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Sales Tax Location Flexfield Structure

• State.County.City Recommended for US Sales Tax

This structure provides the most accurate US Sales Tax calculation.

• No Validation - Country Recommended for VAT

The country field of an address is always required and defaulted from either the home country defined in the system options window or the Default Country profile option. This structure is most useful for VAT systems, where locations do not need to be validated for the purposes of calculating tax.

• State.City

This structure can be used for US Sales Tax calculation, but may result in inaccurate taxes, as County tax rates would need to be rolled into either State or City rates.

• City

This structure can be used if you wish to validate just the City component of an address.

• Province

This structure can be used if you wish to validate just the Province component of an address.

• Province.City

This structure can be used in Canadian implementations for tax calculation and in some European countries for address validation.

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.

Attention: You cannot update your 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 setup 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.

Locations

If you only want to validate your customer addresses, you must define locations for each segment of your Sales Tax Location Flexfield structure but you need not assign rates to these locations. Receivables uses these locations to validate your customer addresses.

You can either use the Tax Locations and Rates window to enter this information manually or the Sales Tax Rate Interface program to load your locations and associated tax rates from an external source. See: Tax Locations and Rates.

Authorities

You can enter Authorities manually, through the Tax Authority window, as long as the locations for these authorities exist. However, the more common way of creating authorities is when you enter a customer's address.

When you enter a customer's address, Receivables first checks to see if an authority already exists for this address. If an authority exists, Receivables uses the tax rates associated with each location to create a sales tax rate for the authority. If the authority exists but there are no tax rates associated with each location, the total tax rate for the authority cannot be calculated. If you try to use this authority (for example, to enter an invoice), Receivables displays a message that tax rates cannot be found for your customer's address.

If an authority does not exist, Receivables checks to see if locations exist for this address. If locations exist, Receivables creates the authority. If tax rates exist for each location, Receivables also creates the authority sales tax rate. If the locations do not exist, Receivables checks your Address Validation system option to see if it should either create the locations or display an error.

Receivables only creates authorities that exist within your home country. For example, if you set up your sales tax system to handle business in the United States and then you enter addresses in a foreign country, Receivables does not create locations, authorities, or sales tax records for these foreign locations. See: Tax Authorities.

Sales Tax Rates

If you enter tax rates in the Tax Locations and Rates window for locations that already exist and are used by authorities, Receivables creates new sales tax records for this authority.

The number of sales tax records that are created depends on the unique intersection of the date and postal code ranges that you assign to each location in your authority.

The following example demonstrates the method that Receivables uses to create sales tax records for your customer addresses. In this example, CA is the state of California, San Mateo is a county within California, and Foster City and Belmont are cities within San Mateo county. You have the following locations and rate assignments defined in Receivables:

Segment Value	From Zip	To Zip	Start Date	End Date	Tax Rate
CA	96199	96199-9999	15-JUL-90	-----	6.25%
CA	85364	89999-9999	15-JUL-90	-----	6.25%
CA	90000	94999-9999	15-JUL-90	-----	6.25%
San Mateo	00000	99999-9999	07-JUL-88	31-DEC-90	0%
San Mateo	00000	99999-9999	01-JAN-91	31-JAN-91	2%
Foster City	94063	94065-9999	01-JAN-91	31-JAN-91	1%
Belmont	94065	94069-9999	01-JAN-90	31-JAN-91	0%
Table 1 - 90. (Table 2 of 2)

When you enter and save these locations and their rate assignments, Receivables generates the following sales tax rate records:

Authority	From Zip	To Zip	Start Date	End Date	Tax Rate
CA.San Mateo. Foster City	94063	94065-9999	01-Jan-91	31-Jan-91	6.25+2+1
CA.San Mateo. Belmont	94065	94069-9999	15-Jul-90	31-DEC-90	6.25+0+0
CA.San Mateo. Belmont	94065	94069-9999	01-Jan-91	31-Jan-91	6.25+2+0
Table 1 - 91. (Table 1 of 1)

Note: If any one of the segments does not have a tax rate assigned to it, then no sales tax rate will be available for the tax authority. For example, if the County: San Mateo does not have a rate assigned to it, then the tax authority: CA-SAN MATEO-FOSTER CITY will not have a tax rate assigned to it.

Sales Tax Rate Overrides

If you are using a State.County.City.Zip structure, when you are assigning city rates to any State.County combination you can override either or both of the State and County rates for that City. However, you cannot override the Zip rate as this is below the City segment in your structure.

Attention: If you wish to use the override feature you must include City in your Sales Tax Location Flexfield structure.

Address Validation Versus Sales Tax Calculation

If you are implementing a VAT system and do not wish to calculate tax nor validate addresses, you can choose the 'No Validation - Country' Sales Tax Location Flexfield structure which requires that only the country is entered. In this case, Receivables derives the default country from the 'Default Country' system option.

You may also implement Flexible Address Formats for country specific validation of customer address information. Refer to the Flexible Address Formats essay for more details.

Tax Codes

You can define tax rates that are associated with specific tax codes. These tax codes can then be assigned to items, customers, or customer tsites. They will have a type of 'VAT' or 'Sales' and are generally used when calculating Value Added Tax, or for setting up specific tax codes for Sales Tax.

You must define a tax code of type 'Location' if your Tax Method is 'Sales Tax'. You can only have one tax code of type 'Location' defined for any given date range.

If your Tax Method is VAT, use the Tax Rounding alternative region in the System Options window to define how Receivables calculates your VAT amounts. You can choose to round VAT calculations at the line or header level, specify a rounding method, and the number of decimal places to display. Receivables calculates VAT once per VAT rate, per document.

