Define and Manage AvaTax Sales Tax

This document describes how to define and manage sales tax in M3 BE when third-party system AvaTax is used to calculate sales tax on customer invoices. With this solution, the reporting and reconciliation of sales tax is performed in AvaTax.

AvaTax is used to calculate sales tax when customer invoicing is performed in M3. The required data from M3 is transferred to the AvaTax application, where the sales tax is calculated and returned to M3. The total tax amount is accounted in M3 and if the 'Update tax details' check box has been selected in 'Settings – Sales Tax' (CRS793), detailed tax information can also be reviewed in 'CO Invoice. Display Transactions' (OIS354) or 'MCO Invoice. Display Transactions' (COS354). All reporting and reconciliation of sales tax is performed in AvaTax.

This configuration is required to enable the functionality:

Division settings

Specify the tax method of the division on 'Company. Connect Division' (MNS100/G). Select alternative 3, 4, or 5 for parameter 'Tax method' based on these rules:
  • 3-Sales tax interface: Use to calculate AvaTax sales tax on customer invoices. No tax is calculated on supplier invoices.
  • 4-Purchase VAT/Sales tax interface: Use to calculate AvaTax sales tax on customer invoices and VAT/GST on supplier invoices.
  • 5-Purchase M3 Sales Tax/Sales tax interface: Use to calculate AvaTax sales tax on customer invoices and M3 Sales tax on supplier invoices.

Integration Settings - Tax Interface

Specify these integration settings in 'Integration Settings - Tax Interface' (CRS794):

  • In the 'Sales tax interface' field, select 2 - 'AvaTax' to specify the applicable sales tax service.
  • In the 'Server address' field, specify the URL provided for AvaTax, such as https://sandbox-rest.avatax.com.
  • In the 'Account number' field, specify the account number provided for AvaTax.
  • In the 'License number' field, specify the license provided for AvaTax.
  • In the 'Logging level' field, select the default log level for AvaTax logging.

Settings – Sales Tax

Specify these settings for sales tax in 'Settings – Sales Tax' (CRS793):

  • Select the 'Update tax details' check box to enable the functionality for you to review detailed tax information in 'CO Invoice. Display Transactions' (OIS354) or 'MCO Invoice. Display Transactions' (COS354). If the check box is cleared, the tax details are not stored in M3, and you can only review them in AvaTax.
    Note:  This can impact the system performance since additional data is stored in M3 Business Engine.
  • Select the 'Include tax in MI' check box when you initiate the request to AvaTax for the calculation of tax on the order totals for the MI transactions 'GetHead' and 'GetOrderValue' in API OIS100MI.
    • If you select 'Include tax in MI', you must also specify the number of rows to send in 'Max line no'.

Tax codes

Tax codes are managed in 'Tax Codes. Open' (CRS130).

  • Specify the tax transaction code. This field is used to identify the type of transaction to be taxed. Tax transaction code N (Normal) should be used on normal invoices and tax transaction code B and C should be used when entering an invoice for tax adjustment in 'Customer Invoice. Enter Manual' (ARS120).
  • Select 'Taxable' for all applicable tax codes, even if you have non-taxable customers or products, to ensure that the tax decision takes place in AvaTax. With this setting, all tax decisions are deferred to the external system, and this simplifies the reconciliation of sales with taxable and non-taxable transactions.
    Note:  AvaTax is not used for transactions where 'Taxable' is not selected on the tax code.
  • Specify the 'Tax code AvaTax'. This field is used to identify the type of transaction to be taxed. Update the field with a value specified in AvaTax.
  • Specify the tax code on the item in 'Item. Open' (MMS001), order header charges in 'Customer Order Charge. Open' (OIS030), order line charges in 'Order Line Charge. Open' (CRS275), service charges in 'Service Charge. Open' (OIS031) and customer in 'Customer. Open' (CRS610).

Address handling

The address information is required to determine the taxing jurisdiction. Address line 1 and 2 are used for the street address. The city and the postal code are sent to AvaTax to determine the destination address.

  • Specify a ship-to address in (CRS610) and 'Customer. Connect Addresses' (OIS002). The address represents the tax jurisdiction where goods are delivered to.
  • Specify either the final destination or goods receiving address of the warehouse in 'Internal Address. Open' (CRS235). This address represents the tax jurisdiction where goods are delivered from.
  • Specify the order acceptance location on either the final destination or goods receiving address of the main warehouse on the selling facility in 'Facility. Open' (CRS008).
  • Specify an address in 'Company. Connect Division' (MNS100). This address represents the ship-from tax area ID and order acceptance location on manual customer invoices.

Use code

Select the AvaTax use code on (CRS610/L). This field is used to identify the type of transaction to be taxed.

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