Automatically Tracking Use Tax in Dynamics-GP

This topic may have been posted on the internet by someone else but my clients have asked about this many times so I thought I would write a short blog on how to configure USE tax in Dynamics-GP.

What is USE tax? USE tax is the tax that the customer pays because the vendor doesn’t collect the sales tax from the customer at the time of sale. Most of the time, this is because product is purchased out of state and shipped to the customer. Most customers track this manually and report it to the tax authority. Most customers don’t realize that you can configure Dynamics-GP to do this automatically for you.

The challenge in setting up USE tax in Dynamics-GP is that when the user enters the invoice from the vendor the amount payable can’t include the USE tax. So here are the steps to calculate and pay USE tax.

1. We are going to setup two new tax details. To do this go to Tools->Setup->Company->Tax Details
   1. Setup the Tax Expense
      1. Enter MDTXEXP in the Detail ID field. This is to record the tax expense for the USE tax.
      2. Description will be for Maryland Tax Expense
      3. The type will be purchasing
      4. Enter a Tax ID
      5. Enter the expense account
      6. Base On will be Percent of Sales/Purchase
      7. The percentage will be .06 for six percent
      8. Save the detail
   2. Setup the Tax Payable
      1. Enter MDTXPAY in the Detail ID field. This is to record the tax payable for the USE tax.
      2. Description will be for Maryland Tax Payable
      3. The type will be purchasing
      4. Enter a Tax ID
      5. Enter the payable account. Usually it will be a tax payable account.
      6. Base On will be Percent of Sales/Purchase
      7. The percentage will be -.06 for six percent. We want this to be a negative so that it will create the credit amount.
      8. Save the detail
2. We are now going to create the tax schedule. To do this go to Tools-Setup->Company->Tax Schedule
   1. Enter MDUSE for the Tax Schedule ID
   2. In the Available Tax Details section select both the MDTXEXP and the MDTXPAY details and insert it to the selected side.
   3. Click the Save button
3. Now we need to assign it to the vendor. Pick a vendor you need to enter USE tax for. Go to Cards->Purchasing->Vendor
   1. Select the Tax Schedule MDUSE for the vendor. Remember to select it for each address record for the vendor as well.
4. Now enter a sample transaction for 500.00 for this vendor. When you enter the transaction you will notice that the tax amount is zero. When you click on the distributions though you will see a debit for 6.00 for the tax expense amount and a credit for 6.00 for the tax payable account.

TIMOTHY (TIM) LALLY, CPA | President/CEO

Tim is the founder and president of KTL Solutions, Inc. He provides high-level guidance to our clients in order to help them better use technology within their organizations. He has an ability to understand the issue and provide a solution that best fits the client’s needs. When implementing solutions, his focus is to utilize off the shelf solutions first and customizations second.

Tim is a Certified Public Accountant (CPA) and has over 17 years of Microsoft Business Solutions software implementation and development experience. He started implementing Dynamics in 1987 in the early years of Great Plains on the Apple Macintosh. His responsibilities include mentoring new developers, teaching accounting principles and processes to developers, and leading the development and design of custom solutions. Tim oversees KTL’s Microsoft Business Solutions vertical market business.