Processing Sales Tax Credit Notes in Sage 300

This process can be used to correct an AR or OE invoice where the customer was incorrectly charged sales tax.  If the customer has not paid the invoice, then you will only need to process a credit note.  If the customer has paid the incorrect invoice, then your will may need to take an additional step of refunding the credit balance after you post your credit note.
Warning

• If you are using OE and AR credit notes, make sure to change number prefix of either the OE credit note number or the AR credit note number in the modules options setup. If you don’t, you run the risk of having duplicate numbers because by default both OE and AR credit notes start with “CN”.  You can prevent this issue by simply adding an addition character to one of the prefix numbers i.e. CRA.

• Even if the source invoice originates from the OE module, you should consider only processing “Sales Tax Only Credit Memos” from the AR module. This way you will not impact inventory.

Preparation
We need to setup an AR Item for processing the credit note.  If your invoice originated from AR, you could use the items on the original invoice instead.  For this example we will setup an AR item called “TAX” (Sales Tax Credit).  When we setup the AR item TAX, the GL accounts for Revenue won’t matter as the posting will both debit and credit the same account resulting in 0.00 net effect.  In this example we used the sales tax liability account but you could setup a special GL clearing account for this type of transaction.

Processing the credit Note

1. Review the original invoice to obtain your subtotal before taxes and total tax amount. In this example: $100.00 with a sales tax of $8.25.

2. Create a new credit note in AR and be sure to document what you are doing by entering both a batch description and transaction description. This may be important for identifying your corrective action later.  Make sure you are using the transaction type Item and document type of Credit Note as shown below.

3. You can enter the original invoice number in the “Apply-To Document or post as an open credit to the customer account. If the invoice has been paid in full, it will create an open credit.

4. Add Line items as follow:
   1. Enter the Item No. TAX and the unit price equal to the Subtotal before tax ($100.00). Press the add button and insure the sales tax is calculated properly.  Note: You will need to add/save the line before you will be able to verify the tax calculation.  
   2. Enter a second Item No. TAX and a -1 in the quantity field and the same unit price of $100.00. Set the tax class to Nontaxable.  In this example it is represented by the 2.  Add/save this line and verify that there is not tax calculated for this line.  
   3. Review the invoice totals tab: Notice the resulting entries will give you a credit memo for the sales tax only. 
   4. When posting this entry, you will receive a warning that the tax amount for the document exceeds the total distribution net of tax amount.  Close this warning and post your batch.  
   5. This will result in a tax only credit note of $8.25 This entry can be verified by printing the batch journal report or review the batch in the GL module.

• The GL entry:
• Debit your GL Tax Liability account(s) 8.25
• Credit your GL Accounts Receivable account <8.25>

If the customer has already paid the original incorrect invoice in full, you can create an AR Refund Entry to refund the balance back to the customer.  Note: Sage 300 will allow posting adjustments against payments; however, this should not be used as these type of entries will to post to bank services for bank account reconciliation.
 
Blog Article By: Mike Davidson, WAC Solution Partners Utah
Sage 300 Application, Technical, Implementation, and SEM Migration Consultant,