I want to show you how you can use Use Tax in Dynamics 365 Business Central
. There’s some key setup things you must do and then in the transactions we’ll take a look at that and finally the reporting. The reporting is important to make sure you get the information that you need for compliance. So let’s get started.
One of the key setups is tax areas. this is where you identify which jurisdiction you’re in and more importantly, which tax details are included in that jurisdiction for example, if I click on Beverly Hills here, I have a number of tax details that roll up. To make the proper taxation for Use Tax in Beverly Hills you can see those here I’ve got a city tax state of California tax Los Angeles County and a special district tax you’ll want to set a tax area up for every area that you collect and remit tax to.
Once you’ve identified the areas you’ll set up tax details which specify whether something will be taxed or not and at what rate it will be taxed, they’ll set up Tax Group codes to determine if something’s taxable or not taxable.
You can see here how I’ve set up the jurisdiction for Beverly Hills taxable items are going to be taxed at 0.75 percent and you can see the California state tax as well and I’ve got others down here. So again the tax details are rolled up into the tax area and Supply the proper calculation and Reporting for tax compliance.
I’m going to create a typical purchase invoice that involve use tax and typically use tax is going to be for a GL account item or a fixed asset item. The first one we’ll do here is a GL account I’ll look up the account repairs and maintenance. Let’s use that.
Use Tax Checkbox
Tax Area Code
This is pretty standard stuff. This is how I set up a purchase invoice to pay an amount to a vendor. Now what I want to do is I want to have the tax area code set up here I’m going to mark this as a use tax item and then I’m going to select the appropriate Tax Group code. In this case, it’s for supplies. I could have multiple lines on this some taxable others not taxable, but for clarity I have one line you’ll notice that tax is being identified by the tax code and the Tax Group but it’s not being calculated as part of the total invoice and that’s because I’m going to self-assess the use tax on this item.
We can look at the posting to see how this is going to happen if we look at the posting preview we can see a couple things we can look at the tax entry and we can see that’s going to create tax detail entries for the different details. I identified in the text area. You can see those here the taxes being calculated at those various rates but also let’s take a look at the general ledger because this is interesting.
What I’m going to be doing is I’m going to take the total amount of my taxes plus my purchase and apply it to the GL account that I specified on the line in this case repair is a maintenance expense the total amount here of the line plus the taxes and then the credit is to taxes payable. So at the end of a quarter or the end of a month or whenever I report taxes I’m going to reconcile the tax payable lines with a tax report. You can see here also that the only amount going to accounts payable is the amount of the invoice the amount of that line without the taxes.
Let’s look at another example this is a purchase invoice for a fixed asset you can see that I have it filled out already I’ve got the amounts I have the tax error code identified I’m also identifying this as a used Tax item I’m going to self-assess the use tax in this case because my vendor does not collect tax in my local area so again I’ve got the total amount of the fixed assets I have no taxes on the invoice because that is correct we can look at the posting preview here and see what’s going to happen at the general ledger.
The total amount of the purchase which includes the cost of the equipment and the self-assessed use tax is going to go to the equipment GL you can see the tax payable here and finally the accounts payable credits. So this is exactly what I want I would go
ahead and post these and I would be done with the transaction.
Finally let’s take a look at the reporting. Tthe reporting on this is pretty straightforward. We go to the sales tax collected screen here. I’m just going to look at the use tax. There’s different levels of detail we can look at let’s run the summary first put a date filter in here then I’ll run it. This is a summary level report for the period that identified you can see that here I’ve got taxable sales amount. The tax amount it’s identified in this report as sales tax but it’s actually used Tax and we’ll see that in the next report we look at which is going to be the detail report. So let’s look at the detail report, use the same setup, preview it. There’s a report here that says individual transactions for which use tabs was calculated and accrued and we can see the use tax marker right here for these transactions. It shows the sales tax amount and the fact that it’s used Tax if we scroll all the way down to the bottom we’ve got a total on this of two thousand three dollars. So what I would do is use this report on a regular basis to reconcile with my sales tax payable and complete my reporting to the government then when it came time to pay the tax I would write out a check for the various governments and debit taxes payable and then I’d be done.
The way I like to look at the setup is I start with the compliance requirements for my different areas in which I do business and I’m required to collect use tax and report on use tax to make sure that it’s set up to make it easy to comply with the requirements of my local government and then analyze a transaction processing to make sure that the transactions that I execute properly calculate and recognize use tax when I want it and finally I look at the setup in my experience in Business Central is that it’s relatively easy to set up it will take some maintenance as tax rates change but it’s pretty straightforward and easy to use.