Authority tax rules
After Determination determines which authorities have an interest in taxing a transaction, it identifies the product being taxed and, using the authority's tax rules, maps it to a specific rate or tax treatment.
Use a tax rule
Using a tax rule, you can link products to tax rates/fees and calculation methods, and take into account exemptions, special tax situations, withholding rates, and unusual calculation processing and invoice descriptions.
For example, you may need to create a custom rule to apply to a tax holiday that's not supported by Determination. As transactions get processed, rules get evaluated according to their order in the rules lists for the associated authority.
Rules get searched in this order:
- Custom rules:Rules you create specific to your implementation get evaluated first. You can configure these rules in theRulespage.
- Cascading custom rules:Shared by a number of authorities of the same tax type are evaluated next, such as county sales and use tax authorities in Washington. You can configure these rules in theRulespage.
- ONESOURCE Determination rules:Evaluated next. These rules can't be changed.
important
Rules get evaluated until a matching rule's found; the first matching rule's applied to the transaction.
Match a rule
At a minimum, a transaction's determination date must fall within the start and end date range to match a given rule. An individual rule order can be used for different rules with date ranges that don't overlap. For example, rule order 1 can be used for two rules: one with start and end dates of 1/1/2020-12/31/2022 and another with a start date of 1/1/2023.
Next, transactions must satisfy configured rule qualifiers before additional matching occurs. If any rule qualifiers don't match, the rule won't be applied. If all rule qualifiers match, additional matching happens.
- If the rule specifies a product category, the transaction must contain a value (product code or commodity code) to match the rule: either an exact match, or a match to a category higher in the product hierarchy. For example, a transaction passing a product category of BREAD would match a rule specifying the product category FOODSTUFFS if the product exceptions list contained the entry Goods:FOODSTUFFS:BREAD.
- The rule with the lowest process order that matches all of the criteria previously stated gets applied.
- You should configure a catch-all rule that specifies blank product category, tax type, tax code, unit of measure, and exempt reason fields. In this case, any transaction that specifies these items but doesn't match any other rule will be taxed at the rate specified by this rule.noteBecause this rule will match all transactions, where you place it in the list is important. If you place it at the end of the list, it will be applied to all transactions that do not match higher-ordered rules. If you place it higher in the list, rules following this catch-all rule will never be applied.
- If the transaction doesn't satisfy any rules, an error message gets generated.
- If the rule contains a tax type, tax code, unit of measure, and/or exempt reason, transaction values must explicitly match the rule. If it doesn't, the rule isn't applied.noteIf your company's configured to use the IC and VG transaction types, those calculation results will still match with NL rules. IR and ER tax results will still match with RC rules. This is to preserve backwards compatibility with previously created custom rules and ONESOURCE Determination Content. If you use the tax types (ER, IR, IC, or VG) on custom rules, you must consider the order of those rules to receive the desired results.
Exempt reason sources
The exempt reason used to match rules can come from either of these sources:
- It can be passed in explicitly with the transaction using the <EXEMPT_REASON> XML input element.
- If can be obtained from an exemption certificate that was used in the calculation. This capability's possible because exemption certificates get selected and applied before rule selection in the tax calculation process.
Rule calculation criteria
Each rule specifies a variety of calculation criteria. At a minimum, rules must specify 1 of the following:
- A rate code from the associated authority'sRates and Feespage.
- A no tax indication. If this rule's processed, no tax block gets returned for this rule and a system message will be returned.
- An exempt indication. If this rule's processed, the entire tax will be exempted and returned as an exempt amount.
If a rate code's specified, you must also specify 1 of 14 internal calculation methods. Calculation methods enable everything from basic tax on gross amount and fee on quantity calculations to advanced methods for tax on tax, inclusive amount, and Brazilian calculations.
Optional rule criteria parameters are:
- No Tax:Indicates that no tax is charged for this rule.
- Exempt:Indicates full exemption.
- Related Charge:Specifies the product referenced by the rule inherits its product taxability from a parent product.
- Allocated Charge:When selected, the taxable basis of a line item's adjusted according to the taxability of the non-allocated items in the invoice.
- Basis Percent fields:Specifies the tax calculation will apply the mapped rate to the specified basis percentage(s) of the gross amount. For example, if the basis percent is 75 with a gross amount of $100.00 and rate of 5.00%, $75.00 (100 x .75) will be taxed at 5% for a tax amount of $3.75.
- Input Recovery Amount or Percent:Specifies the portion of VAT that's subject to recovery when this rule's applied, expressed by an amount or percentage. The default is full recovery.
- Tax Treatment:Specifies this tax calculation's subject to deferred or withholding tax.
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Cascading rules overview
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