In this chapter, you will learn how to do the following:

• Learn how the system updates the costs of various types of items
• Configure a tax to be included in the cost of purchased items
• Configure a tax reason code for tax-related inventory adjustments
• Process a purchase of items
• Review the inventory adjustment transaction that updated the item cost
• Review the GL transaction generated by the system

You process a purchase of items that is subject to a sales tax of the Input tax group, a use tax, or a partially deductible value-added tax (VAT). Instead of posting tax amounts to an expense account, you want to include the incurred taxes in the cost of the items being purchased.

To include the tax amounts in the costs of items in purchase orders, you configure the system in the following way:

• On the Reason Codes (CS211000) form, you define a tax reason code of the Adjustment type and specify it as the Tax Reason Code on the Purchase Orders Preferences (PO101000) form.
• On the Taxes (TX205000) form, in the settings of the tax to be used for this purpose (which could be a sales tax of the Input tax group, a use tax, or a partially deductible VAT), you clear the Use Tax Expense Account check box on the GL Accounts tab.

The system calculates the tax and taxable amounts by using the settings of each tax that corresponds to both the tax category of the specified inventory ID and the tax zone of the selected vendor. Configured taxes are applied to taxable purchase orders if all of the following conditions are met:

• The date of the document is the same as or later than the effective date of the tax.
• The tax zone specified in the document includes the tax.
• The tax category specified in the document line includes the tax.

The rules of selecting an account for posting tax amounts are described in detail in Taxes Included in the Cost of Items: Rules of Cost Update.

The accrual of tax amounts to inventory accounts is currently not possible for landed cost documents.