Describe tax capabilities
Sales tax groups
Sales tax groups consist of sales tax codes linked to both customers and vendors. Additionally, they are associated with ledger accounts for transactions that do not involve posting to a vendor or customer.
A sales tax group includes all sales tax codes that apply when you trade goods or services with customers and vendors.
In most countries or regions, different tax rules apply when you trade with domestic and foreign customers. The tax rules for foreign trade are frequently split up based on bilateral and multilateral trade agreements. Therefore, you need to create tax groups depending on the taxes that might apply for a certain group of customers or vendors.
Analyzing the various kinds of clients and suppliers that the firm deals with is a great place to start figuring out the kinds of sales tax groups needed and how to set up those sales tax groups.
Because the geographic location of the customer or the supplier determines taxes, you usually assign the same sales tax group to similar trading partners in the system. The correct tax codes the system uses are attached to this sales tax group.
Item sales tax groups
Because items generally determine taxes, you need to indicate how taxes are calculated for each item.
Item sales tax groups are groups of sales tax codes attached to resources like products.
The item sales tax group includes all the sales tax codes that apply when you sell that item. The item sales tax group also might include most of the sales tax codes in the system. When you create the item sales tax groups, you attach the group to items.
The sales taxes applicable to a specific transaction depend on the sales tax codes present in both the sales tax group and the item sales tax group associated with the transaction. Sales tax can be calculated only if a sales tax group and an item sales tax group are selected for each transaction for which sales tax must be calculated or recorded. Sales tax codes are listed on the Item sales tax group page.
Note
Every transaction for which you need to calculate and post sales tax must have a sales tax group and an item sales tax group.
Sales tax groups are related to the party (for example, customer or vendor) of the transaction, whereas item sales tax groups are related to the resource (for example, item or procurement category) of the transaction. Tax groups contain a list of tax codes. The tax codes that are present in both the sales tax group and item sales tax group for a transaction are the tax codes that apply to that transaction.
Sales tax reporting codes
Sales tax reporting codes refer to a field number on a sales tax report. They're used on country-specific or region-specific report layouts and the Sales tax payment by code report to print sales tax amounts for a settlement period that is summarized for each reporting code.
You must report and pay sales tax to tax authorities at regulated intervals (monthly, quarterly, etc.). Finance provides functionality that lets you settle tax accounts for the interval and offset the balances to the tax settlement account, as specified in the ledger posting groups. You can access this functionality on the Settle and post sales tax page. Be sure to indicate the period for which sales tax needs to be settled.
After you create Sales tax reporting codes, you can refer to them on the Report setup FastTab in the Sales tax code page.
You can use this layout to filter the available reporting codes for a sales tax code. Each sales tax code belongs to a settlement period that belongs to a sales tax authority that uses a report layout.
After you pay the sales tax, you should balance the sales tax settlement account against the bank account.
If the sales tax authority specified on the sales tax settlement period is related to a vendor account, the sales tax balance is posted as an open vendor invoice. It can be included in the regular payment proposal.
The following is a sample of the Sales tax code report for Contoso Entertainment System.
You can take what you learned in this unit and expand it by learning about cost accounting concepts.
The following video explains the sales tax configuration for a financial transaction.
This sales tax configuration is applicable for the transactions in Dynamics 365 Supply Chain Management and Dynamics 365 Commerce also.