Use the Tax tabbed region to define how Receivables calculates taxes.
You specify your tax method, the Location Flexfield Structure to use to determine your taxes for different customer locations, and whether to compound taxes for your customers. You can also choose to recognize tax exception rates for customers, customer sites, specific locations, and products, and whether exemptions that you define for specific products or customers should take precedence.

1. Open the Tax tabbed region, then enter your Tax Method. Choose either ’Sales Tax’ or ’Value Added Tax’. Receivables uses this tax method, along with the value you entered for the Calculate Tax field assigned to your transaction type, to determine whether to calculate tax for your transactions.

2. Enter your sales tax Location Flexfield Structure. You can use this to validate customer addresses as well as calculate sales tax based on your customer’s shipping address. Alternatively, you could perform address validation using flexible address formats

3. Enter the Postal Code Range that you want to be the default value when entering sales tax rate assignments in the Tax Locations and Rates window.

4. If you are not using a flexible address format for validation, enter the type of Address Validation to use. This option is only valid for addresses in your home country. Enter one of the following:

Error: Receivables displays an error message when you enter an invalid address format. If the location combination does not exist for the customer’s Ship–To address, Receivables displays an error message and prevents you from saving the record. In this case, you must manually add the location in the Tax Locations and Rates window before you can save the address.

Suggestion: If you choose Error, Receivables displays a list of values to help you select specific components when entering a
new address. For example, if you enter ’New’ in the City field and then press Tab or Return, Receivables displays all cities
prefixed with ’New’ such as New York, New Brunswick and New Bedford. (Receivables derives this information from
locations that you previously entered or imported.)

Warning: Receivables displays a warning message if a tax rate or location is not defined for this address. However, you can save the record. Receivables creates locations that were not defined but does not create the corresponding rates for these new locations.

No Validation: Receivables does not validate the address. This validation level lets you save an address without displaying an error or warning message, even if all of the locations do not exist. If these locations do not exist, then Receivables creates them for you but does not create the corresponding rates for these new locations.

5. To compound taxes in Receivables, check the Compound Taxes box.
Compound taxes are taxes that are based on other taxes. If you check this box, Receivables lets you assign precedence numbers to your tax lines when entering invoices.

6. Enter the Invoice Printing method to use. This is the method Receivables will use when printing tax amounts on your invoices. The value you enter here becomes the default for your customer profile classes. Choose one of the following methods:
European Tax Format: Print tax information in the following format: Tax rates printed as the last column of invoice lines, freight items printed last, and the taxable amount with the summarized tax codes printed at the end of the invoice.
Itemize By Line: Itemize tax information for each invoice line. Receivables displays this information after each invoice line.
Itemize and Summarize: Display both itemized and recap tax information.
Summarize by Tax Code: Display all tax information under the heading ’Tax Summary by Tax Code.’ If you have two tax lines with the same tax code, rate, exemption, and precedence number, Receivables will group them together.
Summarize By Tax Name: Display all tax information under the heading ’Tax Summary by Tax Name.’ If you have two tax lines with the same tax name, rate, exemption, and precedence number, Receivables will group them together.
Total Tax Only: Display only the total tax amount at the bottom of the document.
If you charge your customer’s tax and want to print a registration number on their invoices, enter a Tax Registration Number.

7. Enter the Tax Vendor Views to use to calculate tax, or select one from the list of values. Receivables provides a Tax Vendor Extension to integrate external tax calculation programs with Oracle Applications. If implemented, the Tax Extension returns a tax rate or amount from the vendor program whenever you manually enter, import, or copy transactions in Receivables. Enter Oracle if you are not implementing a tax vendor extension and want to calculate tax using the tax engine

8. Check the Inclusive Tax Used box if you use inclusive tax codes (optional). This option determines at what point Receivables updates the total line amount in the Lines window when you add, update, or delete a tax line. If this option is Yes, Receivable does not update the ’Lines’ total until you save your work; otherwise, Receivables enters a null value when you make the change, then updates the total when you save your work.

TAX Defaults & Rules

1. Define your Tax Code Defaults and hierarchy by checking the appropriate boxes and entering a sequence number for each. This hierarchy determines the order in which Receivables derives a default tax rate when you manually enter transactions or import them using AutoInvoice.
For example, if Tax From Customer Site is Yes and you specify that it is number 1 in the hierarchy, Receivable will first check if a tax rate is defined to the customer site for this transaction. If no tax rate exists at this site, Receivables looks at the next location in the sequence, and so on.
Customer Site: Use the tax rate defined at the customer address level.
Customer: Use the tax rate defined at the customer level.
Product: Use the tax rate defined at the item level.
Revenue Account: Use the tax code assigned to the natural account segment of your Revenue account.
System Options: Use the tax code that you entered in the System Options window.

2. If your Tax Method is VAT, enter a default Tax Code (optional).

3. Define your Exception Rates by checking the appropriate boxes:
Use Customer Exemptions: Check this box to include customer exemptions when calculating tax for your transactions. Use the Tax Exemptions window to exempt customers and items from specific tax. If you do not check this box, you cannot set the Default Tax and the Tax fields in the Transaction window to ’Exempt’.
Use Item Exemptions: Check this box to include item exemptions when calculating tax for your transactions. Use the Tax Exemptions window to exempt customers and items from specific tax.
Use Item Tax Rate Exceptions: Check this box to use the tax rate you defined for specific products based on the customer’s Ship–To address. Use the Item Tax Rate Exceptions window to enter tax rates for specific items based on Ship–To address.