Handle regional tax reporting requirements


Sales tax groups are groups of sales tax codes that are attached to customers and vendors. They are also attached to ledger accounts for transactions that are not posted to a vendor or customer.

A sales tax group includes all sales tax codes that apply when you trade goods or services with customers and vendors. Screenshot depicts the Sales Tax Groups view. For each sales tax group you can set parameters in the Genera, Setup, Retail destination based tax, and Call center defaults tab. Under the General tab, you can set the country, region or state, the purpose, reverse sales tax on cash discounts, the rounding rule, and what to print when invoicing. In our case, rounding is done by sales tax codes. The Print option is also set to Sales tax codes.

In most countries or regions, different tax rules apply when you trade with domestic and foreign customers. The tax rules for foreign trade are frequently split up based on bilateral and multilateral trade agreements. Therefore, you need to create tax groups depending on the taxes that might apply for a certain group of customers or vendors.

A careful analysis of the different types of customers and vendors that the company trades with is a good starting point for determining the types of sales tax groups needed and the setup of those sales tax groups.

Because the geographic location of the customer or the supplier determines taxes, you usually assign the same sales tax group to similar trading partners in the system. The correct tax codes the system uses are attached to this sales tax group.

Item sales tax groups

Because items generally determine taxes, you need to indicate how taxes are calculated for each item.

Item sales tax groups are groups of sales tax codes that are attached to resources like products.

The item sales tax group includes all the sales tax codes that apply when you sell that item. The item sales tax group also might include most of the sales tax codes in the system. When you create the item sales tax groups, you attach the group to items.

The sales taxes that apply to a particular transaction are determined by the sales tax codes that are included in both the sales tax group and in the item sales tax group of the transaction. Sales tax can be calculated only if a sales tax group and an item sales tax group are selected for each transaction for which sales tax must be calculated or recorded.

Screenshot depicts the Item Sales Tax Group view. It displays all sales tax codes with the corresponding percentage or amount and name.


Every transaction for which sales tax needs to be calculated and posted must have a sales tax group and an item sales tax group.

Sales tax groups are related to the party (for example, customer or vendor) of the transaction, whereas item sales tax groups are related to the resource (for example, item or procurement category) of the transaction. Tax groups contain a list of tax codes. The tax codes that are present in both the sales tax group and item sales tax group for a transaction are the tax codes that apply to that transaction.

Sales tax reporting codes

Sales tax reporting codes refer to a field number on a sales tax report. They are used on country-specific or region-specific report layouts and the Sales tax payment by code report to print sales tax amounts for a settlement period that is summarized for each reporting code.

Sales tax must be reported and paid to tax authorities at regulated intervals (monthly, quarterly, etc.). Finance provides functionality that lets you settle tax accounts for the interval and offset the balances to the tax settlement account, as specified in the ledger posting groups. You can access this functionality on the Settle and post sales tax page. Make sure you specify the sales tax settlement period that sales tax should be settled for.

After you create Sales tax reporting codes, you can refer to them on the Report setup FastTab in the Sales tax code page.

This layout is used to filter the available reporting codes for a sales tax code. Each sales tax code belongs to a settlement period that belongs to a sales tax authority that uses a report layout.

After the sales tax has been paid, the balance on the sales tax settlement account should be balanced against the bank account.

If the sales tax authority specified on the sales tax settlement period is related to a vendor account, the sales tax balance is posted as an open vendor invoice and can be included in the regular payment proposal.

Here is a sample of the Sales tax code report for Contoso Entertainment System:

Screenshot of the sales tax reporting codes.

You can take what you learned in this topic and expand it by learning about cost accounting concepts.