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Navigate to the Tax Options alternative region in the System Options window and enter 'Sales Tax' in the Tax Method field. See: Defining Receivables System Options.
Use the list of values to select a Sales Tax Location Flexfield structure in the Location Flexfield Structure field of the System Options window. Receivables uses this structure to determine your sales tax rates and to validate your customer addresses.
The following Sales Tax Location Flexfield structures have been predefined. These structures are named according to the location segments they contain:
For a detailed description of each of these structures, see: Calculating Tax.
You can use any of the structures listed above or create your own structure to implement sales tax. However, we recommend the State.County.City structure because it is specifically designed for a US sales tax system.
Caution: If you select State.City or any structure other than State.County.City as your Sales Tax Location Flexfield structure, be aware that this could result in inaccurate calculation of tax rates. Sales tax calculation in the US is based on the customer address with State, County, and City being the minimum requirement.
You can also define your own structure using any combination of state, county, city, province, postal code, and address. Refer to the Customizing Your Sales Tax Location Flexfield Structure section of the Calculating Tax Essay. See: Calculating Tax.
Warning: You should not update the Sales Tax Location Flexfield structure once you have entered customer addresses or transactions.
Note: It is a recommended accounting practice to ensure that the sales tax liability owed to each state is uniquely identifiable within the General Ledger. To set up a different tax account for each state you will need to assign the tax account qualifier to the state segment, which is the default for both the State.County.City and State.City structures.
The system options listed below affect your tax within Receivables. For a description of each of these options, see: Tax System Options.
| Tax Option Field Name | Suggested Setting | Reason |
|---|---|---|
| Postal Code Range | From: 00000 To: 99999-9999 | Use these entries to cover all valid US Postal Codes, including zip+4 codes. |
| Address Validation | Error | This prevents you from creating addresses that cannot be taxed. |
| Compound Taxes | Yes | Required by Receivables to recalculate tax amounts if line amounts are updated. |
| Invoice Printing | Summarize by Tax Code | This option will have all tax information of an invoice displayed under the tax recap heading when printing your invoices. |
| Tax Cache Size | 5000 | Due to the large number of tax rates needed for US Sales Tax, we recommend increasing the tax cache to 5000. |
| Tax Account | Sales Tax Liability Account | The Sales Tax Liability Account will be used as the default but will be overridden by the account assigned at the state level in the Tax Locations and Rates window. |
| Tax Registration Number | Enter your Company's Federal Tax Registration Number | This number is printed on your invoices. |
| Default Country | United States | Sales Tax should only be calculated for addresses in this country. |
| Table 1 - 58. (Table 2 of 2) | ||
The fields listed in the table below are used to fine tune the tax calculation process. These fields control which aspects of the tax engine are switched on or off when calculating a tax rate. For Sales Tax systems, we recommend the following settings:
| Default Tax Code Option | Suggested Setting | Reason | Hierarchy No. |
|---|---|---|---|
| Customer Site | Yes | Enabling this option lets you use any tax rates you have defined for your customer's business purpose. | 1 |
| Customer | No | Disabling this option prevents you from using any tax rates you have defined for your customer. | (null) |
| Product | No | Disabling this option prevents you from using tax codes and rates that you have defined for specific items. These product-specific tax rates may contradict tax rates associated with the location of the customer to whom the item has been sold. | (null) |
| Revenue Account | No | Disabling this option prevents you from using the tax code assigned to the Account segment of your Revenue account as the default when entering or importing transactions. This option is not recommended for Sales Tax-based systems. | (null) |
| System Options | No | Disabling this option prevents you from including the tax code defined in the System Options window in your tax defaulting hierarchy. In a Sales Tax-based system, you should derive tax from the customer address. | (null) |
| Table 1 - 59. (Page 2 of 2) | |||
We recommend the following settings for your tax exceptions:
| Exception Rate Option | Suggested Setting | Reason |
|---|---|---|
| Use Item Tax Rate Exceptions | Yes | This option lets you exempt specific items from sales tax calculations in accordance with state regulations. |
| Use Customer Exemptions | Yes | This option lets you exempt eligible customers from sales tax. |
| Use Item Exemptions | Yes | This option lets you exempt eligible products from sales tax. |
| Table 1 - 60. (Page 1 of 1) | ||
Suggestion: By enabling the Use Tax Code for Customer's Site option, you can manually assign tax codes to international sites.
Enter the Application Rule Set 'Prorate All' in the System Options window. An Application Rule Set determines the default payment steps when you apply a receipt to an open debit item and its associated charges (for example, line, tax, freight, and finance charges). The Prorate All rule set applies a proportionate amount of the payment to each open item. See: Miscellaneous System Options and Receivables Application Rule Sets.
Save your system options. Use the Completed Requests window to check that each of the three concurrent programs submitted by the System Options window has completed successfully. If the concurrent programs fail, choose Request Log for more information about the errors. You can also refer to the If Your Concurrent Programs Fail section of the Calculating Tax Essay. See: Calculating Tax.
