Define Taxes

Define the taxes of a tax regime. Each separate tax in a tax regime includes records for the statuses, rates, and rules that are used to calculate and report on the tax. E-Business Tax defaults tax information from the tax regime to each tax that you create under a regime. You can modify this information at the tax level according to your needs, as well as add additional defaults and overrides.

You can create a new tax, or create a tax that is based on an existing tax within the regime. When you create a new tax based on an existing tax, the attributes that remain constant for all taxes derived from the source tax are not available for update.

Before you can set up taxes, you may need to complete one or more of these tasks:

• Set up tax regimes. (mandatory)
• Set up ledgers and accounts. (optional)
• Set up tax reporting codes. (optional)
• Set up recovery type lookup codes. (optional)
• Set up tax types. (optional)

To Define a New Tax

• Navigate to Create Taxes page.

• Enter the Tax Regime code. E-Business Tax defaults the tax settings from the tax regime.

• Enter the Configuration Owner for this tax. The configuration owner determines the ownership and use of this tax and its associated setup.

• Select the Tax Source:

• Create a new tax: Use this option: (1) to create a tax that becomes the source for other taxes within this regime to share tax jurisdictions and tax registrations; or (2) to create a tax where the registration and jurisdiction information is independently maintained and not shared.

• Create from an existing tax: Use this option to create a tax that shares the registration and jurisdiction information from an existing tax within this regime. In most cases, you should set up the taxes in a tax regime such that they can share the same jurisdiction and registration information.

Note: You cannot update the tax source setting after you save the tax record.

• In the Tax field, enter a code for this tax. Use a coding convention in keeping with the tax regime code.

• If the tax source is Create from an existing tax, then select an existing tax from the list of values.

• Enter a Tax Name. You can create a unique tax name or use the code that you entered in the Tax field.

• Enter a Tax Type to classify this tax for reporting purposes. E-Business Tax provides these tax types:

• Sales - Direct taxes that are collected from the consumer by the supplier and paid to the tax authority.

• VAT - Value added or cascading taxes.

• Excise - Taxes on the production and manufacture of goods.

• Customs Duty - Taxes charged on imported and exported products.

• Environmental - Taxes charged as a result of environmental regulations.

You can add tax types according to your reporting needs. 

• Enter an effective date range.

Note: If you enter an Effective To date, you cannot update this date after you save the record.

• Enter geographic information for this tax. This includes the Geography Type for the tax, such as City, County, or State, and the Parent Geography Type and Parent Geography Name of the geography type.

For example, if the tax is US County Tax, then the geography type is County, the parent geography type is Country, and the parent geography name is United States.

If the geography type is Country, enter Country for parent geography type and the tax regime country name for parent geography name.

• Enter an override geography type that belongs to the parent geography type, if you plan to set up different rates for this geography within the same tax jurisdiction. 

• Enter the currency for this tax, and define the way that tax amounts are displayed on transactions and reported to the tax authorities.

• If you set the Allow Tax Rounding Override option at the regime level, you can update the rounding parameters for this tax. If you want to let an individual party update the rounding rule for this tax on its transactions, then set the Allow Tax Rounding Override option at the tax level and update the rounding rule in the applicable party tax profile. 

• Enter a single-digit compounding precedence to define the order in which this tax is calculated in the compounding process within this regime. Taxes are calculated in ascending order of compounding precedence.

• In the Applied Amount Handling field, select the method to use to calculate taxes when a prepayment is applied to an invoice:

• Recalculated - E-Business Tax uses the invoice tax rate for both the prepayment and the invoice line amount.

• Prorated - E-Business Tax uses the prepayment tax rate for the prepayment amount and the invoice tax rate for the invoice line amount.

• Check the Set as Offset Tax box if you are creating an offset tax. Setting this option disables the Controls and Defaults region and clears any values that were entered in this region.

• Check the Set for Reporting Purposes Only box if you are not creating an offset tax but you want to calculate reverse charges without creating General Ledger postings. E-Business Tax will save the reverse charge information for reporting to the tax authorities.

• If this is an offset tax option, enter a Recovery Type.

• If you enabled the Allow Override and Entry of Inclusive Tax Lines option at the regime level, then in the Allow Tax Inclusion field define the nature of tax inclusive handling for this tax.

• If the tax rates belonging to this tax vary in their treatment of tax inclusive handling, then enable the Allow Override and Entry of Inclusive Tax Lines option for this tax. You can then set tax inclusive handling at the tax rate level.

Note: If you do not set standard inclusive handling for this tax, you can still set this option for individual parties involved in transactions. 

•  Define the manual updates available to users on transaction tax lines. Manual updates do not use tax rules and formulas:

• Allow Override for Calculated Tax Lines - Let users override the automatic tax calculation on invoice tax lines.

• Allow Entry of Manual Tax Lines - Let users create manual tax lines on invoices.

• Check Allow Duplicate Tax Registration Numbers box to allow multiple parties to use the same tax registration number for this tax. Leave this box unchecked to enforce unique tax registration numbers across all parties and party sites.

• Check Allow Multiple Jurisdictions box to define tax jurisdictions for this tax in more than one geographic region.

You must set this option in these cases:

• different tax rates apply in each region.

• different tax authorities administer taxes and require separate tax reporting in each region.

• tax authority requires separate registrations for a party having multiple locations in different regions or multiple registrations for the same location.

• Check the Allow Mass Creation of Jurisdictions box to let you mass create tax jurisdictions for this tax.

• Select the Tax Accounts Creation Method. Select Create Tax Accounts if you intend to create tax accounts for this tax. If you intend to Use the Tax Accounts of an Existing Tax at transaction time, enter this tax in the Tax Accounts Source field.

For example, in the United States the county and city taxes may use the same tax accounts as that of the related state tax.

• Check the Allow Tax Exceptions box to create special tax rates for specific products for this tax.

• Check the Allow Tax Exemptions box to create tax exemptions for your customers for this tax. 

• If you enabled tax exemptions for this tax, select the tax exemptions creation method:

• Create Tax Exemptions - Create tax exemptions for your customers for this tax.

• Use Tax Exemptions from an existing tax - Use tax exemptions already created for customers for this tax. If you intend to use the tax exemptions of an existing tax at transaction time, enter this tax in the Tax Exemptions Source field. For example, county and city taxes may use the tax exemption of the state tax, when the state tax exemption applies to all cities and counties in the state.

• If you set the Allow Tax Recovery option for the tax regime associated with this tax, enter tax recovery options:

• If applicable, set the option to allow for user override of the calculated tax recovery rate on transaction lines. If this tax allows for more than one recovery type, use the Primary Recovery and Secondary Recovery fields to enter the corresponding recovery types. The Update Tax page displays the Default Primary Recovery Rate Code and Default Secondary Recovery Rate Code fields, if applicable.

• If you plan to use tax rules to determine recovery rates, set the appropriate options. In this case, the recovery rates that you define for each recovery type only apply if the determination rules cannot find a recovery rate. 

• Select the default recovery settlement for this tax: Immediate - Tax recovery is available at invoicing; Deferred - Tax recovery is available only after the invoice is paid.

Note: If the default recovery settlement is Deferred, then you must set up an interim tax account for this tax to record the tax recoveries or liabilities that accrue prior to payment.

• Check the Allow Tax Rate Rules box if you plan to use rules to determine the tax rate for this tax at transaction time.

• If you set the tax account creation method as Create Tax Accounts, enter Tax Account information for this tax.

• If you defined a tax reporting type for this tax, enter the applicable tax reporting codes.