Use the Tax Codes and Rates window to enter and maintain your tax codes and their associated tax rates. You can define as many tax codes of type VAT (Value Added Tax) or Sales Tax as you need. You can have only one enabled tax code of type Location for any given date range. This code cannot have a rate associated with it.

You can enter a tax code at the customer Ship-To and Bill-To business purpose level, as well as at the customer level. You can also assign tax codes to inventory items. If your tax method is VAT, you can include a tax code in the Tax Defaulting Hierarchy in the System Options window.

You can specify whether a tax code (with its tax rate):

• is enabled
• allows tax exemptions
  
• displays line amounts inclusive or exclusive of tax
• lets you modify the tax rate when entering transactions
• lets you change a tax code from tax inclusive to tax exclusive when entering transactions
• appears in the list of values in Receivables windows
• Displayed  or not

Tax codes that you define appear on your tax reports, in the Tax windows when you enter transactions, and in the Tax Groups window when you define your tax groups.

To define a tax code:
Navigate to the Tax Codes and Rates window. and Enter a unique name for this Tax Code.

1. Choose a Tax Type. If you are using location based tax, you can only enter one enabled tax code with
tax type of Location Based Tax for a given date range. Receivables displays subtotals by tax type in various tax reports. You can define additional tax types in the Receivables Lookups window.

2. Specify a Taxable Basis to control how Receivables calculates tax on transactions assigned to this tax code. Choose one of the following:

• After Discount: Calculate tax on the invoice line amount, after any early payment discount is taken.
• Before Discount: Calculate tax on the invoice line amount, before any early payment discount is taken.
• Quantity: Calculate tax based on the quantity ordered and unit of measure of the invoice line. If you choose this option, specify a Tax Amount.
• PL/SQL: Calculate tax using the PL/SQL formula that you specify.
• Prior Tax: Select this option if you use this tax code as part of a tax group (to calculate multiple taxes) and you want to calculate tax on only the tax for the previous tax line.

2.1 If the tax type is not 'Location Based Tax' and you specified a taxable Basis of either After Discount or Before Discount, enter a Tax Rate.

2.2 If the Taxable Basis is Quantity, enter a Tax Amount. For example, you enter a Tax Amount of 2 for this tax code. If you create an invoice line with a quantity of 7 and assign this tax code to it, Receivables calculates tax of $14 for this line.

2.3 Indicate whether this tax code is positive or negative by setting the Sign parameter to either 'Cr' or 'Dr', respectively. When you use a tax code with a sign of 'Dr' (negative), Receivables debits your tax account. When you use a tax code with a sign of 'Cr' (positive), Receivables credits your tax account.

2.4  If the Taxable Basis is PL/SQL, enter the name of a PL/SQL stored procedure in the Formula field. Receivables uses this stored procedure to calculate tax when you assign this tax code to a transaction.

3.1 Open the Effective region, and then enter a range of Effective Dates for this tax rate. The default start date is today's date, but you can change it. If you do not enter an end date, this tax rate will be valid indefinitely.

3.2. To disable this tax code, uncheck the Enabled box. You can have multiple disabled tax codes for the same date range.

4.1. Open the Control region, then choose a Tax Class. Choose Output to use this tax code with invoices, debit memos credit memos, adjustments, discounts, finance charges and miscellaneous cash receipts. Choose Input to use this tax code with miscellaneous cash payments (negative receipts). Input tax codes appear only in the list of values for the Liability Tax Code field in the Receivables Activities window; output tax codes appear in all Receivables transaction and set up windows.
Note: Receivables also displays subtotal amounts by tax class in various tax reports.

Note: To define tax codes for use in Oracle Payables, use the Payables Tax Codes window.

4.2. To allow tax exemptions for items using this tax code, check the Allow Exempt box.

4.3. To be able to change the tax rate for this tax code in the Transaction windows, check the Ad-hoc box. You can only check this box if the tax type is not 'Location Based Tax.' You can update this option after you save this tax code.

4.4. If you want this tax code to automatically display line amounts including tax, check the Inclusive Tax box.

4.5. If you do not want to be able to change this tax code from inclusive to exclusive (or vice versa) when entering invoices, uncheck the Allow Inclusive Override box.
Note: Location-based tax codes are always tax exclusive and you cannot change them to be tax inclusive.

4.6. To prevent this tax code from appearing in Receivables windows, uncheck the Displayed box. If this box is not checked, you cannot assign this tax code to individual transactions.
Suggestion: If you want to be able to use this tax code only within a tax group, uncheck this box.

5.  To update the Tax Account assigned to this tax code, open the More tabbed region. The default account is the Tax Account you defined in the System Options window. AutoAccounting uses this value if the AutoAccounting structure for your tax account is derived from the tax code.

5.2. Enter the Printed Tax Name as you want it to appear on printed transactions.

5.3. Enter a description for this tax code (optional). Receivables displays this information in country-specific reports as required.

5.4. Enter a VAT Transaction Type (optional). This field is used for Spanish and Belgian Tax reporting.

6. To define additional tax accounting for this tax code, choose the Tax Accounting button. See: Defining Tax Accounting for Tax Codes and Locations.