Accounts Payable > Setting Up Accounts Payable > Using a Self-Assessed Tax

Using a Self-Assessed Tax

Learn more

About Distributing Self-Assessed Taxes

A self-assessed tax is one that you must pay, even though the vendor does not collect it. These taxes commonly arise when you order goods from another state or province, but you are still subject to local sales taxes.

Accounts Payable does not have a self-assessing tax type, but you can use the program to calculate self-assessing taxes and distribute them to expense and tax payable accounts. The trick is to create two tax authorities.

To create a self-assessed tax for use in Accounts Payable:

  1. In Tax Services:

    1. Use the Tax Authorities screen to create two new tax authorities:
      • Authority 1 is the tax expense. This tax can be distributed with the invoice amount or expensed separately to a tax expense account.
      • Authority 2 is the tax payable. Specify that this tax is expensed separately to the tax payable account.
    2. Use the Tax Classes screen to create Purchases tax classes for vendors and items for both tax authorities.
    3. Use the Tax Rates screens to define tax rates for purchases for each of the authorities:
      • For authority 1, specify the tax rate as you would for any other tax.
      • For authority 2, specify a negative tax rate of the same amount that you specified for authority 1.

      Note: The two taxes will cancel each other, and not add to the value of the invoice.

    4. Use the Tax Groups screen to add both taxes to the tax group you want to use for purchases that involve self-assessed taxes.

    For more detailed information about setting up tax authorities, tax classes, and tax groups, see the help for Tax Services.

  2. In Accounts Payable, specify the self-assessing tax group when you add an invoice.
    Note:
    • Make sure that you are using the same tax class for both taxes.
    • If you are not calculating tax, enter a positive tax amount for authority 1 and a corresponding negative amount for authority 2 on the Vendor Taxes tab.

      If you are calculating tax, set the two taxes to "No" in the Tax Included field.