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VCTV

Tolerance settings and examples

Tolerance settings allow you to set a range for the tax amount and/or tax percentage based on the company's materiality guidelines. These settings determine whether VCTV processing continues or is bypassed for a transaction. When bypassed, the standard Determination tax calculation's used to process the transaction.
The tolerance range for a transaction's determined using the values configured in your tolerance settings for the tolerance amount and the tolerance percentage as well as the Determination Calculated Tax (DCT) amount. When the tolerance checks are run during VCTV processing, the narrowest tolerance range is compared to the vendor charged tax. The tolerance checks are ignored if the tolerance amount and tolerance percentage values are blank (not zero) in your tolerance settings.
For example, you enter a tolerance amount of $10 and a tolerance percentage of 10% in your tolerance settings. For a transaction, the DCT amount's $110.00. The tolerance amount range is $100.00 to $120.00 ($110.00 plus or minus $10.00) and the tolerance percentage range is $99.00 to $121.00 (10 percent of $110.00 is $11.00, and $110.00 plus or minus $11.00 is $99.00 to $121.00). If the VCT amount's between $100.00 and $120.00, the tolerance checks pass. If, however, the VCT amount is $99.00, the tolerance checks fail. When values for both the tolerance amount and tolerance percentage exist, both tolerance checks must pass for VCTV processing to continue. Additionally, when both configured values exist, the value with the narrowest range is compared to the vendor charged tax.
Tolerance range determination and calculation
A tolerance range is a minimum and maximum acceptable amount needed to pass one or both of the tolerance checks. The tolerance range is calculated based on the tolerance amount and tolerance percentage values configured in your VCTV settings. To calculate the tolerance amount range, Determination takes the absolute value of your configured tolerance amount then adds to and subtracts from the DCT amount.
To calculate the tolerance percentage range, the calculated amount is multiplied by the tolerance percentage value configured in your tolerance settings. The absolute value from the calculation's then used to add to and subtract from the value for the DCT amount. The formula's as follows:
Tolerance percentage range = (tolerance percentage value x calculated amount = <currency value> +/- calculated amount)
A passing range is the minimum and maximum amounts the vendor charged tax must be within to bypass VCTV processing. The narrowest tolerance range is compared to the vendor charged tax.During VCTV processing both the tolerance amount check and the tolerance percent check must pass if there are tolerance amount and tolerance percentage values configured in your tolerance settings. One or both tolerance checks can be ignored by leaving the tolerance amount and/or tolerance percentage values blank in your tolerance settings.
During VCTV processing, one or both tolerance checks fail if the VCT amount's outside of the passing range. When the tolerance checks fail, VCTV processing continues with further transaction evaluation.
Example 1 - Vendor charged tax within passing range
This example shows the VCT is within the passing range for both tolerance checks.
Example 1 details
Field
Description
DCT amount
$100
Vendor charged tax
$101
Variance
$1
Configured tolerance amount value
$2
Tolerance amount range
(100 +/- 2) $98 to $102
Configured tolerance percentage value
10%
Tolerance percentage range
(10% x 100 = $10) $90 to $110
Passing range
$98 to $102
The variance is $1.00 and the vendor charged tax difference is $1.00, which is within the variance.
The tolerance amount range ($98.00 to $102.00) is the narrowest range. Both tolerance checks pass because the VCT amount ($101.00) is within the passing range. The VCTV process is bypassed and the standard Determination tax calculation's used.
Example 2 - Vendor charged tax outside of passing range (undercharge)
This example shows the VCT is outside of the passing range. The vendor undercharged the tax.
Example 2 details
Field
Description
DCT amount
$1080
Vendor charged tax
$1065
Variance
$15
Configured tolerance amount value
$5
Tolerance amount range
$1075 to $1085
Configured tolerance percentage value
5% (+/- $54)
Tolerance percentage range
$1026 to $1034
Passing range
$1075 to $1085
The vendor charged tax is $15.00 less than the DCT amount. The tolerance percentage check passes but the tolerance amount check fails. This is because $5.00 is the maximum amount the percentage is allowed to be over or under the DCT amount. The VCT amount ($1,065.00) is outside of the passing range ($1,075.00 to $1,085.00).
