I am trying to get some insight into the proper way to manage adjusting sales tax liability and invoices. From time to time some invoices are generated with the wrong state tax authority. If the tax was already paid, we then need to create an adjustment and pay the correct state. If the invoice is still open and not in a closed period, it's easy enough to edit it and that properly adjusts everything.
The issue is when it is a closed period. I have a situation where a tax-exempt customer short paid the invoice omitting the tax. So, I created an invoice item to use on a credit memo that credits to the tax authority used on the original invoice. Effectively reducing the liability for that state and zeroing out the invoice. On the sales tax liability report it added a line for the item created "State Tax Correction" and under tax collected it shows as a negative amount. Is this the correct or proper way to handle it?
How else can you zero out the tax owed on an invoice from a closed period, without journal entries? I'm just worried about a messy audit trail with adjustments.
Any thoughts or processes people use are much appreciated.
Thank you
