We haven’t tested using SQL Server as the system DB. In this case, the foreign key is referencing a field in the same table. Maybe this isn’t supported in SQL Server?
Try the following modifications and run setup again:
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Edit file database/migrations/xxxx_xx_xx_xxxxxx_create_system_tables.php
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Comment out the following two lines (line 37 and 39)
$t->foreign('created_by_id')->references('id')->on('user')->onDelete('set null');
$t->foreign('last_modified_by_id')->references('id')->on('user')->onDelete('set null');
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Run the setup command again.