11 Tax Rules by Company

This chapter contains these topics:

• Section 11.1, "About Tax Rules by Company"

• Section 11.2, "Tax Rules by Company (P0022)"

• Section 11.3, "Tax Rules and Systems"

• Section 11.4, "System Calculation Examples"

• Section 11.5, "Guidelines"

11.1 About Tax Rules by Company

Navigation

From the Master Directory menu (G), type 29

From the General Systems menu (G00), select Tax Processing & Reporting.

From the Tax Processing & Reporting menu (G0021), select Tax Rules by Company.

This chapter describes how to define tax calculation rules for the A/R, A/P, Sales Order Management, Procurement Management, and General Accounting systems. Because these systems automatically calculate taxes when you enter transactions, it is important to accurately define the rules for these calculations.

You establish tax rules by company. The rules include the ability to do the following:

• Cause the system to display a warning message (or to reject a transaction altogether) whenever someone enters a tax entry that differs from the system-calculated tax. You identify the difference by which the entry can differ from the system calculation.

• Calculate discounts on a gross amount that already includes the tax.

• Calculate the tax on a gross amount that includes the discount amount.

The chapter also contains some examples to show how the system calculates the taxes using the tax rules you define.

11.2 Tax Rules by Company (P0022)

Figure 11-1 Tax Rules by Company screen

Description of "Figure 11-1 Tax Rules by Company screen"

Field	Explanation
Company	A code that identifies a specific organization, fund, entity, and so on. This code must already exist in the Company Constants table (F0010). It must identify a reporting entity that has a complete balance sheet. At this level, you can have intercompany transactions. Note: You can use company 00000 for default values, such as dates and automatic accounting instructions (AAI's). You cannot use it for transaction entries.
Tax Rules System	Number that indicates which systems the tax rules apply to. Numbers are: 1 – A/R and Sales Orders 2 – A/P and Purchase Orders 3 – General ledger (journal) entries
Tolerance Percentage for Warning	Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses this percentage to determine whether to display a warning message. Enter the percentage as a whole number. For example, enter 10% as 10. If you enter 10 in this field and there is a difference between the tax amount you entered and the system-calculated tax amount, the system handles it as follows: Accept - difference is 9.99% or less Warning - difference is 10% or more The default (blank) causes a warning message to display if you enter a tax that does not exactly match the system-calculated amount tax. Note: This field applies only to VAT and GST. You cannot enter both tolerance percentages and tolerance amounts.
Tolerance Percentage for Error	Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses the percentage to determine whether to reject the tax entry. This percentage is used in conjunction with the Tolerance Percentage for Warning field. For example, a 10 tolerance percentage for warning and a 15 tolerance percentage for error works as follows: Accept - difference is 9.99% or less Warning - difference is between 10%and 14.99% Reject - difference is 15% or more The default (blank) indicates that no entry is to be rejected. Note: This field applies only to VAT and GST. You cannot enter both tolerance percentages and tolerance amounts.
Tolerance Amount for Warning	Amount used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses this amount to determine whether to display a warning message. For example, if you enter .50 and there is a difference between the tax amount you entered and the system-calculated tax amount, the system handles it as follows: Accept - difference is .49 or less Warning - difference is .50 or more The default (zero) causes a warning message to display if you enter a tax that does not exactly match the system-calculated tax. Note: This field applies only to VAT and GST. You cannot enter both tolerance percentages and tolerance amounts.
Tolerance Amount for Error	Amount used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses this amount to determine whether to reject the tax entry. This amount is used in conjunction with the Tolerance Amount for Warning field. For example, a .50 tolerance amount for warning and a 1.00 tolerance amount for error works as follows: Accept - difference is .49 or less Warning - difference is between .50 and .99 Reject - difference is 1.00 or more The default (zero) indicates that no entry is to be rejected. Note: This field applies only to VAT and GST. You cannot enter both tolerance percentages and tolerance amounts.
Calculate Tax on Gross (Including Disc)	A code that indicates whether to calculate the tax on a gross amount that includes the discount amount. Valid codes are: Y – Calculate the tax amount on the gross. N – Calculate the tax amount on the gross less the discount amount. Blank – Defaults to Y. Self-assessed taxes are not included in discount calculations. Note: This field does not apply to G/L processing. A/R, A/P, sales orders, and purchase orders use it.
Calculate Discount on Gross (Including Tax)	A code that indicates whether to calculate the discount on a gross amount that already includes the tax amount. Valid codes are: Y – Calculate the discount amount on the gross with tax. N – Calculate the discount amount on the gross less the tax amount. Blank – Defaults to N. Self-assessed taxes are not included in discount calculations. Note: This field does not apply to G/L processing. A/R, A/P, sales orders, and purchase order processing use it.
Tax Rules-Allow Understatement	Code that indicates whether you can enter a VAT or GST amount on the A/R Invoice Entry screen that is less than the system-calculated tax amount (less than the specified tax rate). Codes are: Y – Accept amount less than the specified tax rate. N – Reject amount less than the specified tax rate. Blank – Defaults to N. Note: This field applies only to VAT and GST. Form-specific information This field appears on the screen only when the System field is 1, and it only applies to A/R.
Calculate Sales Order Taxes on Summary	Code that indicates whether the system calculates taxes and performs rounding for sales orders at the detail or the order level. Values are: Y – Calculate taxes and rounding at the order level. N – Calculate taxes and rounding at the detail level. Blank – Defaults to N.

