Setting Up Tax: An Overview
This section discusses the options you can set up to determine how Receivables calculates tax. For a step-by-step guide to setting up Receivables for a VAT or Sales Tax system, see: Implementing Value Added Tax and Implementing US Sales Tax. For information about setting up Receivables for a Canadian sales tax system, see: Implementing Canadian Sales Tax.
Disabling Tax
You can disable the calculation and accounting of tax within Receivables, Oracle Order Entry, and Oracle Sales and Marketing by setting the Tax Calculation flag for your transaction type to No. See: Transaction Types.
System Options
Tax Method
Receivables calculates tax differently depending on the tax method you choose. You can choose either 'VAT' or 'Sales Tax'. To see how tax is calculated for each method, refer to the tax calculation flowcharts in Overview of Calculating Tax.
System Level Tax Code
If your tax method is 'VAT,' you can enter a default tax code in the System Options window. Receivables will use this value, or the tax code defined at the item, customer, or customer site level, according to the tax hierarchy that you define. For more information, see: Tax System Options and the tax flowcharts in Overview of Calculating Tax.
Tax Location Flexfield Structure
Receivables uses your Sales Tax Location Flexfield structure to determine your sales tax rates and to validate your customer addresses. Receivables can calculate tax based on different components of your customers shipping addresses for all addresses in your home country. For example, in the United States sales tax is usually calculated by adding the tax rates assigned to the shipping state, county, and city. If your business is in the US, you would then choose a Location Flexfield Structure of 'State.County.City'.
For more information, refer to the 'Sales Tax Location Flexfield Structure' and 'Address Validation vs. Sales Tax Calculation' sections in Calculating Tax.
Tax Defaults and Rules
You can control how Receivables determines the default tax code or Tax Group for your transactions by specifying a defaulting hierarchy in the System Options window. In a VAT system, you would typically set up your system to derive the tax code first from the customer site, then the customer, the item, and finally the system options level, stopping when one is found. In a US Sales Tax system, you might choose to only derive tax codes from the customer and customer site levels for your export transactions.
You can also set up Receivables to derive a tax code from the Account segment of your Revenue account and, depending upon your tax compliance requirements, optionally enforce this relationship when entering transactions. For more information, see: Tax System Options.
Use Item Tax Rate Exceptions
You can prevent Receivables from looking at exception rates by not checking this check box. Exception rates are only used when your tax method is Sales Tax. For more information, see: Item Exceptions in the Calculating Tax essay.
Use Customer and Product Exemptions
You can prevent Receivables from looking at customer and product exemptions by not enabling these options. For more information, see: Item and Customer Exemptions in the Calculating Tax essay.
Suggestion: If you never use either customer tax codes, customer site tax codes, tax exceptions, or tax exemptions, we suggest you set the appropriate system options to 'No', as this may improve the performance of the Receivables tax engine. You can disable these options in the Tax alternative region of the System Options window.
Tax Rounding
You can specify how you want Receivables to calculate your tax amounts by entering Tax Rounding system options. You can choose to round tax calculations at the line or header level, specify a rounding rule, a minimum accountable unit, and the number of decimal places to display. You specify your tax rounding options in the Rounding Options region of the System Options window.
Profile Options
Tax: Allow Ad Hoc Tax Changes
Choose whether you can update rates and amounts assigned to tax codes in the Lines window of the Transaction workbench. This is only applicable to tax codes defined in the Tax Codes and Rates window (of type 'Sales' or 'VAT') that have the Ad Hoc flag set to Yes. Ad hoc changes are not permitted for tax codes of type 'Location'.
Tax: Allow Manual Tax Lines
Choose whether to prevent the entry of manual tax lines in the Transactions window. You might want to restrict this, for example, if you have an outside tax vendor installed and the vendor manages tax audits. Additionally, if this profile is set to No, Receivables does not let you delete system-generated tax lines. However, you can navigate to the Tax window to review system-generated lines.
Tax: Allow Override of Customer Exemptions
Choose whether to override the standard tax calculations during invoice entry and import. By setting this profile option to Yes, you can access the Tax Handling field in the Lines window and specify how you want to handle exemptions for each of your transaction lines.
