Overview of Tax Rates

The tax determination process identifies the tax rate when taxes are considered applicable on a transaction. Tax rates can apply to a specific location or jurisdiction.

For example, you define state, county, and city jurisdiction-based rates for a US Sales and Use Tax regime. Tax rates can change over time. For example, when a tax rate increase occurs, you end date one rate period definition and create a rate period with an effective start date.

There can be tax exceptions or exemptions to tax rates based on:

• Specific items

• Third parties

• General ledger accounts

• Other factors

You must set up tax rates for tax statuses and optionally for tax jurisdictions. For tax statuses, set up tax rate records for each applicable tax rate that a tax status identifies. For tax jurisdictions, set up tax rate records to identify the tax rate variations for a specified tax and tax status within different tax jurisdictions. Set up your tax rates in the Manage Tax Rates and Tax Recovery Rates task.

Tax Rate Determination Process

The tax rate determination process can be viewed as a two step process:

• Tax rate determination, which includes:

  • A default tax rate associated with the tax

  • An effective rate period

  • Jurisdiction-based rates

  • Tax rules; direct rate rules, tax rate rules, and account-based direct rate rules

  • Migrated tax classification codes and tax classification-based direct rate rules

• Tax rate modification, which includes:

  • Item or product fiscal classification exceptions using special rates, discounts, or surcharges

  • Third party and third-party site tax exemptions using special rates and full or partial exemptions