11.3 Tax Rules and Systems

11.3.1 VAT and Canadian Considerations

For companies in countries that assess value added taxes, all fields on the Tax Rules by Company screen can apply. Which rules apply depends on which JD Edwards World systems your company owns. The following tables describe the systems and applicable rules.

Rules for A/R and Sales Orders

When you enter 1 in the System field, the rules apply to both the A/R and Sales Order Management systems.

For A/R invoice processing, the system uses the following tax rules:

• Tolerance percentage for warning and tolerance percentage for error

• Tolerance amount for warning and tolerance amount for error

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

• Allow understatement of tax amount

For sales order processing, the system uses the following tax rules:

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

• Calculate sales order taxes on summary

Rules for A/P and Purchase Orders

When you enter 2 in the System field, the rules apply to both the A/P and Procurement Management systems.

For A/P voucher processing, the system uses the following tax rules:

• Tolerance percentage for warning and tolerance percentage for error

• Tolerance amount for warning and tolerance amount for error

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

For purchase order processing, the system uses the following tax rules:

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

Rules for Journal Entries

When you enter 3 in the System field, the system uses the following tax rules:

• Tolerance percentage for warning and tolerance percentage for error

• Tolerance amount for warning and tolerance amount for error

11.3.2 United States (Sales and Use Tax) Considerations

For companies that deal only with sales and use taxes (such as companies in the United States), only the calculation rules are valid. The following tables describe the systems and applicable rules.

Rules for A/R and Sales Orders

When you enter 1 in the System field, the following rules apply to both the A/R and Sales Order Management systems:

For A/R invoice processing, the system uses the following tax rules:

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

For sales order processing, the system uses the following tax rules:

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

• Calculate sales order taxes on summary

The Allow Understatement of Tax Amount and variance tolerance fields apply only to VAT or GST.

Rules for A/P and Purchase Orders

When you enter 2 in the System field, the following rules apply to both the A/P and Procurement Management systems:

• Calculate tax on gross (including discounts)

• Calculate discount on gross (including taxes)

The variance tolerance fields apply only to VAT or GST.

Rules for Journal Entries

None of the rules apply.

11.4 System Calculation Examples

Simple examples are shown to clarify how two fields on the Tax Rules by Company screen work. The Calculate Tax on Gross (Including Disc) and Calculate Disc on Gross (Including Tax) fields are set differently in each example.

Assumptions:

The examples are for VAT taxable products. There are no non-taxable items.

$1000 – Taxable

10% – Tax rate

1% – Discount

11.4.1 Examples for Accounts Receivable

Examples 1 through 4 show the system calculations after you enter a taxable amount (typically what you enter for A/R). The system calculates the invoice amount, discount amount, and tax (if not entered).

Example 1

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = Y

Calculate	System Calculation
Tax	= Taxable x Tax rate = $1000 x .10 = $100
Invoice	= Taxable + Tax = $1000 +$100 = $1100
Discount	= Invoice x Discount rate = $1100 x .01 = $11

Example 2

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = N

Calculate	System Calculation
Tax	= Taxable x Tax rate = $1000 x .10 = $100
Invoice	= Taxable + Tax = $1000 +$100 = $1100
Discount	= Taxable x Discount rate = $1000 x .01 = $10

Example 3

Calculate Tax on Gross (Including Disc) = N

Calculate Disc on Gross (Including Tax) = N

Calculate	System Calculation
Tax	= Taxable x Tax rate = $1000 x .10 =$100
Discount	= (Tax x Discount rate) / ((1 - Discount rate) x Tax rate) = ($100 x .01) / ((1 - .01) x .10) = $10.10
Invoice	= Taxable + Tax + Discount = $1000 +$100 +$10.10 = $1110.10

Example 4

Calculate Tax on Gross (Including Disc) = N

Calculate Disc on Gross (Including Tax) = Y

Calculate	System Calculation
Tax	= Taxable x Tax rate = $1000 x .10 = $100
Discount	= ((Taxable + Tax) x Discount rate) / (1 - Discount rate) = (($1000 + $100) x .01) / (1 - .01) = $11.11
Invoice	= Taxable + Tax + Discount = $1000 + $100 + $11.11 = $1111.11

The discount calculation in Example 3 is complex. Because the discount is the invoice amount multiplied by the discount rate (but the invoice amount is not known until the discount is calculated), the system must "back into" the discount calculation using known factors (tax, tax rate, and discount rate). The same kind of complexity also exists in Example 4.

