Apply Tax Before You Calculate a Discount

Apply tax before you calculate a discount on the item.

Some discounts are taxable while others aren't, depending on the tax authority where you apply the tax. Either way, you can set up tax to meet your tax requirements.

Summary of the Setup

1. Create taxable basis formula.

2. Create a tax determining factor set.

3. Create the condition set.

4. Create the tax rule.

5. Test your set up.

Create Taxable Basis Formula

1. Create a discount list in the Pricing Administration work area, assign it to your item, then add it to a pricing strategy.

   For details, see Manage Discount Lists.

2. Do the tax set up. For details, see Apply Tax According to Customer Site.

   You will reuse a number of objects from that topic, such as US_TAX_REGIME, the 5% tax rate, and the STATE1 tax.

3. Go to the Setup and Maintenance work area, then go to the task.

   • Offering: Financials

   • Functional Area: Transaction Tax

   • Task: Manage Tax Formulas

4. On the Manage Taxable Basis Formulas page, click Create.

5. On the Create Taxable Basis Formula page, set the values, and then click Save and Close > Done.

   Attribute	Value
   Configuration Owner	Global Configuration Owner
   Tax Formula Code	Tax Before Discount
   Tax Formula Name	Tax Before Discount
   Taxable Basis Type	Assessable Value
   Tax Regime Code	US_TAX_REGIME
   Tax	STATE1

Create a Tax Determining Factor Set

1. On the Setup page, go to the task.

   • Offering: Financials

   • Functional Area: Transaction Tax

   • Task: Manage Tax Determining Factor Sets

2. On the Manage Tax Determining Factor Sets page, click Create.

3. On the Create Tax Determining Factor Set page, set the values.

   Attribute	Value
   Tax Determining Factor Set Code	TAX_BEFORE_DISCOUNT
   Tax Determining Factor Set Name	TAX_BEFORE_DISCOUNT
   Set Usage	Tax Rules
   Tax Regime Code	US_TAX_REGIME

4. In the Associate Tax Determining Factors area, set the values, then click Save and Close > Done.

   Attribute	Value
   Determining Factor Class	Transaction Generic Classification This value specifies that you will use the input from a transaction to set the tax rate. A sales order is a type of transaction.
   Determining Factor Name	Transaction Business Category

Create the Condition Set

1. On the Setup page, go to the task.

   • Offering: Financials

   • Functional Area: Transaction Tax

   • Task: Manage Tax Condition Sets

2. On the Manage Tax Condition Sets page, click Create.

3. On the Create Tax Condition Sets page, set the values.

   Attribute	Value
   Tax Condition Set Code	DISCOUNT CONDITION SET
   Tax Condition Set Name	DISCOUNT CONDITION SET
   Tax Determining Factor Set Code	TAX_BEFORE_DISCOUNT

4. In the Tax Condition Set Details area, set the values, then click Save and Close > Done.

   Attribute	Value
   Tax Determining Factor Class	Transaction generic classification
   Tax Determining Factor Name	Transaction Business Category
   Operator	Equal To
   Value or Start From Range	SALES_TRANSACTION

Create the Tax Rule

1. On the Setup page, go to the task.

   • Offering: Financials

   • Functional Area: Transaction Tax

   • Task: Manage Tax Rules

2. On the Manage Tax Rules page, click Actions > Create.

3. On the Create Determine Tax Applicability Rule page, set the values.

   Attribute	Value
   Configuration Owner	Global Configuration Owner
   Tax Regime Code	US_TAX_REGIME
   Tax	STATE1
   Rule Code	TAX_BEFORE_DISCOUNT
   Rule Name	TAX_BEFORE_DISCOUNT

4. In the Tax Determining Factor Set area, in the Code attribute, set the value, then click Next.

   Attribute	Value
   Code	TAX_BEFORE_DISCOUNT

5. On the Create Determine Tax Applicability Rule page, in the Tax Condition Set area, set the values, then click Save and Next.

   Attribute	Value
   Tax Condition Set Code	DISCOUNT CONDITION SET
   New Condition Set Order	1
   Result	Applicable
   Enabled	Contains a check mark.

6. On the Edit Determine Tax Applicability Rule page, in the Rule Status and Order area, add a check mark to the Enabled attribute, then click Submit > Done.

Test Your Set Up

1. Go to the Order Management work area and create a sales order.

   Attribute	Value
   Customer	Computer Service and Rentals
   Business Unit	Vision Operations

2. Add an order line.

   Attribute	Value
   Item	AS54888
   Quantity	1
   Amount	2,500

3. Click Actions > Reprice Order.

4. Click the total at the top of the sales order, then verify that Order Management applies the tax rate according to the total list price, not the net price.

   Attribute	Value
   Total List Price	2,500.00
   Discount	250.00
   Total Net Price	2,250.00
   Shipping	0.00
   Total Tax	125.00 125 is 5% of 2500.
   Total Credit	0.00
   Pay Now	2375.00