount into a sales tax ledger account so that it can be paid out to the appropriate tax authority.  

The problem is if we configure a tax group for use tax and use it on a sales transaction, the use tax flag on the tax group+tax code combination is ignored and the tax is still attributed to the customers ledger account.  Has anyone else had this problem and if so how do you work around it?  

Does anyone think the ability to calculate use tax for promotional items on sales orders would be a good enhancement for Microsoft to add to AX?  

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Suggested Answer
Zvika Rimalt responded on 5 Apr 2013 4:00 PM

According to my colleagues here, who are accountants, if you give away product it is not considered as a sales, but as a promotional expense - hence you should not be remitting sales tax to the authorities for that action.

Also note that if the above analysis holds, the "debit" side of the inventory transaction accompanying this sales order should not go to "cost of goods sold" (as is the default configuration) but into "promotional expense" - you'll need to find a solution for this as well.

Obviously, this is just an unqualified opinion, and should not be used as substitute to talking with your controller/auditor :)

Zvika Rimalt * Dynamics AX Business Analyst/Functional Consultant * Vancouver, BC, Canada

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Adam29 responded on 5 Apr 2013 4:14 PM

Thanks for your reply, Zvika.  I believe you are correct in that tax should not be remitted for promotional items.  However, if the purchase of that item was originally tax exempt because it was purchased with the intention of reselling and now we are no longer going to resell it then the use of the reseller certificate was not valid and the tax for the original purchase should be paid.  Maybe a more appropriate workflow would be to settle this using one of the AP journals to accrue the use tax rather than trying to accrue use tax on a sale.  

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Verified Answer
Zvika Rimalt responded on 10 Apr 2013 12:45 PM

Thanks for the clarification.

I gave this some more thought, and discussed it with a couple of accountants.

I think your question is actually part of a broader business issue of repurposing inventory.

The issue can be phrased as the following scenario:

A company purchases products with the intention to sell (hence, recording it as inventory), and as such is exempt from paying sales tax.

Later on, some of that inventory gets repurposed: it can be given away to customers as a promotional expense (possibly using a sales order), given to employees as a gift or used in the business for operations (hence issued using an inventory transaction), in a way that now makes the product's purchase retroactively liable for sales tax.

What should the business do?

The legal requirement is for the business to self-assess the sales tax that should have been paid  to the vendor, and remit that amount directly to the tax authorities.

At least in Canada, this scenario falls under the terminology of "self assessed sales tax" and not "use tax".

The sales tax liability is related to the product's cost (how much was paid to procure it), and not to the theoretical sales price (how much would have been received from a customer, had the product been been sold).

A business handling products in a sales tax environment, needs to accomodate all the different scenarios where self assessed tax liability need to be recorded

.Since there are multiple scenarios, not just through the use of a sales order, it might better to manage it through a more generic process, and not by trying to code the tax in the sales order.

The company will need to find a way to track ALL transactions that led to ST liability (maybe using a financial dimension?)

Then, on a periodic bases, manual sales tax adjustment can be posted (general journal, where a sales tax code is selected on the credit side).

Zvika Rimalt * Dynamics AX Business Analyst/Functional Consultant * Vancouver, BC, Canada

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Adam29 responded on 10 Apr 2013 1:25 PM

Thanks again Zvika.  This is helpful.

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Shrikant Patil responded on 17 Jan 2014 1:25 AM

Hello all,

i have similar scenario in India. We prepare export sales invoice under Rebate Claim option. In this the taxes should not be posted to Customer account instead it should be posted to a dedicated ledger which is already defined in COA. is it possible that USE TAX can be used in sales order and invoice in this case.

please advice.... i am stuck

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Verified Answer
Zvika Rimalt responded on 10 Apr 2013 12:45 PM

Thanks for the clarification.

I gave this some more thought, and discussed it with a couple of accountants.

I think your question is actually part of a broader business issue of repurposing inventory.

The issue can be phrased as the following scenario:

A company purchases products with the intention to sell (hence, recording it as inventory), and as such is exempt from paying sales tax.

Later on, some of that inventory gets repurposed: it can be given away to customers as a promotional expense (possibly using a sales order), given to employees as a gift or used in the business for operations (hence issued using an inventory transaction), in a way that now makes the product's purchase retroactively liable for sales tax.

What should the business do?

The legal requirement is for the business to self-assess the sales tax that should have been paid  to the vendor, and remit that amount directly to the tax authorities.

At least in Canada, this scenario falls under the terminology of "self assessed sales tax" and not "use tax".

The sales tax liability is related to the product's cost (how much was paid to procure it), and not to the theoretical sales price (how much would have been received from a customer, had the product been been sold).

A business handling products in a sales tax environment, needs to accomodate all the different scenarios where self assessed tax liability need to be recorded

.Since there are multiple scenarios, not just through the use of a sales order, it might better to manage it through a more generic process, and not by trying to code the tax in the sales order.

The company will need to find a way to track ALL transactions that led to ST liability (maybe using a financial dimension?)

Then, on a periodic bases, manual sales tax adjustment can be posted (general journal, where a sales tax code is selected on the credit side).

Zvika Rimalt * Dynamics AX Business Analyst/Functional Consultant * Vancouver, BC, Canada

Reply
Suggested Answer
Zvika Rimalt responded on 5 Apr 2013 4:00 PM

According to my colleagues here, who are accountants, if you give away product it is not considered as a sales, but as a promotional expense - hence you should not be remitting sales tax to the authorities for that action.

Also note that if the above analysis holds, the "debit" side of the inventory transaction accompanying this sales order should not go to "cost of goods sold" (as is the default configuration) but into "promotional expense" - you'll need to find a solution for this as well.

Obviously, this is just an unqualified opinion, and should not be used as substitute to talking with your controller/auditor :)

Zvika Rimalt * Dynamics AX Business Analyst/Functional Consultant * Vancouver, BC, Canada

Reply