M3 Sales Tax Concepts Related to Customer Invoices
This section describes the concepts and settings that are used when managing M3 sales tax for customer invoices.
State definition
The states defined in 'States per Country. Open' (CRS046) are used for sales tax calculation purposes. The state code specified in the 'State' field needs to be the official state code used by the tax authority. Each state is defined with a tax rule. There are three tax rule options: destination-based, origin-based, or mixed tax rule.
| Tax rule | Description |
|---|---|
| Destination-based | In states defined with a destination-based tax rule the sale is thought to take place in the jurisdiction where the product is ultimately used (where it’s shipped to or picked up from). In M3 Business Engine this is the location of the delivery address on a customer order or the location address on a service order or maintenance order. |
| Origin-based | In states defined with an origin-based tax rule the sale is considered to take place at the location where the sale is completed (the seller’s business location). In M3 Business Engine this is the location of the delivering warehouse, or division when no warehouse is available. |
| Mixed | In states defined with a mixed tax rule, each jurisdiction level can independently be defined with a tax rule based on origin or destination. |
Tax rule per jurisdiction level
In a state defined with a mixed tax rule, a tax rule is selected independently for each jurisdiction level. This is managed in 'Jurisdiction per State. Open' (CRS043), opened by using related option 11='Settings - Mixed state' in (CRS046).
Nexus
The term Nexus is used in tax law to describe a situation in which a business has a presence in a state and is thus subject to state income taxes and to sales taxes for sales within that state. Nexus is defined in 'Sales Tax Nexus. Open' (TXS060). Each nexus definition connects a nexus state with a delivering state and warehouse.
Drop box
A drop box is a storage container where goods are left by a supplier and picked up by a customer. The delivery is considered to take place at the location of the drop box. A drop box is defined in 'Ship-via Address. Open' (CRS300) by selecting the 'Drop box' parameter and specifying a 'Geographical code'. The geographical code is used when M3 sales tax is calculated based on the location of a drop box.
Tax point
The field 'Tax point' in 'Delivery Term. Open' (CRS065) indicates where the liability for a delivery is transferred from the supplying company to the customer or buyer. Where the customer assumes liability affects the location used for calculating M3 sales tax.
These are the available tax point alternatives:
- 1-'Goods leave inventory' - The buyer assumes liability when the goods leave the supplier's inventory. This is the scenario where the buyer collects the goods at the seller’s business location.
- 2-'Goods transport address' - The buyer assumes liability when the goods are received at the buyer's intermediate delivery address, referred to as the drop-box. This is the scenario where the ship-via address on the order is used to determine the location of the drop box.
- 3-'Goods final address' - The buyer assumes liability when the goods are received at the buyer's final delivery address