Create Tax Exceptions

Set up tax exceptions to apply special tax rates to products. At transaction time, E-Business Tax determines whether the tax exception applies to the transaction line for the product and, if so, uses the applicable exception rate.

Depending on your requirements, you can use product tax exceptions instead of setting up tax rules for product types. You can set up these tax exceptions for products:

• Discount. A reduction of the base tax rate.
• Surcharge. An increase to the base tax rate.
• Special Rate. A rate that replaces the base tax rate.

In E-Business Tax, a tax exception must belong to a combination of tax regime, configuration owner, and tax. You can also assign tax exceptions to a tax status or tax rate belonging to the tax or to a tax jurisdiction. At transaction time, E-Business Tax uses the tax exception if the details of the transaction and the tax match all of the entities assigned to the tax exception. Only one tax exception can apply to a transaction line for a specific tax.

You can define Inventory organization tax exceptions for items, or you can define tax exceptions for Inventory-based or non-Inventory-based product fiscal classification types and fiscal classification codes. The product fiscal classification must have the same tax regime assignment as the tax exception. 

You can create more than one tax exception for the same item/product fiscal classification and tax regime combination. At transaction time, E-Business Tax applies the most specific tax exception to the transaction in this order:

• Item tax exception for tax rate and tax jurisdiction
• Item tax exception for tax rate
• Item tax exception for tax status and tax jurisdiction
• Item tax exception for tax status
• Item exception for tax
• Product fiscal classification tax exception for tax rate and tax jurisdiction
• Product fiscal classification tax exception for tax rate
• Product fiscal classification tax exception for tax status and tax jurisdiction
• Product fiscal classification tax exception for tax status
• Product fiscal classification exception for tax

When you set up configuration options for first party legal entities and operating units, you can set a separate configuration option for the owning and sharing of product tax exceptions for a combination of party and tax regime. 

To set up tax exceptions, you must enable the Allow Tax Exceptions option at all applicable levels in the regime-to-rate flow, including tax regime, tax, tax status, and tax rate. 

If necessary, use lookups to define additional tax exception reasons, according to your requirements or the requirements of the tax authority.