How is tax applied to items?

When you create a purchase order, the items are taxed according to the tax status and the tax code associated with each item. The tax status indicates whether the item is taxable. The tax code indicates the tax rate and the type of tax. You can apply a tax code after you determine that the item is taxable.

You can enter tax defaults, including tax status and tax code, for each inventory and non-stock item in four places: item master file, item location file, purchase order header, and the purchase order line.

You define the tax status and code using the Tax option on the purchase order header. Tax amounts print on the purchase order.

When you enter tax information at the header level, the tax is applied to any line on the purchase order that does not have a tax status and tax code already associated with it; in other words, the tax default will only override items with a blank tax code on the item master or item location files. For each line of the purchase order, you have the option to enter an individual tax status and tax code.

Each item must have a tax status and tax code associated with it before you can release the purchase order. If the tax status and tax code do not default from the item master or item location file, you must enter this information on the purchase order.

Tax codes are set up in the Tax application. You must set up tax codes prior to using them in the Purchase Order application. For more information on setting up tax codes, see the Tax User Guide.