This tax code will appear on every invoice that is printed to identify the calculated tax amount. Therefore, we suggest that you name the code appropriately, for example, 'Sales Tax'. You also use this tax code to create sales tax exemptions for your customers or products.
Use the Tax Codes and Rates window to define your 'Sales Tax' tax code as follows:
| Field | Value |
|---|---|
| Tax Code | Sales Tax |
| From | 01-JAN-91 |
| To | Null |
| Tax Type | Location Based Tax |
| Tax Rate% | Skipped |
| Sign | Cr |
| Allow Exempt | Yes |
| Adhoc | No |
| Inclusive Tax | No |
| Allow Inclusive Override | No |
| Tax (Accounting Flexfield) | As Required (see Note) |
| VAT Transaction Type | Null |
| Table 1 - 61. (Table 1 of 1) | |
Note: The default tax account is the account you assigned in the Accounting alternative region of the System Options window. Receivables uses this as the default tax account if no tax account is assigned to a location when you create transactions.
When you assign special rates to items in the Item Tax Rate Exceptions window, you must provide a reason for the exception. You must also provide a reason when you assign exemptions to either customers or items in the Tax Exemptions window. You can predefine these reasons in the Receivables QuickCodes window. Once defined, you will be able to use the list of values in the Reason field of these windows to select one of these predefined reasons. The US Sales Tax Report will summarize exempt amounts by exemption reason for each state.
Enter your reasons for the following QuickCode types:
| QuickCode Type | Example Reason | Example Code |
|---|---|---|
| Tax Rate Exception Reason | Unprepared Food | UnPrpFood |
| Tax Rate Exemption Reason | Government Agency Exempt Organization | GovAgency ExemptOrg |
| Table 1 - 62. (Table 1 of 1) | ||
Suggestion: The US Sales Tax report will only print the first 9 characters of the Tax Rate Exemption or Exception Reasons you define. You may want to keep your reasons short to avoid confusion.
Not all companies are required to collect and remit sales tax for every state. You should seek the advice of a qualified tax professional to determine in which states you have a legal requirement to collect tax. You should prepare a list of these before performing the next step. This will help ensure that you are not charging tax unnecessarily.
You can either enter sales tax data manually, or import it using the Receivables Sales Tax Rate Interface program. To enter tax data manually, use the Tax Locations and Rates window to define all of your taxing locations and rates. See: Tax Locations and Rates.
Alternatively, you can use the Sales Tax Rate Interface to upload the 60,000+ sales tax rates and locations from a tax vendor. For details on running the interface, see: Integrating Receivables Applications Tax Information Using Sales Tax Rate Interface.
After loading the data into your interface, you should manually set to zero all sales tax rates for each state in which you are not legally required to collect sales tax. You can use the following script to perform this task. Where indicated in the script, enter the list of states you compiled in the previous step. You must use the correct state code here, as defined by your Tax Vendor.
$sqlplus <ar_username>/<ar_password> sql>update ar_tax_interface set tax_rate = 0 override_rate1 = null, override_rate2 = null, override_rate3 = null, override_rate4 = null, override_rate5 = null, override_rate6 = null, override_rate7 = null, override_rate8 = null, override_rate9 = null, override_rate10 = null where substr(location_id,1,2) in ( 'state_code1', 'state_code2',..., 'state_codeN' );
Attention: This step should be repeated each time you load data from your Tax Vendor and before running the Sales Tax Rate interface.
Once loaded into the interface table, run the Sales Tax Rate interface program to move those records into Receivables.
Suggestion: To calculate sales tax, Receivables requires that each component of your customer's address is a valid taxing location, with an associated tax rate. Set your address validation to Error so that you can only enter addresses supported by your Tax Vendor.
You can view this data in the Tax Locations and Rates window.
When entering or importing tax locations, the tax account defaults from the account assigned to the 'Sales Tax' tax code you defined in Step 6. You control which segment of your Sales Tax Location Flexfield structure the account will be defaulted to by assigning the Tax Account qualifier to that segment (see Step 2).
You should define a unique general ledger account for the sales tax liability of each state. To post sales tax to different General Ledger accounts, navigate to the Tax Locations and Rates window and assign a different General Ledger account to the segments of your structure for which you enabled the Tax Account flexfield qualifier.
Note: You only need to update the segments of your tax account that you will use to set up AutoAccounting in the next step.
The US Sales Tax report highlights any transactions that post tax to a General Ledger account outside the range you entered so that you can easily reconcile your sales tax returns with your General Ledger balance. See: Tax Locations and Rates.
Use the Automatic Accounting window to specify how you want Receivables to determine the General Ledger account for sales tax lines.
Enter Tax in the Type field and query to display all of the segments of your Tax Account Flexfield in the segment column. For each segment, assign the value that you want used as the account source for the segment. Choose from the following values:
Note: The Taxes value uses the ship-to address and the accounts that you assigned in the Tax Location and Rates window in the previous step as its source.
