Calculating Use Tax With Sage MAS 500 ERP
Use Tax is imposed by states to collect tax revenue on sales that do not take place in their state. The tax is meant to ensure that all purchases are taxed, whether purchased locally or from out-of-state sellers. Most states have some requirement for the calculation and payment of Use Tax.
This post will show how to set up, process, and pay Use Tax using Sage ERP MAS 500 Accounts Payable (AP). However, before following the procedures you must first create two General Ledger (GL) accounts to track Use Tax Payable and Use Tax Expense. A non-inventory item should be created for Use Tax Payable, with its default expense account being the Use Tax Payable account: select CI/Maintenance/Maintain Non-Inventory Items to create the item.
Set Up AP Use Tax
AP Use Tax only can be calculated if Purchases has been selected and Track Sales Tax on Purchases is selected in AP Options, so check that this option is properly set first.
- 1. Set up a Tax Class for Use Tax: Select Common Information (CI) Maintenance/Maintain Sales Tax/Maintain Tax Classes. Create a tax class and give it an Identifier that reflects it is to be used for Use Tax purposes. Save and close the window.
- Set up a Sales Tax Code for Use Tax: Select CI/Maintenance/Maintain Sales Tax/Maintain Tax Codes. Enter a unique identifier for the Sales Tax Code and fill in the Description field. The grid should show all valid Tax Classes. For the Tax Class established for Use Tax in the previous step, mark the checkboxes in the Purchases and AP Use Tax columns. Select the appropriate Tax Base from its drop-down box and enter the set percentage or rate to be used. Save and close the window.
- Set up a Tax Schedule: Select CI/Maintenance/Maintain Sales Taxes/Maintain Tax Schedules. Create a unique identifier for the Tax Schedule and fill in the Description field. In the Tax Code column of the selection grid, add the Tax Code created in the previous step. Save and close the window.
- Set up the GL Accounts: Select CI/Maintenance/Maintain Sales Taxes/Maintain Company Tax Information. In the Sales Tax Code field enter the tax code created for the Use Tax. Fill in the Registration Number field as appropriate. Do not enter anything in the Exemption Number field, or Sage ERP MAS 500 will not calculate Sales or Use Taxes at the voucher level. In the AP Sales Tax field, enter the GL Use Tax Expense account. In the AP Use Tax field, enter the GL Use Tax Payable account. The AR Sales Tax field will not be used; however, it still requires that an account be entered. In the non-recovery section, mark the checkbox for Expense to Item to include the amount of taxes in the itemís total. If unmarked, specify a GL account to track the amount of taxes being expensed. Save and close the window.
- Assign the Tax Schedule: Assign the Tax Schedule created in step 3 to all AP Vendors that sell items subject to Use Taxes. You can do this for each vendor on the Defaults Tab of Maintain Vendors or by assigning it to an AP Vendor Class.
Process Use Tax
Once Use Tax schedules and accounts are set up, and the tax schedule is applied to vendors, you are ready to process the AP Vouchers that are subject to AP Use Tax. Here are the steps to correctly enter vouchers with calculated use tax.
- When processing vouchers, for each line item being purchased that is subject to Use Tax, select the Sales Tax tab for that line item and make sure the Sales Tax Class field indicates Use Tax.Note: If a line item on the voucher is not subject to Use Tax, then assign another Nontaxable Sales Tax Class. Use Tax and Non-Use Tax line items may be mixed together on the same voucher.
- Register and post the AP Voucher Batch. During the posting process, for each line item subject to Use Tax, Sage ERP MAS 500 will debit the appropriate Use Tax amount to the Use Tax GL expense account and credit the Use Tax Payable account.
Note: The voucher amount will not reflect the amount of the Use Tax because this tax is not remitted through the vendor, but directly to the taxing authority by you.
Pay The Tax Authority For Use Tax Incurred
- Determine the amount of Use Tax to be paid by checking the amount posted to the GL Use Tax Payable account for the desired period of time.
- Set up the appropriate Tax Authority as a Vendor. Create and Post an AP Voucher for the Use Tax amount to be paid. On the Process Voucher window, register and post the AP voucher batch.
- Generate and post an AP check against the voucher to pay the Tax Authority.
Please contact us with any questions you may have about Use Tax.