Because sales orders and purchase orders are handled exclusively by DBA, DBA includes its own taxation system for tax calculation and reporting.
Here in the Account Assignments screen are default accounts for Sales Tax Payable and Purchase Tax. When customer and PO invoices are generated in DBA, the tax amounts flow through to these accounts.
At period end, these accounts are totaled for the period and flow through to cross-reference accounts in your outside general ledger when you run the GL transfer process.
When it comes time to file and pay your tax liability, you use the tax reports and data views in DBA to determine the amount of your tax payment for the applicable period.
The actual payment is made using a supplier bill in your outside system where your tax agency is the supplier and bill is charged against your default tax accounts, which reduces your tax liability.
To summarize, your tax liability balances are maintained in your outside general ledger, the amount to pay for each reporting period is determined from reports and data views in DBA, and the actual payment is made through a supplier bill in your outside system.
Let's now review how taxes are calculated and reported.
Tax calculation and tracking is provided in sales orders and purchase orders so that you can collect and pay taxes in accordance with your government requirements.
Each percentage tax rate within a tax jurisdiction is represented by its own user defined tax code. Each tax code can be comprised of one or more tax authorities, each of which gets its share of the overall tax percentage. Within a particular tax code, the tax can be shared by city, county, state, and national tax authorities.
In sales orders and purchase orders, each line item has its own tax code designation. The tax code is what determines the percentage rate that is used to calculate the tax amount and provides tracking for tax reporting.
Where does the line item tax code come from? First, the program looks to see if a tax code exception is designated against the stock item or descriptor. If one is found, it is used. The Tax Source field indicates Item or Descriptor.
If a tax code is not found at the item or descriptor level, the tax code designated in the header tab is used. Here we are looking at the sales order header tab. Where does this tax code come from?
When you create a new sales order or purchase order, the program looks to see if a tax code exception is designated against the customer or supplier. If so, it gets used as the header tax code. The tax code source indicates Customer or Supplier.
If a tax code is not found against the customer or supplier, the system default sales tax code or default purchase tax code is used. The Tax Code Source indicates Sales Tax Default or Purchase Tax Default.
Once you understand where line item tax codes come from, you can then devise a tax code strategy that fits the taxation requirement of your country or locality.
In many international environments with VAT or GST style taxation, a single tax rate is applied to all sales and purchases and therefore tax code setup is simple. All you need is a default sales tax code and a default purchase tax code.
USA taxation is more complicated. Instead of a single tax rate, tax jurisdictions exist at the county level in most states, and often at the city level. At a minimum, you need a taxable tax code for each tax jurisdiction within which you collect sales tax or pay purchase tax.
In states like California, non-taxable sales can all accrue to a single non-taxable tax code. You can also set up a second non-taxable tax code for you non-taxable out of state sales. One non-taxable tax code is needed for your purchases for resale.
Canadian taxation is a blend of international and USA type taxation because GST and provincial taxes are both levied within your tax codes. DBA provides the ability to itemize GST and provincial tax in the footer of the invoice.
Tax reports and Tax data views enable you to break out sales by tax codes, tax authorities, or taxable and non-taxable tax types and provide the data you need to comply with tax reporting requirements.
That completes our overview of the tax system.