For items and customers that are exempt from sales tax, use the Tax Exemptions window to enter tax exemptions, using the 'Sales Tax' code you defined in Step 6.
Receivables gives you the option of exempting a customer entirely or only specific sites of that customer. Below is an example of how you might define a sales tax exemption for a Bill To customer for shipping anywhere in California.
| Field Name | Setting |
|---|---|
| Exemption Type | Customer |
| Customer | Customer Name |
| Site | <Blank> * |
| Location | California |
| Tax Code | Sales Tax (with a type of 'Location') |
| Percent Exempt | 100% |
| Exemption Number | Enter the Customer's Tax Exemption Certificate Number if available. |
| Reason | Select a reason for this exemption from the reasons you defined in step 7 |
| Start Date | 01-JAN-91 |
| End Date | <Blank> |
| Status | Primary ** |
| Table 1 - 63. (Table 1 of 1) | |
* Leave the Site field blank to exempt all of the customer's sites or if you want to create a regional exemption using the location flexfield.
** Entering 'Primary' lets the exemption be used automatically by Receivables when calculating tax.
Specific tax rates may apply to items that you ship to specific states. You can use the Item Tax Rate Exceptions window to assign these exception rates to these locations.
To enable the calculation of sales tax on freight, you should create freight amounts as ordinary invoice lines. This can be done through standard invoice entry or through AutoInvoice.
Using an inventory item to define freight services, you enable the AutoAccounting program to distinguish freight lines from ordinary line items. AutoAccounting will then use the accounting rules for the freight account rather than the revenue account to derive the general ledger distribution for the freight service.
When an invoice is printed, the freight amounts will be displayed as line items and any sales tax calculated on the freight will be displayed as tax.
To convert freight amounts to ordinary invoice lines navigate to the Define Inventory Item window and use the Freight Item Template to define an inventory item for freight services. You should ensure your inventory item has a valid Primary Unit of Measure and a User Item Type of 'Freight'.
If you are implementing Oracle Order Entry, you should set the user profile option Tax: Invoice Freight as Revenue to Yes and define the profile option Tax: Inventory Item for Freight. These are described in more detail in the next step.
To set your tax profile options, navigate to the Update System Profile Values window using the System Administrator responsibility. The following table outlines the options and the recommended settings for US Sales Tax.
| Profile Option | Suggested Setting | Reason |
|---|---|---|
| Tax: Allow Manual Tax Lines | No | Unless user is allowed to create tax only invoices. |
| Tax: Allow Ad Hoc Tax Changes | No | Unless user is allowed to create tax only invoices. |
| Tax: Allow Override of Customer Exemptions | No | Prevents unapproved exemptions from being entered. |
| Tax: Allow Override of Tax Code | No | Prevents you from modifying the tax code at invoice entry. |
| Tax: Invoice Freight as Revenue * | Yes | Enables freight amounts entered in the Oracle Order Entry Ship Confirm window to be passed to Receivables as taxable line items. |
| Tax: Inventory Item for Freight | Freight | This profile option lets Oracle Order Entry identify an inventory item on a transaction line that you import into Receivables via the Receivables Interface program. The inventory item that you identify when defining this profile option must be created with a user type of 'Freight'. After you identify an inventory item for freight, you can use tax codes assigned to this inventory item or item exceptions to control the applicable tax rates and accounting for freight service (see Suggestion below). Use the Item Tax Rate Exceptions window to manage freight tax rates by state. |
| Table 1 - 64. (Table 2 of 2) * This profile option is used only by Oracle Order Entry | ||
Suggestion: The inventory item that you select can be used with the Item Tax Rate Exceptions window to reduce or zero-rate sales tax on freight service, depending on specific state tax law.
You will not be able to import invoices through AutoInvoice if Calculate Tax for this item's transaction type is set to Yes and Receivables cannot find a rate for this location. You can avoid this problem during manual invoice entry by entering the tax line manually. However, you must have your profile Tax: Allow Manual Lines set to Yes to do this.
A more complete solution is to assign an international, zero-rated tax code to every customer or site that has an address outside the United States. In this way AutoInvoice and the Transaction window can use your tax code to generate a tax line for a zero amount.
The name you give to this tax code (for example, 'International') will be printed on your invoice rather than 'Sales Tax'. Use the suggestions in the table below to set up your international tax code in the Tax Codes and Rates window.
| Field | Value |
|---|---|
| Tax Code | International |
| Tax Type | VAT |
| Tax Rate% | 0% |
| Ad Hoc | No |
| Start Date | 01-JAN-00 |
| End Date | null |
| Accounting Flexfield | As Required |
| Table 1 - 65. (Table 1 of 1) | |
You can assign the tax code at either the customer or customer site level. If you only assign a tax code at the customer level, you should ensure that every site for that customer is an international site. Otherwise, you should assign the code to only those sites that are outside of the US.
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