Tax Exemptions

A tax exemption is a full or partial exclusion from taxes or a surcharge, based on certain criteria given by the tax legislation. Many countries allow tax exemptions when certain parties deal with certain categories of goods and services.

For example, most states and localities imposing sales and use taxes in the United States provide tax exemptions to resellers on goods held for sale and ultimately sold. States and localities also provide tax exemptions on goods used directly in the production of other goods, such as raw materials.

Tax exemptions:

• Reflect a specific tax rate levy.

• Are taken as a percentage reduction or an increase to the generally applied tax rate.

• Can also be a specific tax rate in place of the generally applied tax rate on a Receivables transaction.

• Are registered against a customer or customer site for a business relationship with a legal entity or a business unit. Since tax exemptions are applicable to specific legal entities or business units, you don't use the global configuration owner option.

• Are used for specific products or available for all transactions for a legal entity or business unit.

Define tax exemptions for the combination of customer and customer site and items for a period of time. Use rate modifiers, such as discount or surcharge percentage or special rate percentage to map the preferential or special tax rate applicability.

The tax exemption status influences the applicability of the tax exemption on transactions. The possible values are: Primary, Manual, Rejected, Unapproved, and Discontinued. The tax exemptions with the status of Primary are applicable to all transactions. The tax determination process considers Manual or Unapproved statuses only when the certificate number and the exempt reason on the transaction match with the registered tax exemption values. The Discontinued or Rejected statuses aren't considered for tax exemption processing.

The tax handling option on a Receivable transaction also influences the tax exemption processing. If you use the tax handling option of:

Standard: The tax determination process considers only tax exemptions with a status of Primary

Exempt: The tax determination process considers all Primary, Manual, and Unapproved tax exemptions with reference to the certificate number and exempt reason given on the transaction.

Exempt- manual: The tax determination process creates a new tax exemption along with the given certificate number and exempt reason, with 100% discount and with a status of Unapproved if the matching condition doesn't result in filtering any existing tax exemptions.