How To: Setup Tax Estimates in Purchase Orders

Estimating tax amounts in Purchase Orders ensures accurate budgeting and cash flow planning by reflecting the true cost of goods upfront. It also helps maintain compliance and prevents surprises when invoices are received.

To complete setup, follow the below steps:

Step 1: Add Tax Percentages to Levels

The tax percentage applied to levels is used to calculate the estimated tax amount for items added to Purchase Orders.

1. Go to Common Setup > Level.
   
   
2. Click to highlight the level you want to update and select Edit Level.
   
   
3. Enter the tax rate in the Tax Percentage field.
   
   
4. Click Save and Close.
   
   
5. Repeat for each level that requires a tax percentage.

Step 2: Mark Vendor that Collects Taxes

Marking a vendor as tax collecting ensures that Purchase Orders for that vendor include estimated taxes.

1.  Go to Common Setup > Vendors and Manufacturers.
   
   
2. Click to highlight the vendor you want to update and select Edit Vendor.
   
   
3. Select the box This vendor collects taxes.
   
   
4. Click Save and Close.
   
   
5. Repeat for each vendor that collects taxes.
   
   

Step 3: Mark Invoice Expense Accounts that are Tax

For an invoice to calculated tax variances correctly, invoice expense accounts that are taxes must be marked appropriately.

1. Go to System Setup > Accounts.
   
   
2. Select the Invoice Expense Accounts tab.
   
   
3. Click to highlight the Invoice Expense Account you want to update and select Edit Vendor.
   
   
4. Select the box Is Tax.
   
   
5. Click Save and Close.
   

Once configured:

1. Purchase orders will display the estimated tax amount.
   
2. Invoices will display the estimated tax amount and tax variance (difference between estimated and actual tax amounts).

This visibility gives you a clearer picture of expected costs while also tracking discrepancies between projected and final tax charges.

Figure 1. The Estimate Tax in a Purchase Order.

Figure 2. The Estimated Tax and Tax Variance in an Invoice.

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