11.4.2 Examples for Accounts Payable

Examples 5 through 8 below show the system calculations after you enter an invoice amount (typically what you enter for A/P). The system calculates the taxable amount, discount amount, and tax (if you did not enter it).

Although there may be a few cents difference due to rounding, these examples tie back to Examples 1 through 4.

Example 5 (Ties back to Example 1)

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = Y

Invoice is $1100.00

Calculate	System Calculation
Discount	= Invoice x Discount rate = $1100 x .01 = $11
Taxable	= Invoice / (1 +Tax rate) = $1100 / (1 + .10) = $1000
Tax	= Taxable x Tax rate = $1000 x .10 = $100

Example 6 (Ties back to Example 2)

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = N

Invoice is $1100.00

Calculate	System Calculation
Taxable	= Invoice / (1 +Tax rate) = $1100 / (1 + .10) = $1000
Tax	= Taxable x Tax rate = $1000 x .10 = $100
Discount	= Invoice x Discount rate = $1000 x .01 = $10

Example 7 (Ties back to Example 3)

Calculate Tax on Gross (Including Disc) = N

Calculate Disc on Gross (Including Tax) = N

Invoice is $1110.10

Calculate	System Calculation
Net	= Invoice / ((1 + Tax rate) - (Discount rate x Tax rate)) = $1110.10 / ((1+ .10) - (.01 x .10 )) = $1010.10
Taxable	= Net x (1 - Discount rate) = $1010.10 x (1 - .01) =$1000
Tax	= Taxable x Tax rate = ($1000 x .10) = $100
Discount	= Net x Discount rate = $1010 x .01 = $10.10

Example 8 (Ties back to Example 4)

Calculate Tax on Gross (Including Disc) = N

Calculate Disc on Gross (Including Tax) = Y

Invoice is $1111.11

Calculate	System Calculation
Discount	= Invoice x Discount rate = $1111.11 x .01 = $11.11
Taxable	= (Invoice - Discount) / (1+ Tax rate) = ($1111.11 - $11.11) / (1 + .10) = $1000.00
Tax	= Taxable x Tax rate = $1000 x .10 = $100

11.4.3 Examples for Sales Orders and Purchase Orders

The previous examples showed calculations for A/R and A/P. Although the calculations are the same for sales orders and purchase orders, typically, you enter different data. Examples 9 through 11 show system calculations based on the invoice amount. The system calculates the tax amount, taxable amount, and the discount.

Assumptions:

The examples are for VAT taxable products. There are no non-taxable items.

$1000 Invoice Amount

10% Tax rate

1% Discount

Example 9

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = Y

Calculate	System Calculation
Tax Amount	= $90.91
Taxable Amount	= $909.09
Discount	= $10.00

Example 10

Calculate Tax on Gross (Including Disc) = Y

Calculate Disc on Gross (Including Tax) = N

Calculate	System Calculation
Tax Amount	= $90.91
Taxable Amount	= $909.09
Discount	= $9.09

Example 11

Calculate Tax on Gross (Including Disc) = N

Calculate Disc on Gross (Including Tax) = N

Calculate	System Calculation
Tax Amount	= $90.08
Purchase Order/Sales Order Amount	= $909.92
Taxable Amount	= $900.82
Discount	= $9.10

11.4.4 Journal Entries

Tax = Taxable Amount x Tax Rate. Discounts do not apply.

11.5 Guidelines

To set up rules for the A/R, A/P, Sales Order Management, Procurement Management, and General Accounting systems, you need to use this screen three times. Use it once to specify A/R and sales order rules. Use it a second time to specify A/P and purchase order rules. Use it a third time to specify general ledger rules for journal entries.

You enter either a tolerance percentage or a tolerance amount.

The system attempts to use the tax rules corresponding to the company number for your entry transactions. If there are no tax rules set up for the company, the system will use the rules for company 00000. If there are no tax rules set up for company 00000, the system uses the following defaults:

Calculate Tax on Gross field = Y

Calculate Discount on Gross field = N

For companies that use only sales or use taxes (such as companies in the United States), only three fields on the screen are valid: Calculate Tax on Gross, Calculate Discount on Gross, and Calculate Sales Order Taxes on Summary. For companies in countries that assess VAT and GST, all fields on the Tax Rules by Company screen are valid.

Two fields (Allow Understatement of Tax Amount field and Calculate Sales Order Taxes on Summary) appear only when you inquire on a company that has 1 in the System field. The Allow Understatement of Tax Amount field is a tax rule for A/R invoices and Calculate Sales Order Taxes on Summary is a tax rule for sales orders.