Sales Tax on Prepayment Invoice

@jstreet06 there's nothing to turn on. In 2026 R1 the prepayment invoice only accepts VAT-type taxes, and that's hard-coded, not a setting. Any tax on the document with a Tax Type of Sales, Use, or Withholding gets flagged with "Sales taxes are not supported for prepayment invoices." If your tax zone uses an external provider like Avalara, it's rejected too: "Tax zones with the External Tax Provider check box selected are not supported for prepayment invoices." Same on Taxes (TX205000): the Tax on AR Prepayment Account only appears for VAT-type taxes.

A non-stock "sales tax" line works on the face of the document, as long as no real Sales-type tax lands on it. Just know what it does. On release, a prepayment invoice posts AR and the prepayment account for the document total. The lines don't post to their own accounts, so that line is just more deposit. It's not a tax transaction and won't show on your tax reports. Sales tax still calculates on the regular invoice as usual, and the whole prepayment invoice, that line included, applies against it like a payment. Your customer isn't charged the tax twice. If you have to report the tax when the deposit is billed, this won't do it.

There's an idea to extend prepayment invoices to non-VAT clients if you want to add a vote:
https://community.acumatica.com/ideas/extend-prepayment-invoice-capabilkity-to-no-vat-clients-28293

Hi,

You can create a VAT tax with the same rate as a sales tax. The main difference is that VAT paid to vendors is claimable (input tax). A VAT tax typically has two rates defined: one for customers (output) and one for vendors (input). Nothing prevents you from defining only one rate for customers.

However, you should be aware that with the VAT Recognition on Prepayments feature, the tax does not affect the tax report or the general ledger when the prepayment invoice is released. The tax is recognized only when the payment received from the customer is released and applied to the prepayment invoice.

This behavior was designed to comply with European regulations.