Enter 'Standard' if you want Receivables to use whatever tax rates, exceptions, and exemptions assigned to that customer or site to calculate tax for this transaction line.
Enter 'Exempt' to force tax exemptions on your transaction lines. To force tax exemptions, the system option Use Customer Exemptions must be set to Yes. You can reference an exemption that has already been defined or create an 'Unapproved' exemption. This option also lets you override standard tax when importing invoices via AutoInvoice.
Enter 'Require' in the Tax Handling field to require tax on your transaction lines.
Tax: Allow Override of Tax Code
Choose whether to prevent update of the tax code in the Lines window for automatically generated tax lines. If you override a system-derived tax code, Receivables uses the rate and amount assigned to the new tax code to determine the tax for the transaction.
Tax: Calculate Tax on Credit Memos
Choose whether to automatically calculate tax on credit memos imported using AutoInvoice. By default, Receivables uses the payment applications and the line, tax, and freight amounts to calculate tax. If this profile option is Yes, tax for each credit memo is calculated without taking into account the outstanding balances. This flexibility is required for installations that support partial payments and is useful for implementations that integrate third party tax ledgers using the Tax Vendor Extension.
Tax: Invoice Freight as Revenue
If you are using Oracle Order Entry, this profile option determines how Order Entry imports freight amounts to Receivables when you run the Receivables Interface program. If this profile option is Yes, Oracle Order Entry will create a transaction line for the freight amount identified in the Ship Confirm window. Set this profile option to Yes if you are integrating with Oracle order Entry and are required to tax freight amounts. If this profile option is No, Receivables will create a line item on the invoice using the inventory item name.
Tax: Inventory Item for 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. Use this profile option if you need to control the rate of tax applied to freight and you have set the profile option Tax: Invoice Freight as Revenue to Yes.
Tax: Use Tax Vendor
This profile option allows your system administrator to control which users can call an installed third party application for tax calculations. This is required in multiple organization installations in which one set of executables is shared across many different tax compliance requirements. The default value is Yes; this indicates that you can call a third party application to calculate tax. See: Implementing the Tax Vendor Extension.
Transaction Types
The value of the Tax Calculation option for your transaction type determines whether Receivables will automatically calculate tax on your transactions. If this option is set to No, Receivables does not calculate tax on this transaction. However, you can still enter tax manually if the profile option Tax: Allow Manual Tax Lines is set to Yes.
This option also determines whether tax is required on an invoice. If the Tax Calculation option for your transaction type is set to Yes, you cannot complete an invoice if each of your invoice lines does not have a tax line. If Receivables cannot automatically generate a tax line (because it cannot find an appropriate rate, for example), then you can manually enter one as long as your profile option AR: Allow Manual Tax Lines is set to Yes.
The following table describes how the Tax Calculation option works with your tax profile options to determine the appropriate taxing requirements for your transactions.
|
| NO -
Tax will not be calculated automatically.
Tax is not required.
| Enter manual tax lines if Tax: Allow Manual Tax Lines = Yes.
Update tax rates and amounts if the tax code allows ad hoc changes and Tax: Allow Ad Hoc Tax Changes = Yes.
| If Tax: Allow Override of Customer Exemptions = Yes, require tax by choosing 'Required' in the Tax field of the Transaction window, or importing the line as 'Required' via AutoInvoice
|
| YES -
Tax will be calculated automatically.
Tax is required.
| Enter additional, manual tax lines if Tax: Allow Manual Tax Lines = Yes.
Update tax rates and amounts if the tax code allows ad hoc changes and Tax: Allow Ad Hoc Tax Changes = Yes.
Update tax codes if Tax: Allow Override of Tax Codes = Yes.
| If Tax: Allow Override of Customer Exemptions = Yes, force an exemption by choosing 'Exempt' in the Tax field of the Transaction window, or importing the line as 'Exempt' via AutoInvoice.
|
See Also
Set Up Tax
Tax System Options
Overview of Receivables User Profile Options
Transaction Types
Calculating Tax
Defining a Sales Tax Location Flexfield Structure
