Use Tax Part 1: Vendor Assessed Taxes Method 1

Disclaimer: This is suggestions and best use of how one might document sales tax imposed and/or accrue use tax. This is not legal or financial advice. If you are legally obligated to collect/remit use tax and when you are obligated to do so you should consult with your city/county/parish or a SALT expert.

There’s two ways one could handle vendor assessed taxes. This is where a vendor has charged you $100 for the goods/services and then $10 for sales tax. You will owe the vendor $110 and the assumption is the applied tax is correct.

Without the Use Tax Module

This method doesn’t use the Use Tax Module in BC at all.

Pro: Easy, no setups, amount is exactly what vendor charged you, works to find in the event of an audit

Con: 210N30 discounts will always come off tax and not just the item, items can be a bit more tricky, sales tax subledger not involved so would need to find for audit in a different manner.

1)      In Business Central on a purchase document (order or Invoice)

2) Under Invoice Details, Tax Liable = FALSE; Tax Area Code can be set to anything

3)      Add the Item or G/L Account line like normal; and the expense pre-tax. The Tax Group Code will be required to complete but without Tax Liable on it won’t be doing anything.

4)      If this an G/L Account, such as a laptop purchase; add the laptop on line one, then against the same expense account on a 2nd line add the same GL account and a line for Tax. Best practices is a description of “Sales Tax ….” So that you can easily locate this tax.  Add the amount of tax the vendor actually charged you.

a.      Do not worry about Use Tax or Tax Liable on the line items

5)      If this is an Item, add the item lines as normal with the Direct Unit Cost being the unit cost of the item(s).  Do not worry about Use Tax or Tax Liable on the line items. They should not be checked.

a.      Add a line and use Type: Charge (Item)

b.      No. = TAX

c.      Direct Unit Cost = the amount of sales tax the vendor charged you

d.      The amount in Total Incl. Tax so be the amount on the invoice you owe the vendor

e.      Under Line select Item Charge Assignment

f.      In the new pop up select Suggest Item Charge Assignment

g.      It will ask how you want to split it, by amount, by weight or by volume. Then select OK.   By Weight only works if you have weights on Item cards; otherwise, by amount or volume is your best bet.

h.      Close

i.      With this the invoice total is what’s due to the vendor in AP, the tax is allocated to the Inventory item – which expense with the inventory item when its sold. You should also be able to see the tax on the inventory valuation but also see the cost of the item without the tax.  

6)      Once the invoice is ready and Total Incl. Tax = the vendors invoice Release/Post like normal.