Example 3 - Vendor charged tax outside of passing range (overcharge)
This example show the VCT is outside the passing range. The vendor overcharged the tax.
Example 3 details
Field
Description
DCT amount
$9.50
Vendor charged tax
$12
Variance
$2.50
Configured tolerance amount value
$2
Tolerance amount range
$7.50 to $11.50
Configured tolerance percentage value
10% (+/- 95 cents)
Tolerance percentage range
$8.55 to $10.45
Passing range
$8.55 to $10.45
Both tolerance checks fail. The vendor charged tax is more than the DCT amount by $2.50. The tolerance range amount has a $2.00 maximum variance. The tolerance percentage range is narrowest and allows for a .95 cent difference.
Example 4 - Variance below the tolerance percentage range
This example shows the tolerance percentage check fails because the variance is below the tolerance percentage range.
Example 4 details
Field
Description
DCT amount
$50
Vendor charged tax
$45
Variance
$5
Configured tolerance amount value
$5
Tolerance amount range
$45 to $55
Configured tolerance percentage value
3% (+/- $1.50)
Tolerance percentage range
$48.50 to $51.50
Passing range
$48.50 to $51.50
The tolerance amount range passes the tolerance check. The VCT amount's equal to the minimum amount value that could pass the tolerance amount check. The tolerance percentage value (3 percent) is $1.50, which means the minimum amount that could pass the tolerance percentage check is $48.50. The VCT amount's $45.00, which is less than the tolerance percentage range and the passing range. The tolerance percentage range fails the tolerance check.
Example 5 - Variance above the tolerance percentage range
This example shows the tolerance percentage check fails because the variance is above the tolerance percentage range.
Example 5 details
Field
Description
DCT amount
$450
Vendor charged tax
$500
Variance
$50
Configured tolerance amount value
$50
Tolerance amount range
$400 to $500
Configured tolerance percentage value
5% (+/- $22.50)
Tolerance percentage range
$427.50 to $472.50
Passing range
$427.50 to $472.50
The tolerance amount range passes the tolerance check. The VCT amount's equal to the maximum amount value that could pass the tolerance amount check. The percentage value (5 percent) is $22.50, and the maximum percentage value that could pass the tolerance percentage check is $472.50. The VCT amount is $500.00, which is more than the passing range. The tolerance percentage range fails the tolerance check.
Example 6 - Only tolerance percentage check run (blank tolerance amount)
This example shows that only 1 tolerance check (the tolerance percentage range) is run. The tolerance amount check is ignored because the configured tolerance amount value's blank (no zeros).
Example 6 details
Field
Description
DCT amount
$100
Vendor charged tax
$110
Variance
$10
Configured tolerance amount value
<blank>
Tolerance amount range
<ignored>
Configured tolerance percentage value
9.5% (+/- $9.50)
Tolerance percentage range
$90.50 to $109.50
Passing range
$90.50 to $109.50
The tolerance amount check is ignored because the configured tolerance amount value's blank (no zeros). The tolerance percentage range passes the tolerance check.
Example 7 - Tolerance checks ignored
This example shows tolerance checks are ignored because the configured tolerance amount and tolerance percentage values are blank (no zeros).
Example 7 details
Field
Description
DCT amount
$95
Vendor charged tax
$210
Variance
$115
Configured tolerance amount value
<blank>
Tolerance amount range
<ignored>
Configured tolerance percentage value
<blank>
Tolerance percentage range
<ignored>
Passing range
<ignored>
Both tolerance checks are ignored because the configured tolerance amount and tolerance percentage values are blank (no zeros).
Example 8 - Tolerance checks affected by start and end dates
This example shows how the tolerance checks are affected when a configured tolerance amount and tolerance percentage have start and end dates.
Example 8 details
Field
Description
DCT amount
$90
Vendor charged tax
$85
Variance
$5
Configured tolerance amount value
$5
Tolerance amount range
$85 to $95
Configured tolerance percentage value
20% (+/- $18)
Tolerance percentage range
$72 to $108
Passing range
$85 to $95
Configured start date
01/01/2023
Configured end date
05/15/2023
Date of transaction
06/01/2023
The values for the configured tolerance amount and tolerance percent are valid from January 1, 2023 to May 15, 2023. The configurations expire on May 16, 2023. The transaction date's June 1, 2023. Since the existing configurations expired and there are no additional configured tolerance amounts or tolerance percentages, Determination defaults to using blank (no zeros) for the tolerance checks. Consequently, both tolerance checks are ignored.

This article applies to:

  • Product: ONESOURCE Determination, ONESOURCE Indirect Tax