Invoices with Inclusive Sales Taxes: General Information

An inclusive output sales tax calculated at the document level is a tax that is extracted from the document amount but is not the total of the taxes calculated for the document lines. You can create AR documents to which an inclusive sales tax is applied.

Learning Objectives

In this chapter, you will learn how to do the following:

• Create an inclusive sales tax
• Create a taxable AR invoice with an inclusive document-level sales tax applied
• Process the invoice and review the GL transaction generated by the system

Applicable Scenarios

You create documents with an inclusive sales tax if you want the system to calculate tax-inclusive amounts at the document level.

Configuration Steps

You configure this type of sales tax by performing the following general steps:

1. On the Tax Preferences (TX103000) form, you specify the tax rounding gain and loss accounts to which any tax rounding difference will be posted.
2. You create a tax of the Sales type and the Inclusive Document-Level calculation rule on the Taxes (TX205000) form.

If the Net/Gross Entry Mode feature is enabled on the Enable/Disable Features (CS100000) form, it affects the settings required for configuring this type of sales tax as illustrated in the following table. One of the conditions listed in the following table must be met in the system for it to calculate inclusive document-level taxes.

These conditions take into account whether the Net/Gross Entry Mode feature is enabled, what tax calculation mode is selected in the particular document, and what tax calculation rule is specified for the tax.

The process activity in this chapter illustrates the third condition that must be met for the system to calculate inclusive document-level taxes. For details, see Invoices with Inclusive Sales Taxes: Process Activity.

Calculation Rules

The system calculates and rounds inclusive tax amounts based on document amounts by using the following rules:

1. The amount of the document before taxes is calculated as follows:
   • The line amounts of the document with the same applicable taxes are calculated (Line Amount - Group and Document Discounts). If more than one tax is applicable to a document, the system groups the document lines by the rates of the applied taxes.
   • The taxable amount is extracted from the sum of the document line amounts. The result is not rounded.
2. The tax amount based on the unrounded amount before taxes is calculated. The result is then rounded to the decimal precision of the currency specified on the Currencies (CM202000) form.
3. The exact amount before taxes is calculated by the rounded tax amount being subtracted from the sum of the document line amounts.

To prepare journal entries posted to the general ledger on release of a document with inclusive sales tax at the document level, the system still calculates line-level taxes for each line to get the amounts before taxes that are posted to the revenue account specified in the lines. Because the document-level tax posted to the tax payable account may differ from the total of tax amount of each line, to balance the transaction, the system posts the difference to a special gain and loss account, which is specified on the Tax Preferences (TX103000) form.

Suppose that for an AR invoice, you modify the tax amount of a tax with the Inclusive Line-Level or Inclusive Document-Level calculation rule. When you release the document, the system credits the revenue accounts used in the document lines with an amount that is calculated as follows.

Amount = Line amount / (1 + tax rate)

The difference between the tax amount that you entered manually and the tax amount calculated by the system is posted to the Tax Rounding Gain or Tax Rounding Loss account specified on the Tax Preferences form.