Understanding US Sales Tax inside Dynamics 365 Business Central (BC)

This guide is to assist you with understanding the sales tax structure for US sales tax inside of Dynamics 365 Business Central (BC).

We always recommend Avalara AvaTax for customers selling and shipping to multiple states, as it is very hard with some states to determine when items should or should not be taxable as well as keeping up and maintaining current sales tax rate changes. We are a certified implementation partner and always recommend AvaTax to ensure sales tax compliance in the US. If you are interested in a demo, you can email me at smullins@abccgroup.com.

If you decide against a tax engine like Avalara, you will be responsible for setting up and maintaining sales tax rates inside of Business Central. Below is an explanation of the sales tax setup inside of D365 Business Central.

BC US Sales Table Explanations

Tax Areas: These are the head of the tax tree. These get assigned on the customer card to tell BC what tax tree to look at to get the tax jurisdictions and details. The tax area code is where you assign tax jurisdictions. 

Tax area codes get assigned to customers on the customer card. Only customers with sales tax liable enabled will have sales tax calculated. There is a place in the same area to store tax exemption numbers for customers who are exempt.

Tax Jurisdictions: These are the second level of the tax tree. These codes set up the agencies in which you will report sales tax to. Tax areas can have more than one tax jurisdiction. For instance: you need to collect from both city and state and separate out the tax rate between the two, you could have a tax area that has both tax jurisdictions (one for the state and one for the city). The tax jurisdiction card is also where we can set the tax accounts where BC will create debits and credits for sales tax transactions.

Tax Details: This is a matrix where you set the tax rates for taxable and non-taxable sales and purchases. In the matrix, for each jurisdiction, you should have two codes. One for TAXABLE for items that are taxable and one for NON-TAXABLE. You can reach this window by clicking on details from the sales tax jurisdiction page. 

Below you will see two tax group codes. These are going to come from the item cards and can be found below. 

The tax group code comes from the item code. All items and or service items that are taxable for sales should be marked taxable. Items not for sale and items not taxable in the states that you collect tax, should be marked non-taxable. 

When trying to sell this item- Microfilm scanner to a customer AAA0001, we would see that BC is bringing in two tax codes and getting the combination to determine sales tax from the tax details matrix. 

Hope this helps you in getting started with sales tax. If you have any questions or are in need of a partner to guide you through the sales tax setup, feel free to reach out to me at smullins@abccgroup.com.