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How to post Tax to the Item GL account instead of the Tax Ledger Posting Group

Updated: Oct 16, 2023

Tip of the Day: In Microsoft D365 Finance and Supply Change (D365 F&SC), did you know that you can post the tax amount to the item/procurement category's GL account instead of the tax GL account? By changing 1 parameter option, a new field is exposed that makes this possible.

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To post the to the Item GL account instead of the Tax Ledger Posting Group, go to General Ledger Parameters > Sales Tax > set the Apply Sales Tax Taxation Rules = No.

By setting the Apply Sales Tax Taxation Rules = No, when you go to the Sale Tax Code > Values, you will see a new field.

The new field is the Non Deductible %.

Note: When I did the testing, if the Non Deductible % was not set to 100%, I got this error.

Posting - Number: AK TEST1 - The state of the source document or source document line could not be updated.

I added the new Tax Code up on a Sale Tax Group. . .

And on the Item Sales Tax Group

I created a new Pending Vendor Invoice and Posted.

Here are the vouchers. We can see that the Tax was posted to the same GL account as the line item on the invoice instead of to the Tax Ledger Posting Group.

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Sep 17, 2023

This tip is important especially for the USA, which is one of the few countries that does not have VAT but has Sales Tax instead, and this GL parameter is many times set to "Yes" In any country where you are expected to handle VAT (which applies to most countries in the world) this GL parameter must always be set to "No", to allow the VAT functionality to work correctly.

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