Tax Calculation Methods: To Apply a Second-Level Tax

The following activity will walk you through the process of configuring a second-level tax and applying it to a document.

Story

Suppose that you want to configure a second-level tax with the Compound Line-Level calculation method in the system and review how it is applied to documents. You are going to use the Candyy Cafe customer for the activities in this lesson.

Configuration Overview

In the U100 dataset, for the purposes of this activity, the CANDYY customer account has been configured on the Customers (AR303000) form.

Process Overview

In this activity, you will create a new tax category on the Tax Categories (TX205500) form. You will then create a second-level tax on the Taxes (TX205000) form, and assign it and the EXLINELEVEL tax to the created tax category. On the Invoices and Memos (AR301000) form, you will create an invoice with two lines, select the created tax category in the invoice lines, and analyze how the taxes assigned to the tax category are applied to the invoice.

System Preparation

Before you begin performing the steps of this activity, do the following:

  1. Launch the MYOB Acumatica website with the U100 dataset preloaded, and sign in as an accountant Anna Johnson by using the johnson username and the 123 password.
  2. In the info area, in the upper-right corner of the top pane of the MYOB Acumatica screen, make sure that the business date in your system is set to 2/29/2024. If a different date is displayed, click the Business Date menu button and select 2/29/2024. For simplicity, in this process activity, you will create and process all documents in the system on this business date.
  3. On the Company and Branch Selection menu on the top pane of the MYOB Acumatica screen, make sure that the SweetLife Head Office and Wholesale Center branch is selected. If it is not selected, click the Company and Branch Selection menu button to view the list of branches that you have access to, and then click SweetLife Head Office and Wholesale Center.
  4. As a prerequisite activity, configure the tax zone, tax category, and taxes as described in Tax Calculation Methods: To Create Taxes.

Step 1: Creating a Tax Category

To create a tax category for a second-level tax, proceed as follows:

  1. Open the Tax Categories (TX205500) form.
    Tip: To open the form for creating a new record, type the form ID in the Search box, and on the Search form, point at the form title and click New right of the title.
  2. On the form toolbar, click Add New Record, and specify the following settings in the Summary area:
    • Tax Category ID: TAXONTAX
    • Description: Second-level tax
  3. On the form toolbar, click Save to save the tax category.

Step 2: Creating a Second-Level Tax and Assigning it to the Tax Zone

To create a second-level tax and assign it to the tax zone, proceed as follows:

  1. Open the Taxes (TX205000) form.
  2. On the form toolbar, click Add New Record, and specify the following settings on the Tax Settings tab:
    • Tax ID: LINELEVEL2
    • Description: Compound Line-Level Tax
    • Tax Type: Sales
    • Calculation Rule: Compound Line-Level
    • Cash Discount: Does Not Affect Taxable Amount
  3. On the Tax Schedule tab, click Add Row on the table toolbar, and specify the following settings for the row:
    • Start Date: 1/1/2024
    • Tax Rate: 5
    • Reporting Group: Default Output Group
  4. On the GL Accounts tab, select 24100 in the Tax Payable Account box.
  5. On the form toolbar, click Save to save the created tax.
  6. Open the Tax Zones (TX206000) form.
  7. In the Tax Zone ID box, select TRAINING.
  8. On the table toolbar of the Applicable Taxes tab, click Add Row, and add LINELEVEL2.
  9. Remove the EXDOCLEVEL and INCLINELEVEL taxes from the table.
  10. On the form toolbar, click Save to save the tax zone.

Step 3: Adding Taxes to the Tax Category

To add taxes to the created tax category, proceed as follows:

  1. Open the Tax Categories (TX205500) form.
  2. In the Tax Category ID box, select TAXONTAX.
  3. Add the taxes to the table by clicking Add Row on the table toolbar and specifying the following identifiers of each tax:
    • Tax ID: EXLINELEVEL
    • Tax ID: LINELEVEL2
  4. On the form toolbar, click Save to save the changes to the tax category.

Step 4: Creating an Invoice and Analyzing How the Second-Level Tax is Applied

To create an invoice and analyze how the second-level tax is applied to it, proceed as follows:

  1. Open the Invoices and Memos (AR301000) form.
  2. On the form toolbar, click Add New Record, and specify the following settings in the Summary area:
    • Type: Invoice
    • Customer: CANDYY
    • Date: 2/29/2024 (inserted by default)
    • Description: Tax-on-tax calculation
    Note: You do not need to save and release the invoice created in this activity.
  3. On the Details tab, add rows by clicking Add Row and specifying the following settings:
    Branch Transaction Descr. Ext. Price Tax Category
    HEADOFFICE Taxable item sale 100 TAXONTAX
    HEADOFFICE Taxable item sale 25 TAXONTAX
  4. On the Financial tab, in the Tax Info section, select TRAINING in the Customer Tax Zone box.
  5. On the Taxes tab, review the calculated taxes and the way the system has applied them.

    First, the system has applied the first-level EXLINELEVEL tax to the invoice. The detail total ($125) is the taxable amount for the EXLINELEVEL tax, which is the first-level tax; taxes are calculated separately for each line and then summed. Based on the rule, the system has calculated taxes for each line as follows before calculating the sum of the taxes: $100 * 0.05 = $5; $25 * 0.05 = $1.25. The total EXLINELEVEL tax is $6.25 ($5.00 + $1.25).

    Then the system has applied the second-level LINELEVEL2 tax. The system has applied this tax to each line; the taxable amount for the second-level tax is calculated as the taxable amount of the line plus the tax amount of the first-level tax that was applied to the line ($131.25). The total second-level tax for the document is the sum of tax amounts calculated for the document lines. Based on the rule, the system has calculated the LINELEVEL2 tax for each line: ($100 + $5) * 0.05 = $5.25; ($25 + $1.25) * 0.05 = $1.3125 ≈ $1.31. The total second-level tax for the document is $5.25 + $1.31 = $6.56.

    The total tax amount for the document is the sum of the first-level and second-level tax amounts, which is $12.81 ($6.25 + $6.56). Thus, the document's balance is $137.81 ($125.00 + $12.81).

  6. Close the form without saving your changes to the invoice, which was created solely for testing purposes.