Implementing US Sales Tax (Oracle Receivables Help)


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Implementing US Sales Tax

Receivables provides a comprehensive solution for US Sales Tax requirements, including the calculation of sales tax based on the state, county, city, and zip code components of your customers' addresses. You can override any tax rate through customer and product exemptions and compile periodic sales tax returns using the US Sales Tax Report. Additionally, you can integrate Receivables with external tax software vendors through the Tax Vendor Extension.

Suggestion: Not all businesses are required to collect and remit state sales and use taxes. You should seek the advice of a qualified tax professional to determine if your business has a legal requirement to collect these taxes.

The suggestions given in this essay provide a logical flow for implementing sales tax in Receivables. You should set up your sales tax when you set up the rest of your Receivables system. For a complete list and description of the steps required to set up Receivables, see: Setup Steps.

Suggestion: To help you plan and complete your tax-specific setup steps, use this essay with the Oracle Applications Implementation Wizard. You can use the Implementation Wizard as a resource center to read online help for a setup activity and open the appropriate setup window and to see a graphical overview of setup steps. You can also document your implementation by using the Wizard to record comments for each step for future reference and review. For more information, see: Implementation Wizard Documentation.

Attention: If you use the Oracle Applications Multiple Organization Support feature, you need to perform this implementation for each of your operating units. For more information, refer to the Multiple Organizations in Oracle Applications manual.

Definitions

Consumers Use Tax: Any company receiving goods within a state must either pay sales tax on receipt or self-accrue a Use tax, normally to the same value. The self-accrual scheme ensures that the state receives income independent of the vendor's registration.

Nexus: Refers to the minimum contact necessary to allow a taxing jurisdiction the authority to impose a registration, tax filing, and/or tax collection responsibility. Within a jurisdiction, nexus standards may vary from one type of tax to another. For example, the nexus standards for sales and use tax may be different from those for income tax.

The type of activity required to create nexus is defined by state or local statute, case law, and the due process and Commerce Clause of the US Constitution. Whether a business has established nexus in a taxing jurisdiction requires an assessment of all facts and circumstances of its activity within that jurisdiction. You should seek the advice of a qualified tax professional to determine if your business has established nexus (a registration and filing requirement) before you implement sales tax.

Situs: The situs of taxation describes which authority levies the tax. Usually this is the Ship-To state, county, and city. However, some caution should be exercised as the ship-to situs may not be controlling for local tax purposes (local taxes are commonly determined based on the ship-from, not ship-to, location). Any tax collected for a given authority must be reported back to that same authority.

US Sales and Use Tax: Sales and use tax are a matter of State and Local law, rules, regulations, and court cases. As such, the rules are not uniform. So, what may be exempt in State A may be taxable in State B. However, in general, sales tax is levied on the end consumer with businesses serving as the collection agent for the taxing authority. Various exemptions are available, including, but not limited to: resales, manufacturing, research and development, non-profit or exempt organizations, and governmental organizations.

The availability and type of exemption allowed varies by state. Many taxes may apply to a single transaction, including state, County, City, Transit, and Muni tax. Filing requirements vary by state and local jurisdiction. Also, the reporting of Sales and Use tax may be either on a accrual or cash basis. Filing period (e.g. annual, semiannual, quarterly, etc.) and method of accounting are generally determined by taxing jurisdiction rules and regulations.

Major Features

Following are some of the major tax features within Receivables.

Customer Address Validation

Receivables provides the State.County.City Sales Tax Location Flexfield for US Address Validation. If used, this structure will ensure that the State, County, and City fields are required on customer addresses within your home country. Given data from your US Tax Vendor, Customer Address entry can default the State, County and City fields automatically from the entry of the 5 digit ZIP code. If a given zip code is identified in multiple locations, Receivables will list only those applicable, allowing a quick and simple identification of the correct jurisdiction. See: Integrating Receivables Applications Tax Information Using Sales Tax Rate Interface.

Using the Receivables Customer Address windows, the list of values can complete city names and automatically populate State and County fields for simple, reliable US address entry. You can also implement country-specific validation of foreign customer addresses using the Flexible Address formats feature. See: Address Validation.

Customer Exemption Certificates

Awarded by the state, a Customer Exemption Certificate allows a customer to be fully or partially exempt from paying Sales Tax. Another type of exemption includes exemptions by statute, such as sales to the US Government. Typically, Customer Exemption Certificates are recorded for the bill-to Customers who are shipping to a specific state. Receivables uses effectivity dates and approval statuses to ensure your tax department has full visibility and control.

Receivables provides a Tax Handling field for each transaction line that you can use to record and control how exemption certificates are applied. Receivables lets you fully or partially exempt customers or items from US Sales Tax. Period end reporting includes summaries of tax exempt amounts categorized by exempt reason within each state. See: Item and Customer Exemptions.

Integration with Oracle Order Entry

During the Order process, applicable exemption certificates will be automatically applied to the order. These controls are also available in AutoInvoice and the Receivables Transaction workbench.

If the profile option Tax: Allow Override of Customer Exemptions is set to Yes, you can optionally override the default tax handling to require tax on a transaction that is normally exempt or to exempt a customer who normally would be charged tax. When AutoInvoice creates the transaction in Receivables, an exempt order will automatically create an unapproved exemption certificate, if one is not found.

If AutoInvoice creates unapproved exemptions, you can account for the sale prior to obtaining the paper certificate. Your Tax Department will then manage all unapproved exemptions. You can update the status of an exemption certificate from Unapproved to Primary in the Tax Exemptions window. A certificate that is marked as Primary will be automatically applied to all future transactions for this bill-to customer, when shipping to the state for which you created this exemption. See: Tax Exemptions.

Automatic US Sales Tax Calculations

Using data provided by your Tax Vendor, Receivables automatically calculates tax rates and amounts based on the transaction's ship-to address and creates any applicable Exemptions or Exceptions.

Reconciliation of Sales Tax Liability Accounts

Receivables AutoAccounting lets you record the sales tax liability for each state in a different accounting flexfield. Using the Receivables US Sales Tax Report, you can compile your US Tax Returns and reconcile the period-end figures to individual Sales Tax Liability Accounts. See: US Sales Tax Reconciliation.

US Sales Tax Reporting

The US Sales Tax report includes all transactions and Adjustments categorized by ship-to State, County, and City and lists taxable, exempt, and tax amounts. This report is used as the basis of the periodic sales tax returns. Using Reports Exchange, you can download this report into third party tax preparation packages for automated returns processing. For more information, see: US Sales Tax Report and the Reports Exchange User's Guide.

Integration with Tax Vendors

The Receivables tax engine calculates tax from the ship-to address only. This is sufficient for many of the states in the US. However, some individual states may have additional requirements for tax calculation. These states may require the Ship-From Address, Point of Title Passage, or the Point of Title Transfer to be taken into account when calculating a tax rate.

When implementing sites that require this type of additional calculation, you should consider using the Receivables Tax Vendor Extension to implement a third party Tax Vendor. Using Receivables with one of these vendors will produce more accurate tax rates. However, you must still compile your Sales Tax Returns from all of the transactions using the Receivables US Sales Tax Report. See: Implementing the Tax Vendor Extension.