Adaco: Handling 'Use Tax'

Overview

Use tax is a sales tax on purchases made outside one's state of residence for taxable items that will be used, stored or consumed in one's state of residence and on which no tax was collected in the state of purchase.

As a result, you need to record that you have PAID the tax within your Financial Statements in your Accounting software.

Combining Rates

To accommodate this, you can use a combination of two rates that are designed to be used together.  These are both added to a Vendor Purchase Order, although the use tax will not be paid to the Vendor.

The first rate created is for the actual use tax, as seen in Fig.1.

This is where you record the sales tax you would have paid if purchased in your state.

• Go to Property > Setup > Rates > Rates and select New
• Enter a Rate Description and Rate as required
• Check the Include On Vendor PO and Include Inventory boxes

The second rate created offsets the tax paid by moving it to a balance sheet.

This allows you to record the rate against the Purchase Order, but not pay the rate to the supplier.

• For this 'liability'rate, again check the Include On Vendor PO box, but uncheck the Include Inventory box and assign the to the applicable GL Account in your financial platform

When the two rates are used together, they net to zero on the PO, but will have logged the tax payment and the offset to a liability GL accordingly in your Accounting software.