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Custom authorities associated with bottom-up / terminate zones

To calculate tax, the system examines transaction zones (addresses) and looks for tax authorities attached to zones.
Determination uses 2 methods to process zones in its search for tax authorities:
  • Top-down
  • Bottom-up
The system usually processes zones from the top to the bottom, looking for matching zones starting from the highest level to the lowest. In this method, Determination examines all zones and their associated authorities. For example, with transactions based in the U.S., it follows this pattern, starting at the state level and proceeds all the way to the city level:
  1. State
  2. County
  3. District
  4. City
However, there are certain zones that change this process by telling Determination to do the following:
  • Reverse the typical top-down search order.
  • Stop the zone/authority search at that particular zone.
Using the same example from a U.S. transaction, when the system uses the bottom-up method, it first looks at the city level, and it stops searching when it finds a zone marked as a termination zone. Unlike the top-down method, Determination may stop the search before reaching the state level if it finds a termination zone. For example, if the county's marked as a bottom-up/terminates processing zone, Determination does not proceed beyond the county:
  1. City
  2. District
  3. County
In this bottom-up example, the system stops its search at the county because all the relevant tax authorities are included at the level of that termination zone and the tax content has identified the specified zone to terminate. By terminating processing, Determination ensures that there's no double taxation.
Determination applies bottom-up/terminates processing differently depending on the type of tax content that's invoked for the transaction:
  • Onesource content
  • Custom content
The following sections explain how bottom-up/terminates processing works with each type of content.

Thomson Reuters ONESOURCE Determination content

For bottom-up/terminates processing transactions using ONESOURCE content, Determination stops searching (terminates processing) for zones and authorities when a match is found. This is unlike top-down processing, where Determination examines all zones and their associated authorities.
An example with this type of processing's a transaction in the Canadian province of British Columbia. Determination begins its search for zones at the province level instead of at the country level because British Columbia's a bottom-up zone. Furthermore, Determination terminates its processing at British Columbia because the provincial tax (HST) already includes the federal tax.

Custom tax content

The default behavior for custom content's the same as the behavior for ONESOURCE content: bottom-up/terminates processing stops at the first zone match. This means that custom authorities above the level of the termination zone could get overlooked in bottom-up/terminates processing transactions. For example, if you create a custom authority and associate it with the country zone level for Canada, it may not be included in bottom-up/terminates processing if the initial match is on the provincial level:
  1. Province (British Columbia):
     Bottom-up processing starts here and doesn't continue to the country level (terminates processing).
  2. Country (Canada):
     If there's a country-level custom authority, it isn't included in the transaction under the default behavior.
To address this issue, you can use a combination of configurations that allows Determination to continue looking for custom tax authorities above the termination zone. This behavior's configurable only for custom content (custom authorities) — bottom-up processing for ONESOURCE content still terminates at the initial zone match on the zone where termination's set and goes no further.
There are 2 required parts to this configuration and each one answers a question about zones with bottom-up/terminates processing:
  1. Evaluation:
     Should Determination continue to evaluate (search for) zones and attached custom authorities above the termination zone?
  2. Inclusion:
     If Determination finds any custom authorities above the termination zone, should it include them for consideration in the calculation?
The following sections describe how to configure both the evaluation and inclusions settings in Determination.

This article applies to:

  • Product: ONESOURCE Determination, ONESOURCE Indirect Tax
  • Subject: Authorities

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