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About tax codes

A tax code enables special processing. For example, a tax code can either be passed to trigger a different rate, a no tax block, or an exemption.
Tax codes are often used to represent contingencies in the law. By passing certain tax codes, you can trigger a different tax result.
Example 1
For example, in New Mexico, receipts of any Indian nation, tribe, or pueblo from activities or transactions occurring on its sovereign territory may be exempted from the state gross receipts tax. In order for the exemption to apply, the seller must be able to present proof that the sale was made on Indian territory and to a member of the tribe. Determination assumes the appropriate documentation hasn't been obtained and thus, taxes the transaction. Often times, the system's set up to make conservative tax calls, logic being that we'd rather error on taxability as to avoid penalties and liabilities.
You can use a tax code for this alternative taxability/exemption. For this specific example, you can use the tax code, TRIBAL, at either the line or invoice level: <TAX_CODE>TRIBAL</TAX_CODE>, and the transaction will be exempt from the state and other non-tribal taxes.
Example 2
Another common example of a supported tax code is CERT HOLDER. This tax code's used to represent transactions involving exemption certificates. Sales tax exemption certificates enables a purchaser to make tax-free purchases that would normally be subject to sales tax. Because the purchaser must complete these certificates and provide them to sellers, the system assumes the transaction doesn't involve an exemption certificate.
For example, machinery and equipment (23.110), with a useful life of 1 year or more, used directly and predominantly in the Research and Development process to develop a new product or improve an existing product's often made exempt by state statute via the use of an exemption certification. Under state law, if an exemption certificate's required to claim the exemption, the system doesn't assume one's been obtained. If an exemption certificate's been obtained and affects the tax outcome, a tax code of CERT HOLDER can be included in the input XML to trigger alternate treatment: <TAX_CODE>CERT HOLDER</TAX_CODE>.

This article applies to:

  • PRODUCT: ONESOURCE Determination, ONESOURCE Indirect Tax