Understanding Default Values for Taxes

When you enter transactions with taxes, you can enter the tax information on the transaction or set up default values that the system uses during the entry process. Default tax values include the tax rate area and tax explanation code, and can be set up in the customer or supplier record or in the business unit record (tax rate area only). Regardless of whether you establish default values, you can override the tax information when you enter the transaction.

This table shows where the system retrieves the default tax rate area and tax explanation code from for each type of transaction that you enter:

Transaction Entered	Tax Rate Area Used	Tax Explanation Code Used
Purchase order	Supplier record	Supplier record The system uses tax defaults that you set up in the supplier record when you enter purchase orders. When you enter purchase orders, you use processing options to specify whether to retrieve the tax rate/area from the ship-to or supplier address book number. The system always uses the tax explanation code from the supplier record.
Sales order	Customer record (Ship-to address)	Customer record (Sold-to address) The system uses tax defaults that you set up in the customer record when you enter a sales order. When you enter direct ship, transfer orders, or sales orders with different sold-to or ship-to addresses, the system retrieves the tax rate/area from the ship-to address and the tax explanation code from the sold-to address.
Voucher	Business unit; then supplier record	Supplier record When you enter a voucher, the system uses the tax rate/area associated with the business unit, if one exists. If a tax rate/area is not set up for the business unit, the system uses the tax rate/area from the supplier record. The system uses the tax explanation code from the supplier record regardless of whether it uses the tax rate/area from the business unit.
Invoice	Business unit; then customer record	Customer record When you enter an invoice, the system uses the tax rate/area associated with the business unit, if one exists. If a tax rate/area is not set up for the business unit, the system uses the tax rate/area from the customer record. The system uses the tax explanation code from the customer record regardless of whether it uses the tax rate/area from the business unit.
Journal entry	None	None The system does not use default tax information when you enter a journal entry with VAT.