If your Tax Method is VAT, you can also specify a default Tax Code in the Tax alternative region of 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. See: Tax System Options.

When using either a VAT or Sales Tax based system, you may wish to calculate tax on transactions in your home country, but not on all international transactions. AutoInvoice and Invoice Entry will give an error during validation if tax cannot be calculated and your transaction type requires tax.

You can avoid getting these errors if you do not require tax on the transaction types for international transactions. Alternatively, you can assign a zero rated tax code to all international sites for which you do not wish to calculate tax. The tax code allows a tax line to be created for the transaction with a zero tax amount, and therefore enables the transaction to pass validation. At the same time, transactions for sites in your home country, or for foreign sites which have a nonzero rated tax code, will have the correct amount of tax calculated.

Tax Codes with Location Based Tax

If you wish to use both tax calculation methods for the same customers, you can let Receivables calculate your Sales Tax automatically, then manually enter or import tax codes on your invoice lines to calculate additional taxes.

Alternatively, you can assign specific tax codes to customers for whom you wish to calculate tax based on tax codes only. Receivables uses the tax code hierarchy that you defined in the System Options window to see if any tax codes are assigned to your customers, customer sites, inventory items, or at the system options level. If tax codes exist, Receivables will use these to derive the tax rates; if not, it will derive the tax from the address. This algorithm is best described in the Tax Hierarchy diagrams earlier in this essay. See: Overview of Calculating Tax.

Attention: To implement VAT you must assign tax codes to your inventory items. To implement sales tax you should not assign tax codes to your inventory items, as this will override the calculation of location-based tax on the transaction. For this reason we advise that you do not implement VAT and Sales Tax in one installation of Receivables.

Item Exceptions

Using the location flexfield in the Item Tax Rate Exceptions window, you can define item exceptions for any component of your Sales Tax Location Flexfield. For example, you can define an exception for a particular item when shipped anywhere in California, or only in the city of San Francisco. Additionally, you can specify which rates you wish to override for that item using the rate flexfield in this window. See: Tax Rate Exceptions.

Item and Customer Exemptions

You can define exemptions in the Tax Exemptions window, either at the customer or item level. Additionally, exemptions can be restricted at regional levels. Thus you could create an exemption for a bill-to customer, such that they are always exempt from tax or exempt only when shipping to the state of California.

When you enter or import an invoice, Receivables checks to see if any exemptions exist for the customer or item. If it finds such exemptions with a status of 'Primary', Receivables will automatically use the tax exemption. Receivables does not use any exemptions with a status 'Manual' or 'Unapproved' unless you explicitly enter the exemption.

Receivables searches for tax exemptions using the bill-to customer, transaction date and tax code on a transaction. To determine the level at which the exemption is defined, Receivables will search in the following order and stop as soon as one is found:

• Specific ship-to location

• Each tax authority location, starting with the lowest level.

• Bill-to customer with no specific location.

It will use Customer ABC Inc. along with the transaction date and tax code as a basis for the search.

When determining the location at which the exemption has been created, Receivables will first search for exemptions defined for the ship-to site, ABC Co.; if no exemptions are found, it will search at each level of the Sales Tax Location Flexfield structure starting with the lowest level, for example, city, county, and lastly state; if no exemptions are found, Receivables will search for exemptions for the bill-to customer only with no specific location. See: Tax Exemptions.

Note: If you choose to 'Require' tax at invoice entry or import, this will override any predefined exemptions.

Attention: If you know that an exemption is due to expire, we recommend that you simply add an end date rather than changing the status. If you change the exemption status to 'Expired', then wish to view historical orders later, the exemption will not show because the status is no longer current.

If your profile and system options permit, you can force exemptions at the time of invoice entry or import. This can be done by either picking an existing exemption or creating an exemption with a status of 'Unapproved'. You can use the Tax Exemptions window to update the status to 'Primary' if you want Receivables to continue to use this exemption automatically when calculating tax. You can set it to 'Manual' if you want to be able to control when this exemption will be used.

You can reject an exemption created during invoice entry or import, by setting its status to 'Rejected'. Also, you can discontinue exemptions that were previously approved by either adding an end date or changing the status to 'Expired'. Once an exemption has a status of 'Rejected' or 'Expired', the status can no longer be updated.

Suggestion: Add an end date to discontinue an exemption, rather than setting the status to 'Expired'. This provides a better audit trail of the validity dates for the exemption.

Use the table below to identify how exemption statuses can be updated:

Current Status	Possible New Statuses
Unapproved	Primary, Manual, Rejected, Expired
Manual	Primary, Expired
Primary	Manual, Expired
Expired	No Change Allowed
Rejected	No Change Allowed
Table 1 - 92. (Table 1 of 1)

Suggestion: If you want to control who can create unapproved exemptions, you can set the profile option Tax: Allow Override of Customer Exemptions for the appropriate users.

Tax-Only Invoices

You can only create tax-only invoices manually in the Transactions window if both the Tax: Allow Ad Hoc Changes and Tax: Allow Manual Lines profile options are set to Yes.

To create the tax-only invoice, enter an invoice with a line amount equal to zero. Then, navigate to the tax window for this line and enter your tax line using an ad hoc tax code. The ad hoc tax code will enable you to change the amount of tax calculated from zero to the amount you require. You can also change the tax accounts for this tax line as required.

Tax Groups

See Also

Tax Reports

Tax Codes and Rates

Tax Locations and Rates

Tax Exemptions

Importing Tax Lines

Customizing Your Sales Tax Location Flexfield Structure

Defining a Sales Tax Location Flexfield Structure