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• Line-level tax calculation

• Journal-level tax calculation

• a tax rate, determined by the line item's tax code

• a rounding rule (which is defined at the set of books level, may optionally be overridden at the line level during journal entry)

• a precision and minimum accounting unit, as specified for the current set of books

Tax Information

During transaction entry, you associate a Tax Type and Tax Code with each journal line (or let the system default or enforce a Tax Type and Tax Code, depending on your setup decisions). If the Tax Type is Output, the system gets tax information from the correspondingly named Tax Code in your Receivables setup; a Tax Type of Input indicates that tax information should be drawn from the correspondingly named Tax Name in Payables.

Tax Information Defaults and Overrides

• Tax Type (Input or Output)

• Tax Code

• Rounding Rule

• Tax-inclusive or Tax-exclusive

Additional Information: The tax options you set for General Ledger may also be used as defaults in your Oracle Payables, Receivables, and Purchasing applications. To use the General Ledger tax option defaults, you must complete specific setup steps in those other applications. For more information, see the respective application's user's guide.

You set tax information defaults using the Tax Options window.

Set of Books Level: For each set of books, you can define a default Tax Code, Rounding Rule, and Tax-inclusive or Tax-exclusive status, once for input taxes and once for output taxes. If you check Allow Rounding Rule Override, a user can change the rounding rule during manual journal entry.

Account Level: If journal entries for a specific account are usually or always taxed at a certain rate or with a certain tax code, you can assign a default or required value for that account. For each account, you specify a default tax type and tax code, specify whether the tax code can be overridden by a user, and specify whether the amounts are tax-inclusive or not. (You cannot specify different defaults for different cost centers or other Accounting Flexfield segments.)

If you do not provide default values for a particular account, the system uses any set of books-level defaults, if there are any.

Account-level defaults override set of books-level defaults.

Even if you do not allow users to override tax codes, they can still change a journal entry's Tax Type from Input to Output, then choose any valid Tax Code.

Tax Information in a Multiple Organizations Installation

Since you have access only to the input and output tax codes belonging to your current operating unit, you cannot create a single batch having tax codes belonging to several different operating units.

See Also

Setting up Automatic Tax Calculation

Formulas and Rounding

Calculated tax amount = entered amount x tax rate
	Net amount = entered amount

For tax-inclusive amounts, the system calculates the amount of tax inherent in the entered amount and creates a corresponding tax line, and it also replaces the entered amount with a smaller net amount:

	Calculated tax amount = entered amount x	tax rate ------------- 100 + tax rate
	Net amount = entered amount - calculated tax amount

Each calculated tax amount is denoted in the current set of book's functional currency, and uses a tax precision and minimum accountable unit specified by the tax options for the current set of books. (The tax precision can be different from the overall precision for a currency.)

Tax amounts are rounded Up, Down, or Nearest to meet the tax precision and minimum accounting unit, according to the rounding rule entered, defaulted, or enforced for the set of books.

Rounding Example

Suppose you are calculating taxes in a particular legislation and that the minimum accountable unit is .01. Even though the minimum accountable unit for that legislation's currency is .01, tax amounts are always rounded to the nearest .05 currency units. You would define this by specifying a tax precision of 2 and a tax minimum accountable unit of .05 in the Tax Options window for your set of books. Then, a calculated tax amount of 1.45 will be rounded up to 1.50.

Generated Tax Line

The system derives a Description for each calculated tax line, as follows:

(tax code) tax at (tax rate)% for line (line number): (line description)

Line-level Tax Calculation

Example: Line Level Calculation

Suppose you need to enter information for an employee's business trip expenses. You received the employee's expense report, which contains the following information:

Line	Description	Amount	Tax	Gross Amount
1	Hotel fee	40	1	41
2	Travel expense	57 (tax included)	-	57
	Total			98
Table 1 - 21. Journal, before calculating tax (Page 1 of 1)

In this transaction, the hotel expense amount in line 1 excludes tax, while the travel expense in line 2 includes tax.

Let's also assume that the following tax parameters apply to this transaction:

Tax code:		Consumption (3% tax rate)
Rounding rule:		Down
Tax account:		01-000-2200
Tax currency precision:		0

Using the journal entry form, you enter the first line as an expense of 40 (ignoring the tax), and the second line as an expense of 57.

Line	Account	Dr	Cr	Description	Tax Code	Includes Tax?	Rounding Rule
1	01.000.5100	40		Hotel fee	Consump	No	Down
2	01.000.5200	57		Travel expense	Consump	Yes	Down

Note that the resulting journal will temporarily be out of balance.

At this point, you can calculate tax on the journal line (by saving, then choosing Tax Journal).

Calculating tax for line 1, we get a tax amount of 1.2, which we then round down to 1. The entered amount is left untouched, since it is tax exclusive.

For line 2, we get a tax amount of 1.66, which is then rounded down to 1, and a net amount of 56 (57 minus 1).

That is, after you calculate tax, the journal looks like this:

Line	Account	Dr	Cr	Description	Tax Code	Includes Tax?	Rounding Rule
1	01.000.5100	40		Hotel fee	Consump	No	Down
2	01.000.5200	56		Travel expense	Consump	Yes	Down
3	01.000.5500	1		Consump Tax at 3% of line 1: Hotel fee	Consump
4	01.000.5500	1		Consump tax at 3% of line 2: Travel expense	Consump

Note that the tax calculation process automatically reduced the travel expense amount from 57 to 56, since this amount included tax.

You can then enter an offsetting total liability line in your journal to balance.

Line	Account	Dr	Cr	Description	Tax Code	Includes Tax?	Rounding Rule
5	01.000.2100		98	Liability

Journal-level Tax Calculation

• the system generates tax amount lines for groups of similar journal lines, rather than generating one tax amount line for each entered amount line.

(Taxable amount lines are similar if they share the same tax type, tax code, rounding rule, and balancing segment, and if they are all tax-inclusive or tax-exclusive.)

• tax-inclusive entered amounts are reduced by the calculated tax amount, similar to line-level calculation.

General Ledger applies any rounding correction to the calculated tax amount of the largest taxable line for a group.

See Also