Tax Formulas
Tax formulas are used in the tax calculation process. They help determine the taxable basis of a transaction line and the calculation methodology that must be applied to obtain the tax amount.
When the parameters available on a transaction don't satisfy the rule conditions, the default tax formulas defined for the tax are applicable.
There are two types of tax formulas:
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Taxable basis tax formula
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Tax calculation tax formula
Taxable Basis Tax Formula
The taxable basis tax formula is used in the tax calculation process. They help determine the amount or quantity that should be considered as the taxable basis of a transaction line. The tax rate is applied on the taxable basis amount to derive the basic tax amount on a transaction line.
The taxable basis type, defined in the taxable basis formula, decides the characteristics of the taxable basis amount. The various taxable basis types are:
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Assessable value
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Line amount
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Prior tax
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Quantity
The following standard predefined taxable basis tax formulas are available:
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STANDARD_QUANTITY
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STANDARD_TB
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STANDARD_TB_DISCOUNT
Assessable Value
Use Assessable value when the transaction line amount doesn't reflect the correct taxable basis from the tax calculation perspective. The assessable value given on the transaction line is considered as the taxable basis amount to calculate tax.
Line Amount
Use Line amount when the transaction line amount is to be treated as the taxable basis to calculate tax.
The transaction line amount is considered as the taxable basis. This is done after
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Deducting the associated discounts, or after proportionately enhancing or reducing it by a certain percentage.
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Adding other applicable taxes available on the transaction line
These adjustments on the line amount are controlled through the following parameters that are defined on the tax formula:
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Subtract cash discount: The cash discount applicable on the transaction, derived through the attached payment terms, is deducted from the transaction line amount. This option is considered only for Receivable transactions.
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Base rate modifier: The transaction line amount is increased or decreased based on the percentage value given.
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Tax formula compounding: The tax details specified in the tax formula compounding region are added to the transaction line amount to determine the taxable basis amount. These tax details are also enforced by selecting the Enforce Compounding option. If a compounded tax is enforced but it's not calculated on the transaction, the tax associated with this tax formula also doesn't become applicable.
Prior Tax
Use Prior tax if the taxable basis is one or more than the other taxes calculated on the transaction line. The option to compound the prior taxes that are calculated on the transaction line are also available.
Quantity
Use Quantity if you want to calculate tax on transactions based on the number of units or items involved in the transaction.
Tax Calculation Tax Formula
The tax calculation tax formula is used to determine the calculation methodology that is applied to derive the basic tax amount on a transaction line. The tax amount on a transaction is generally calculated by multiplying the derived tax rate by the taxable basis. However, in some cases the tax amount is required to be altered by adding other taxes that are applicable on the same transaction line. Use a tax calculation formula defined with compounding criteria to address this requirement.
The tax details specified in the tax formula compounding region are added to the calculated tax that is associated with the tax formula. These compounded tax details can also be enforced when you select the Enforce Compounding option. When the compounded tax is enforced and when it is not calculated on the transaction, the tax to which this tax formula is associated with also does not become applicable.