Tax calculation and order processing with tax interface

Sales order processing

In Sales Order Entry, taxes are calculated after you leave the Line Item window, when you update the Addons window, if you recalculate totals, and when you complete the order. The taxes are displayed in these fields: Total, Subtotal, Tax, and Margin %.

In Sales Shipping Feedback Entry, taxes are recalculated if there are changes to the address, Geo code, or addon charges.

In Sales Entry Invoice Processing Report, taxes are recalculated using the current date. The Sovos Audit file is updated with a record of the transaction. AvaTax and Vertex Cloud are updated and tracks the transaction. Taxes for System Rates are updated in the database

If a fully tendered order has tax changes at the time of shipping, you must adjust the tendering in Sales Order Entry before you can ship the order.

AP invoice and vendor rebate processing

System Rates and Sovos - SUT do not support AP taxing.

The Sovos GTD, and AvaTax, and Vertex Cloud interfaces support tax calculations for both customer [Accounts Receivable] and vendor [Accounts Payable] functions. You must select the option, Apply AP Taxing, in SA Company Setup-Taxes to activate AP tax processing. If you activate AP processing, you must set up your AP Tax liability and expense accounts in General Ledger and then specify these in SA Company Setup-Taxes. Depending upon your company’s tax analysis method, cash or accrual, you must set up GL accounts to post tax liabilities to an AP Tax or AP Cash GL account. If you activate AP processing, taxes are calculated in several functions. For cash basis in AvaTax, you must first contact your Avalara AvaTax representative.

In Customer Cash Receipt Entry, whether taxes are calculated on PO lines on an invoice depends upon the Tax Method you specify in SA Company Setup-Taxes:

• Sales Use Tax (SUT): Taxes are calculated if the line item is not for resale. In this case, you are the end consumer of the product and are liable for taxes.
• Goods and Services (GST): Taxes are paid by the purchaser of the goods regardless whether the distributor is buying from a vendor, or a customer is buying from the distributor. Information about the product or addon on a PO line is sent to Sovos GTD or AvaTax, or Vertex Cloud, where taxability is determined based on custom attributes or codes you have assigned to any products or addons. For example, custom attributes submitted to Sovos GTD include a product’s resale status, that product's taxable status, the vendor ID, product line, product category, and PO addon ID.
• Value Added Tax (VAT): An estimate of taxes due is calculated but can be overridden during Customer Cash Receipt Entry if the VAT on the vendor’s invoice is different, or if you self-assess VAT on an invoice. If VAT is paid to the vendor as part of the invoice total, no records are written to the Sovos Audit file, the AvaTax or Vertex Cloud audit trail, or the System Rates database. When you create a VAT Return Report, no data is included for these invoices because the vendor is responsible for remitting the tax payment to the government. If you self-assess any portion of VAT on an invoice, this will be included in the Audit file and included on your VAT Return.

If your Tax Analysis method is Cash, inVendor Entry Pay Invoices Due Report, taxes are not calculated in this function, but are committed to the Sovos GTD Audit file or the System Rates database for invoices. With the Cash method, when an invoice is marked as paid in Vendor Entry Pay Invoices Due Report, the status on the Audit record is updated from pending to committed. After the status is committed, Sovos GTD will include the transaction on its tax liability reports.

In PD Rebate Reconciliation Entry, if the vendor does not have nexus and you self-assessed taxes on the AP invoice during Customer Cash Receipts Entry, an audit record is created when you process the vendor rebate claim in PD Rebate Reconciliation Entry and the rebate is committed to Sovos GTD so that you can collect the VAT credit due for the rebate from the appropriate taxing jurisdictions.

Geo codes

Geo codes are used by Sovos - SUT and Sovos GTD to exactly pinpoint a particular address and determine a location’s taxing jurisdiction. A location’s full street address, city, state, postal code, and country are used simultaneously to determine the exact Geo code. Additionally, if a location falls outside of the city limits, you can indicate that by selecting the Out of City option. This option is used to determine if the location resides in any additional taxing districts.

When you set up or maintain a customer, customer group, customer shipto, vendor, warehouse, or company address in the system, or override an address on a sales order, a query is submitted from the system to Sovos GTD to verify and update the Geo code. If one Geo code is found that matches that location, the Geo Code field is automatically updated. If multiple possible codes are found by Sovos GTD, a Tax Interface Geo Code Lookup is displayed, and you can review the possible jurisdictions and select the correct one. The results of Geo code queries are stored in the internal table: TIGEOCD.

Goods and Services codes

Part numbers or SKU numbers are used by the system as codes to identify goods and services. AvaTax, and Vertex Cloud, and Sovos GTD maintain their own set of codes to identify goods and services. You must map your product codes to these codes so the applications can apply the correct tax rules to specific products or charges. When you implement your tax interface, you or your consultant must set up the Goods and Services codes for products, addons, and restocking fees. Then, each product record must be set up in Product Warehouse Product Setup with the corresponding code.

Additional charges that are applied to an order can also be mapped to a code. If you have PO addons set up in SA Table Code Value Setup-PO Addons, these codes must be mapped to a Goods and Services code. Any restocking fees set up in SA Table Code Value Setup-Return Adjust Reason must also be mapped to a Goods and Services code. If you set up surcharges in SA Administrator Options-Products-Costs for DATC or rush charges, those should be mapped. When the product number is displayed on a purchase order, this code is submitted to the tax interface as part of the transaction. If any addons exist on the PO, the addon will be sent and cross referenced to the addon Goods and Services code so that the correct tax calculation is made.

If you apply a restocking fee to a return order line, the return reason code is sent to the tax interface and cross referenced to the appropriate Goods and Services code.

Tax analysis method

The tax analysis method defines how you accrue and report tax liabilities to the government. Your options are cash basis or accrual.

• If your company uses cash basis, you record sales taxes due after goods or services are paid; that is, the Paid Date.
• If you use the accrual method, you record taxes due after a sales order is invoiced, that is, by Invoice Date; or rebated, that is, Rebate Date. This method determines when your tax liability is reported to the government.

Audit records and tax analysis method

When taxes are calculated in the system, whether this is calculated for an entire invoice or a single order line, an audit record is created in the Sovos GTD Audit file, AvaTax and Vertex Cloud audit trail, or the System Rates database. Audit records will have a status of ‘C’ (committed) or ‘U’ (uncommitted). Committed audit records reflect tax amounts the customer or distributor is liable for. The audit record also includes a created date and updated date. The updated date is not recorded until the audit record is committed.

When a sales order is invoiced in Sales Entry Invoice Processing Report or a vendor’s invoice is costed in Customer Cash Receipt Entry and tax liabilities are posted by cash, the audit record is created with a status of Uncommitted, or pending. The status of the audit record for an sales order invoice is updated to Committed when the customer pays the invoice and it is recorded in Customer Cash Receipt Entry. The status of the audit record for an AP invoice is updated to Committed when it is marked as Paid in Vendor Entry Pay Invoices Due Report.

With a Tax Analysis method of Accrual, the audit record’s created and updated dates reflect the date the order is invoiced, or the invoice is posted. The audit record is set to a Committed status simultaneously. Reporting of tax data is based on the created date since that is the date the distributor invoiced the customer.

Tax reporting

If you are integrated with Sovos GTD, or AvaTax, or Vertex Cloud, all tax reporting is performed in that application. Do not use the tax reports in Distribution SX.e.