You are setting up items and customers and selling to a customer in a different tax jurisdiction. How should you handle tax?

• A. Always apply the same tax rate to all customers regardless of location.
• B. Only set tax codes at the invoice level; customer tax codes are ignored.
• C. Tax rates are determined by item only, not customer location.
• D. Ensure the customer location triggers the correct tax rate, adjust item tax code if necessary, and re-check tax liability.

Answer: (D)

When selling to a customer in a different tax jurisdiction, the tax you charge should come from the customer’s location, not a single universal rate. The customer’s address (ship-to or bill-to) determines the applicable tax rate for that sale. The item itself has a tax code that indicates how it’s taxed in general, and the final tax liability on the invoice is the combination of the customer’s jurisdictional rate and the item’s tax code. If the item would be taxed differently in that jurisdiction, you may need to adjust the item’s tax code so it aligns with how the tax should be applied for that customer. After making any adjustments, re-check the tax liability to confirm the correct amount is being collected. This approach avoids over- or under-collecting taxes by respecting both the customer’s location and the item’s tax treatment.