Tax Rate Setup

Consider the applicable tax statuses and optionally, tax jurisdictions when defining the tax rate setup to determine applicable tax rates on a transaction. It is important to note that the tax rate code should be unique for a combination of configuration owner and tax jurisdiction.

Tax Statuses

A tax status is the taxable nature of a product in the context of a transaction and a specific tax on the transaction. You define a tax status to group one or more tax rates that are of the same or similar nature. Each tax must have at least one status defined and one status assigned as a default. Create tax rules to set alternate values as required.

For example, one tax can have separate tax statuses for standard and manually entered tax rates.

Tax Jurisdictions

A tax jurisdiction is an incidence of a tax on a specific geographical area. A tax jurisdiction is limited by a geographical boundary that encloses a contiguous political or administrative area, most commonly the borders of a country. Often this is represented by a state, province, city, county, or even a tax zone. In Oracle Fusion Tax, a tax jurisdiction can use the geography setup from your Oracle Fusion Trading Community Model geography hierarchy to identify a tax rate. Taxes such as Canada's Harmonize Sales Tax (HST) and Provincial Sales Tax may require tax rates at the jurisdiction level.

For example, US Sales and Use Tax are applicable based upon the jurisdictions you generally define for state, county, and city geographies.

Tax Rates

You must set up at least one tax rate for each tax status. You can set up additional tax rates at the tax jurisdiction level if the applicable tax rate is unique for a particular tax jurisdiction.

For example, in Canada, HST is applied at a 13% rate in most provinces that have adopted HST. British Columbia and Nova Scotia are exceptions with tax rates of 12% and 15% respectively. To satisfy this requirement, define a single tax rate of 13% with no tax jurisdiction associated. Also define 12% and 15% tax rates and associate them with the British Columbia and Nova Scotia jurisdictions respectively. This minimizes setup by creating an exception-based setup and a default option for the most commonly utilized tax rate percentage.

Tax Rate Types

You can express tax rates in terms of percentage or quantity. A quantity-based tax rate is based upon the number of items purchased or events that occur. For example, a taxing jurisdiction passes a law that each package of cigarettes sold is subject to a tax of 0.87 USD. This tax is considered a quantity-based tax as it is assessed based upon the number of packages purchased and not the price of the product.

Tax Classification Code Set Assignments

When defining a tax rate, select the tax classification code set assignments of Order to cash, Procure to pay, and Expenses. These assignments determine if the tax rate code you define is applicable within a specific product and set assignment at transaction time. In addition, the set assignment of tax classification codes is derived based on the configuration owner that is part of the tax rate code definition.

When you create a tax rate code where the:

Configuration owner is the global configuration owner: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business units that have the subscription of the legal entity. The tax classification code is also assigned to the business units that don't have the subscription of the legal entity but subscribe to the global configuration owner data for this tax regime.
Configuration owner is the legal entity: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business units that use the subscription of legal entity. The tax classification code is also assigned to business units that subscribe to this specific legal entity as a first-party organization.
Configuration owner is the business unit: The tax classification code is assigned to all sets that have the determinant type of business unit and contain the determinant value of the business unit for which the content is created.

Note: The application doesn't assign the tax classification codes to the global set of COMMON for any of these scenarios.

You can use the tax classification codes created as determining factors when defining tax rules. When you use the regime determination method of standard tax classification code, the tax classification based direct rate rules can be defined with these codes as factors for direct rate determination. Maintain the tax classification codes using the associated lookup types of Party Tax Profile Input Tax Classification, Party Tax Profile Output Tax Classification, and Party Tax Profile Web Expense Tax Classifications.

Here's how you can create a tax classification code manually:

Go to Manage Tax Lookup Codes and search for the required Lookup Type.
- For Procure to pay: ZX_INPUT_CLASSIFICATIONS
- For Order to cash: ZX_OUTPUT_CLASSIFICATIONS
- For Withholding tax rates: ZX_WHT_TAX_CLASSIFICATION_CODE
Add Tax Rate in Lookup Type and save.

Note: The tax rate value should exactly match with the one defined while setting up Tax Classifications Codes.

Rate Periods

You can define one or more rate periods for a tax rate as long as the date ranges don't overlap. This allows for a change in tax rates over time without requiring a new tax rate code definition. You can define default effective periods for tax rate periods. This effectivity must be unique across tax regime, configuration owner, tax, and tax status. This allows flexibility if there is a requirement to define a new tax rate code and identify the new rate period as a default when existing rate periods exist on another tax rate code. Define tax rules as exceptions to default tax rates.

Tax Recovery

When the associated tax allows tax recovery you can define tax recovery or offset tax rates. Associate the offset tax or the default tax recovery rate and tax rule defined for tax recovery to the tax rate code. If the tax rule doesn't evaluate to true at transaction time then the default tax recovery rate is applicable. Ensure that the tax recovery rate and tax rate periods overlap or the application doesn't calculate tax recovery.

Tax Accounts

Define tax accounting for the tax rate code either as a default from the tax setup or an override of values at the tax rate level. Tax accounts are defined for the legal entity and optionally for the business unit. The accounts you define are tax expense accounts, tax revenue accounts, tax finance charge accounts, and accounts specific to tax recovery.