Configure sales tax groups and item sales tax groups
Sales tax groups
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.
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 used by the system 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.
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.
Watch this video to learn how to set up the sales tax groups and item sales tax groups: