Designing rate components is an iterative process. Over time, you will develop intuitive skills that will allow you to avoid some iterations. However, when you're starting out, we recommend you follow these steps to design your rate components:
Obtain copies of existing bills that use the rate in question. If the rate is new, then write up EXACTLY how the information should appear on the taxpayers' printed bills. If the rate has optional charges (e.g., city taxes that are added if applicable or senior citizen discounts), make sure your examples encompass every possible scenario.
Next, look at the bill lines and ask yourself what are the variables that cause each line's charges to be calculated the way they are. Consider the following examples:
"County Tax at 1.0% of $70,160: $701.60". This charge is based on the tax rate and the base amount for the calculation. The variables involved are the tax rate, the base amount and the resulting tax amount.
"Homestead Exemption: $150.24 (prorated for 100 of 183 days)". This line may appear on the bill if the taxpayer qualifies for this particular type of exemption. The variables involved are the exemption type, amount and proration (if applicable).
"Minimum monthly charge of $100.00". This is a charge that only appears if the total of the prior lines is less than $100.00. The variables involved in this line are a little complicated because they must be calculated at billing time by adding up several other lines and comparing them to the minimum charge amount. This means the variables are the total of prior lines and the minimum charge amount.
"1.25% County Surcharge". This charge is similar to the minimum charge in that it is calculated by adding up one or more prior lines and applying a percentage to the sum. This means the variables are the total of prior lines plus the tax percentage.
After you've determined all of the potential bill lines you can start designing your rate components. Typically you create one rate component for every line that can appear on the taxpayer's bill. When you create a rate component, you will categorize it as one of the following types:
Flat Charge |
This type of rate component is used to create bill lines that levy fixed charges and fees that aren't based on the taxpayer's income, asset value or other assessable amounts. The monthly charge shown above would be levied using this type of rate component. |
Rate Quantity |
This type of rate component is used to create bill lines that levy charges based on some type of input quantity. |
Apply To |
This type of rate component is used to create bill lines that levy charges based on the amount calculated on other bill lines. |
Summary |
This type of rate component is used to create a "subtotal" on the bill. It exists purely for aesthetic purposes. |
Minimum Charge |
This type of rate component is used to create bill lines that levy charges only when the sum of previously calculated lines is less than the minimum charge amount. The minimum monthly charge shown above would be levied using this type of rate component. Note that if the values being compared are negative values, the comparison is NOT done on the absolute values, but rather on the actual values. For example, imagine you have a minimum discount of $ -2.00 and previous rate components have calculated a discount of $ -1.00. You want a rate component to create a bill line for $ -1.00 to apply a further discount. A minimum charge rate component will not work in this case because -1 is considered more than -2. For this business scenario you should use a maximum charge rate component. |
Maximum Charge |
This type of rate component is used to create bill lines that levy charges only when the sum of previously calculated lines is more than the maximum charge amount. Note that if the values being compared are negative values, the comparison is NOT done on the absolute values, but rather on the actual values. For example, imagine you have a maximum discount of $ -2.00 and previous rate components have calculated a discount of $ -3.00. You want a rate component to create a bill line for $1.00 to reduce the discount. A maximum charge rate component will not work in this case because -3 is considered less than -2. For this business scenario you should use a minimum charge rate component. |
Exact Charge |
This type of rate component is used to force a bill to add up to a given amount (regardless of how much the bill would be based on earlier rate components). |
Calculation Algorithm |
This type of rate component enables you to produce bill calculation lines based on logic in an algorithm that you supply. Use this rate component when none of the other rate component functions will provide you with the logic you require. |
For each rate component, determine if the taxpayer must meet some form of eligibility criteria before the rate component is applied. For example, you may have a rate component that is calculated if a taxpayer is a senior citizen. This rate component may have eligibility criteria that requires the person to have a given characteristic value before the rate component is applied. Refer to The Big Picture of Rate Component Eligibility for more information.
For each type of rate component (except summary), determine how you'll define its unit rate / percent / flat amount. You have four choices:
Specify the value directly in the rate component.
Tell the rate component to use the value defined in a rate factor.
Tell the rate component to use the value calculated by a " for calculation purposes only" rate component.
Tell the rate component to call an algorithm. The algorithm will return the value.
The following tables provide guidance in respect of which of the methods to use:
Specify value in the rate component |
You'd specify the value in the rate component when the value in the rate is specific to that rate and is applied to all taxpayers regardless. For example, if you see a provision in the rate to add a trash fee of $45, you'd specify 45.00 directly in the rate. |
Use a rate factor to define the value |
The following paragraphs describe when you'd use a rate factor to define a unit rate / percent / flat amount. The same charge exists in many rates. The amount being charged varies depending on where the taxpayer lives. If you have a rate where the charge differs depending on where the taxpayer lives, you should use a rate factor to levy this type of charge. A charge (or discount) is only levied for a subset of taxpayers for defined periods of time. The charge differs per taxpayer. |
Use a "for calculation purposes only" rate component |
This is complicated to explain and is not used very often, but it is very powerful and handles some very complicated algorithms. It works like this - you calculate the charge / percent / flat charge on another rate component (marked as "for calculation purposes only" so it won't affect the bill amount), and then reference it on the "real" rate component. |
Call an algorithm |
This is complicated to explain and is not used very often, but it is very powerful and handles some very complicated examples. It works like this - you call an algorithm and it calculates the charge / percent / charge. We supply an example of one such algorithm in the base package. If your rates require additional algorithms, you will have to develop additional algorithms. Refer to How to set up rate quantity rate components under Rate Component - Main Information for more information about this type of algorithm. |
After you've categorized the bill lines into the various types and know how the price is defined, you determine how each line's charges are reflected in your general ledger. You will need to work with your accounting department as they will tell you the exact revenue, expense, and liability accounts that will be affected by the charges.
Finally, read the provisions of your rate (the legal wording) and make sure you haven't left out something. This may involve having to discuss confusing provisions with your legal department.
At this point, you're ready to start entering your rate components.
Copyright © 2007, 2016, Oracle and/or its affiliates. All rights reserved. Documentation build: 2.5.2016 10:21:45 [T1_1454696505000]